Taxrev Cases

TAXATION LAW REVIEW
UNIVERSITY OF THE EAST COLLEGE OF LAW
G.R. No. 184145
December 11, 2013
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
DASH ENGINEERING PHILIPPINES, INC., Respondent.
Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of
Civil Procedure, assailing the July 17, 2008 Decision1 and the August 12, 2008 Resolution2 of the
Court of Tax Appeals(CTA) En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243)
entitled "Commissioner of Internal Revenue v. Dash Engineering Philippines, inc."
The Facts
Respondent Dash Engineering Philippines, Inc. (DEPJ) is a corporation duly registered with the
Securities and Exchange Commission, authorized to do business in the Philippines and listed with the
Philippine Economic Zone Authority as an ecozone IT export enterprise.3 It is also a VAT-registered
entity engaged in the export sales of computer-aided engineering and design.4
Respondent filed its monthly and quarterly value-added tax (VAT) returns for the period from
January 1, 2003 to June 30, 2003.5 On August 9, 2004, it filed a claim for tax credit or refund in the
amount of P 2,149,684.88 representing unutilized input VAT attributable to its zero-rated
sales.6 Because petitioner Commissioner of Internal Revenue (CIR) failed to act upon the said claim,
respondent was compelled to file a petition for review with the CTA on May 5, 2005.7
On October 4, 2007, the Second Division of the CTA rendered its Decision 8 partially granting
respondents claim for refund or issuance of a tax credit certificate in the reduced amount of P
1,147,683.78. On the matter of the timeliness of the filing of the judicial claim, the Tax Court found
that respondents claims for refund for the first and second quarters of 2003 were filed within the
two-year prescriptive period which is counted from the date of filing of the return and payment of
the tax due. Because DEPI filed its amended quarterly VAT returns for the first and second quarters of
2003 on July 24, 2004, it had until July 24, 2006 to file its judicial claim. As such, its filing of a petition
for review with the CTA on April 26, 20059 was within the prescriptive period.10 Petitioner moved for
reconsideration but the same was denied in a Resolution dated January 3, 2008.11
Aggrieved, petitioner elevated the case to the CTA En Banc, where it argued that respondent failed to
show that (1) its purchases of goods and services were made in the course of its trade and business,
(2) the said purchases were properly supported by VAT invoices and/or official receipts and other
documents, and (3) that the claimed input VAT payments were directly attributable to its zero-rated
sales. Petitioner also averred that the petition for review was filed out of time.12
The CTA En Banc in its Decision,13 dated July 17, 2008, upheld the decision of the CTA Second
Division, ruling that the judicial claim was filed on time because the use of the word "may" in Section
112(D) (now subparagraph C) of the National Internal Revenue Code ( NIRC) indicates that judicial
recourse within thirty (30) days after the lapse of the 120-day period is only directory and permissive
and not mandatory and jurisdictional, as long as the petition was filed within the two-year
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prescriptive period. The Tax Court further reiterated that the two-year prescriptive period applies to
both the administrative and judicial claims. Petitioners motion for reconsideration was denied in the
August 12, 2008 Resolution of the CTA.14
Hence, this petition.
The Issues
Petitioner raises the following grounds for the allowance of the petition:
I
The Court of Tax Appeals En Banc erred in holding that respondents judicial claim for refund was
filed within the prescriptive period provided under the Tax Code.
II
The Court of Tax Appeals En Banc erred in partially granting respondents claim for refund despite
the failure of the latter to substantiate its claim by sufficient documentary proof.15
The Courts Ruling
As to the first issue, petitioner argues that the judicial claim was filed out of time because respondent
failed to comply with the 30-day period referred to in Section 112(D) (now subparagraph C) of the
NIRC, citing the case ofCommissioner of Internal Revenue v. Aichi16 where the Court categorically
held that compliance with the prescribed periods in Section 112 is mandatory and jurisdictional.
Respondent filed its administrative claim for refund on August 9, 2004. The 120-day period within
which the CIR should act on the claim expired on December 7, 2004 without any action on the part
of petitioner. Thus, respondent only had 30 days from the lapse of the said period, or until January 6,
2005, to file a petition for review with the CTA. The petition, however, was filed only on May 5,
2005.17 Petitioner further posits that the 30-day period within which to file an appeal with the CTA is
jurisdictional and failure to comply therewith would bar the appeal and deprive the CTA of its
jurisdiction to entertain the same.18
Conversely, respondent DEPI asserts that its petition was seasonably filed before the CTA in keeping
with the two-year prescriptive period provided for in Sections 204(c) and 229 of the NIRC.19 DEPI
interprets Section 112, in relation to Section 229, to mean that the 120-day period is the time given
to the CIR to decide the case. The taxpayer, on the other hand, has the option of either appealing to
the CTA the denial by the CIR of the claim for refund within thirty (30) days from receipt of such
denial and within the two-year prescriptive period, or appealing an unacted claim to the CTA anytime
after the expiration of the 120-day period given to the CIR to resolve the administrative claim for as
long as the judicial claim is made within the two-year prescriptive period.20 Following respondents
reasoning, its filing of the judicial claim on April 26, 2005 was filed on time because it was made after
the lapse of the 120-day period and within the two-year period referred to in Section 229.
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The petition is meritorious.
Sec. 229 is inapplicable; two-year period in

Sec. 112 refers only to administrative claims
Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected taxes:
Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. The
Commissioner may
xxx
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for
use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall
be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund
within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed
showing an overpayment shall be considered as a written claim for credit or refund.
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but
such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment xxx. (Emphases supplied)
This Court has previously made a pronouncement as to the inapplicability of Section 229 of the NIRC
to claims for excess input VAT. In the recently decided case of Commissioner of Internal Revenue v.
San Roque Power Corporation,21 the Court made a lengthy disquisition on the nature of excess input
VAT, clarifying that "input VAT is not excessively collected as understood under Section 229 because
at the time the input VAT is collected the amount paid is correct and proper." 22 Hence, respondent
cannot advance its position by referring to Section 229 because Section 112 is the more specific and
appropriate provision of law for claims for excess input VAT.
Section 112(A) also provides for a two-year period for filing a claim for refund, to wit:
Sec. 112. Refunds or Tax Credits of Input Tax.
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(A) Zero-rated or Effectively Zero-rated Sales. Any VATregistered person, whose sales are zerorated or effectively zerorated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax
has not been applied against output tax
xxx
As explained in San Roque, however, the two-year prescriptive period referred to in Section 112(A)
applies only to the filing of administrative claims with the CIR and not to the filing of judicial claims
with the CTA. In other words, for as long as the administrative claim is filed with the CIR within the
two-year prescriptive period, the 30-day period given to the taxpayer to file a judicial claim with the
CTA need not fall in the same two-year period.
At any rate, respondents compliance with the two-year prescriptive period under Section 112(A) is
not an issue. What is being questioned in this case is DEPIs failure to observe the requisite 120+30day period as mandated by Section 112(C) of the NIRC.
120+30 day period under Sec. 112 is mandatory and jurisdictional

Section 112(D) (now subparagraph C) of the NIRC provides that:
Sec. 112. Refunds or Tax Credits of Input Tax
xxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of
the application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of
Tax Appeals. (emphasis supplied)
Petitioner is entirely correct in its assertion that compliance with the periods provided for in the
abovequoted provision is indeed mandatory and jurisdictional, as affirmed in this Courts ruling
in San Roque, where the CourtEn Banc settled the controversy surrounding the application of the
120+30-day period provided for in Section 112 of the NIRC and reiterated the Aichi doctrine that the
120+30-day period is mandatory and jurisdictional. Nonetheless, the Court took into account the
issuance by the Bureau of Internal Revenue (BIR) of BIR Ruling No. DA-489-03 which misled
taxpayers by explicity stating that taxpayers may file a petition for review with the CTA even before
the expiration of the 120-day period given to the CIR to decide the administrative claim for refund.
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Even though observance of the periods in Section 112 is compulsory and failure to do so will deprive
the CTA of jurisdiction to hear the case, such a strict application will be made from the effectivity of
the Tax Reform Act of 1997 on January 1, 1998 until the present, except for the period from
December 10, 2003 (the issuance of the erroneous BIR ruling) to October 6, 2010 (the promulgation
of Aichi), during which taxpayers need not wait for the lapse of the 120+30- day period before filing
their judicial claim for refund.
The case at bench, however, does not involve the issue of premature filing of the petition for review
with the CTA. Rather, this petition seeks the denial of DEPIs claim for refund for having been filed
late or after the expiration of the 30-day period from the denial by the CIR or failure of the CIR to
make a decision within 120 days from the submission of the documents in support of respondents
administrative claim.
In San Roque, one of the respondents similarly filed its petition for review with the CTA well after the
120+30-day period. In denying the taxpayers claim for refund, this Court explained that:
Unlike San Roque and Taganito, Philexs case is not one of premature filing but of late
filing.1wphi1 Philex did not file any petition with the CTA within the 120-day period. Philex did not
also file any petition with the CTA within 30 days after the expiration of the 120-day period. Philex
filed its judicial claim long after the expiration of the 120-day period, in fact 426 days after the lapse
of the 120-day period. In any event, whether governed by jurisprudence before, during or after
the Atlas case, Philexs judicial claim will have to be rejected because of late filing. Whether the twoyear prescriptive period is counted from the date of payment of the output VAT following
the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines, Philexs judicial claim was indisputably filed
late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philexs claim during the 120-day period is, by express provision of law, "deemed a
denial" of Philexs claim. Philex had 30 days from the expiration of the 120-day period to file its
judicial claim with the CTA. Philexs failure to do so rendered the "deemed a denial" decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a
denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The
exercise of such statutory privilege requires strict compliance with the conditions attached by the
statute for its exercise. Philex failed to comply with the statutory conditions and must thus bear the
consequences.23 (Emphases supplied)
Therefore, in accordance with San Roque, respondent's judicial claim for refund must be denied for
having been filed late. Although respondent filed its administrative claim with the BIR on August 9,
2004 before the expiration of the two-year period in Section l 12(A), it undoubtedly failed to comply
with the 120+ 30-day period in Section l l 2(D) (now subparagraph C) which requires that upon the
inaction of the CIR for 120 days after the submission of the documents in support of the claim, the
taxpayer has to file its judicial claim within 30 days after the lapse of the said period. The 120 days
granted to the CIR to decide the case ended on December 7, 2004. Thus, DEPI had 30 days
therefrom, or until January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI only
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sought judicial relief on May 5, 2005 when it belatedly filed its petition to the CT A, despite having
had ample time to file the same, almost four months after the period allowed by law. As a
consequence of DEPI's late filing, the CTA did not properly acquire jurisdiction over the claim.
The Court has held time and again that taxes are the lifeblood of the government and, consequently,
tax laws must be faithfully and strictly implemented as they are not intended to be liberally
construed.24 Hence, We are left with no other recourse but to deny respondent's judicial claim for
refund for non-compliance with the provisions of Section 112 of the NIRC.
WHEREFORE, the petition is GRANTED. The July 17, 2008 Decision and the August 12, 2008
Resolution of the CTA En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243) are
hereby REVERSED and SET ASIDE. Respondent DEPI's judicial claim for refund or tax credit through
its petition for review before the CTA is DENIED.
G.R. No. 169234
October 2, 2013
CAMP JOHN HAY DEVELOPMENT CORPORATION, Petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, REPRESENTED BY ITS CHAIRMAN HON. CESAR S.
GUTIERREZ, ADELINA A. TABANGIN, IN HER CAPACITY AS CHAIRMAN OF THE BOARD OF TAX
(ASSESSMENT) APPEALS OF BAGUIO CITY, AND HON. ESTRELLA B. TANO, IN HER CAPACITY AS THE
CITY ASSESSOR OF THE CITY OF BAGUIO, Respondents.
A claim for tax exemption, whether full or partial, does not deal with the authority of local assessor to
assess real property tax. Such claim questions the correctness of the assessment and compliance with
the Q applicable provisions of Republic Act (RA) No. 7160 or the Local Government Code (LGC) of
1991, particularly as to requirement of payment under protest, is mandatory.
Before the Court is a Petition for Review on Certiorari seeking tore verse and set aside the 27 July
2005 Decision1of the Court of Tax Appeals(CTA) En Banc in C.T.A. E.B. No. 48 which affirmed the
Resolutions dated 23 May 2003 and 8 September 2004 issued by the Central Board of Assessment
Appeals (CBAA) in CBAA Case No. L-37 remanding the case to the Local Board of Assessment
Appeals (LBAA) of Baguio City for further proceedings.
The facts
The factual antecedents of the case as found by the CTA En Banc areas follows:
In a letter dated 21 March 2002, respondent City Assessor of Baguio City notified petitioner Camp
John Hay Development Corporation about the issuance against it of thirty-six (36) Owners Copy of
Assessment of Real Property (ARP), with ARP Nos. 01-07040-008887 to 01-07040-008922covering
various buildings of petitioner and two (2) parcels of land owned by the Bases Conversion
Development Authority (BCDA) in the John Hay Special Economic Zone (JHSEZ), Baguio City, which
were leased out to petitioner.
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In response, petitioner questioned the assessments in a letter dated 3April 2002 for lack of legal
basis due to the City Assessors failure to identify the specific properties and its corresponding
assessed values. The City Assessor replied in a letter dated 11 April 2002 that the subject ARPs (with
an additional ARP on another building bringing the total number of ARPs to thirty-seven [37])
against the buildings of petitioner located within the JHSEZ were issued on the basis of the approved
building permits obtained from the City Engineers Office of Baguio City and pursuant to Sections
201 to 206 of RA No. 7160 or the LGC of 1991.
Consequently, on 23 May 2002, petitioner filed with the Board of Tax Assessment Appeals (BTAA) of
Baguio City an appeal under Section 2262 of the LGC of 1991 challenging the validity and propriety
of the issuances of the City Assessor. The appeal was docketed as Tax Appeal Case No. 2002-003.
Petitioner claimed that there was no legal basis for the issuance of the assessments because it was
allegedly exempted from paying taxes, national and local, including real property taxes, pursuant to
RA No. 7227, otherwise known as the Bases Conversion and Development Act of 1992.3
The Ruling of the BTAA
In a Resolution dated 12 July 2002,4 the BTAA cited Section 7,5 Rule V of the Rules of Procedure
Before the LBAA, and enjoined petitioner to first comply therewith, particularly as to the payment
under protest of the subject real property taxes before the hearing of its appeal. Subsequently, the
BTAA dismissed petitioners Motion for Reconsideration in the 20 September 2002 Resolution 6 for
lack of merit.
Aggrieved, petitioner elevated the case before the CBAA through a Memorandum on Appeal
docketed as CBAA Case No. L-37.
The Ruling of the CBAA
The CBAA denied petitioners appeal in a Resolution dated 23 May 2003,7 set aside the BTAAs order
of deferment of hearing, and remanded the case to the LBAA of Baguio City for further proceedings
subject to a full and up-to-date payment of the realty taxes on subject properties as assessed by the
respondent City Assessor of Baguio City, either in cash or in bond.
Citing various cases it previously decided,8 the CBAA explained that the deferment of hearings by the
LBAA was merely in compliance with the mandate of the law. The governing provision in this case is
Section 231, not Section 226, of RA No. 7160 which provides that "appeal on assessments of real
property made under the provisions of this Code shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the final outcome of the appeal." In
addition, as to the issue raised pertaining to the propriety of the subject assessments issued against
petitioner, allegedly claimed to be a tax-exemptentity, the CBAA expressed that it has yet to acquire
jurisdiction over it since the same has not been resolved by the LBAA.
On 8 September 2004, the CBAA denied petitioners Motion for Reconsideration for lack of merit.9
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Undaunted by the pronouncements in the abovementioned Resolutions, petitioner appealed to the

CTA En Banc by filing a Petition for Review under Section 11 of RA No. 1125, as amended by Section
9 of RA No. 9282, on 24 November 2004, docketed as C.T.A. EB No. 48, and raised the following
issues for its consideration: (1) whether or not respondent City Assessor of the City of Baguio has
legal basis to issue against petitioner the subject assessments with serial nos. 01-07040-008887 to
01-07040-008922for real property taxation of the buildings of the petitioner, a tax-exemptentity, or
land owned by the BCDA under lease to the petitioner; and (2)whether or not the CBAA, in its
Resolutions dated 23 May 2003 and 8September 2004, has legal basis to order the remand of the
case to the LBAA of Baguio City for further proceedings subject to a full and up-to- date payment, in
cash or bond, of the realty taxes on the subject properties as assessed by the City Assessor of the
City of Baguio.10
The Ruling of the CTA En Banc
In the assailed Decision dated 27 July 2005,11 the CTA En Banc found that petitioner has indeed failed
to comply with Section 252 of RA No. 7160or the LGC of 1991. Hence, it dismissed the petition and
affirmed the subject Resolutions of the CBAA which remanded the case to the LBAA for further
proceedings subject to compliance with said Section, in relation to Section 7, Rule V of the Rules of
Procedure before the LBAA.
Moreover, adopting the CBAAs position, the court a quo ruled that it could not resolve the issue on
whether petitioner is liable to pay real property tax or whether it is indeed a tax-exempt entity
considering that the LBAA has not decided the case on the merits. To do otherwise would not only
be procedurally wrong but legally wrong. It therefore concluded that before a protest may be
entertained, the tax should have been paid first without prejudice to subsequent adjustment
depending upon the final outcome of the appeal and that the tax or portion thereof paid under
protest, shall be held in trust by the treasurer concerned.
Consequently, this Petition for Review wherein petitioner on the ground of lack of legal basis seeks
to set aside the 27 July 2005 Decision, and to nullify the assessments of real property tax issued
against it by respondent City Assessor of Baguio City.12
The Issue
The Issue before the Court is whether or not respondent CTA En Banc erred in dismissing for lack of
merit the petition in C.T.A. EB No. 48, and accordingly affirmed the order of the CBAA to remand the
case to the LBAA of Baguio City for further proceedings subject to a full and up-to-date payment of
realty taxes, either in cash or in bond, on the subject properties assessed by the City Assessor of
Baguio City.
In support of the present petition, petitioner posits the following grounds: (a) Section 225 (should be
Section 252) of RA No. 7160 or the LGC of 1991 does not apply when the person assessed is a taxexemptentity; and (b) Under the doctrine of operative fact, petitioner is not liable for the payment of
the real property taxes subject of this petition.13
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Our Ruling
The Court finds the petition unmeritorious and therefore rules against petitioner.
Section 252 of RA No. 7160, also known as the LGC of 199114, categorically provides:
SEC. 252. Payment Under Protest. (a) No protest shall be entertained unless the taxpayer first pays
the tax. There shall be annotated on the tax receipts the words "paid under protest." The protest in
writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer
or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall
decide the protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest, shall beheld in trust by the treasurer
concerned.
(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or
portion of the tax protested shall be refunded to the protestant, or applied as tax credit
against his existing or future tax liability.
(d) In the event that the protest is denied or upon the lapse of the sixty-day period
prescribed in subparagraph (a), the tax payer may avail of the remedies as provided for in
Chapter 3, Title Two, Book II of this Code. (Emphasis and underlining supplied)
Relevant thereto, the remedies referred to under Chapter 3, Title Two, Book II of RA No. 7160 or the
LGC of 1991 are those provided for under Sections 226 to 231. Significant provisions pertaining to
the procedural and substantive aspects of appeal before the LBAA and CBAA, including its effect on
the payment of real property taxes, follow:
SEC. 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice
of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition
under oath in the form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal.
SEC. 229. Action by the Local Board of Assessment Appeals. (a)The Board shall decide the appeal
within one hundred twenty (120) days from the date of receipt of such appeal. The Board, after
hearing, shall render its decision based on substantial evidence or such relevant evidence on record
as a reasonable mind might accept as adequate to support the conclusion.
(b) In the exercise of its appellate jurisdiction, the Board shall have the powers to summon
witnesses, administer oaths, conduct ocular inspection, take depositions, and issue subpoena
and subpoena duces tecum. The proceedings of the Board shall be conducted solely for the
purpose of ascertaining the facts without necessarily adhering to technical rules applicable in
judicial proceedings.
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(c) The secretary of the Board shall furnish the owner of the property or the person having
legal interest therein and the provincial or city assessor with a copy of the decision of the
Board. In case the provincial or city assessor concurs in the revision or the assessment, it shall
be his duty to notify the owner of the property or the person having legal interest therein of
such fact using the form prescribed for the purpose. The owner of the property or the person
having legal interest therein or the assessor who is not satisfied with the decision of the
Board may, within thirty (30) days after receipt of the decision of said Board, appeal to the
Central Board of Assessment Appeals, as here in provided. The decision of the Central Board
shall be final and executory.
SEC. 231. Effect of Appeal on the Payment of Real Property Tax. Appeal on assessments of real
property made under the provisions of this Code shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the final outcome of the appeal.
(Emphasis supplied)
The above-quoted provisions of RA No. 7160 or the LGC of 1991,clearly sets forth the administrative
remedies available to a taxpayer or real property owner who does not agree with the assessment of
the real property tax sought to be collected.
The language of the law is clear. No interpretation is needed. The elementary rule in statutory
construction is that if a statute is clear, plain and free from ambiguity, it must be given its literal
meaning and applied without attempted interpretation. Verba legis non est recedendum. From the
words of a statute there should be no departure.15
To begin with, Section 252 emphatically directs that the taxpayer/real property owner questioning
the assessment should first pay the tax due before his protest can be entertained. As a matter of fact,
the words "paid under protest" shall be annotated on the tax receipts. Consequently, only after such
payment has been made by the taxpayer may he file a protest in writing (within thirty (30) days from
said payment of tax) to the provincial, city, or municipal treasurer, who shall decide the protest within
sixty (60)days from its receipt. In no case is the local treasurer obliged to entertain the protest unless
the tax due has been paid.
Secondly, within the period prescribed by law, any owner or person having legal interest in the
property not satisfied with the action of the provincial, city, or municipal assessor in the assessment
of his property may file an appeal with the LBAA of the province or city concerned, as provided in
Section 226 of RA No. 7160 or the LGC of 1991. Thereafter, within thirty (30) days from receipt, he
may elevate, by filing a notice of appeal, the adverse decision of the LBAA with the CBAA, which
exercises exclusive jurisdiction to hear and decide all appeals from the decisions, orders, and
resolutions of the Local Boards involving contested assessments of real properties, claims for tax
refund and/or tax credits, or overpayments of taxes.16
Significantly, in Dr. Olivares v. Mayor Marquez,17 this Court had the occasion to extensively discuss
the subject provisions of RA No. 7160 or the LGC of 1991, in relation to the impropriety of the direct
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recourse before the courts on issue of the correctness of assessment of real estate taxes. The
pertinent articulations follow:
x x x A perusal of the petition before the RTC plainly shows that what is actually being assailed is the
correctness of the assessments made by the local assessor of Paraaque on petitioners properties.
The allegations in the said petition purportedly questioning the assessors authority to assess and
collect the taxes were obviously made in order to justify the filing of the petition with the RTC. In
fact, there is nothing in the said petition that supports their claim regarding the assessors alleged
lack of authority. What petitioners raise are the following:
(1) some of the taxes being collected have already prescribed and may no longer be
collected as provided in Section 194 of the Local Government Code of 1991; (2) some
properties have been doubly taxed/assessed; (3) some properties being taxed are no longer
existent;
(4)some properties are exempt from taxation as they are being used exclusively for
educational purposes; and (5) some errors are made in the assessment and collection of
taxes due on petitioners properties, and that respondents committed grave abuse of
discretion in making the "improper, excessive and unlawful the collection of taxes against the
petitioners."
Moreover, these arguments essentially involve questions of fact. Hence, the petition should have
been brought, at the very first instance, to the LBAA.
Under the doctrine of primacy of administrative remedies, an error in the assessment must be
administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack
of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to
a later adjustment pending the outcome of the appeal.
Even assuming that the assessors authority is indeed an issue, it must be pointed out that in order
for the court a quo to resolve the petition, the issues of the correctness of the tax assessment and
collection must also necessarily be dealt with.
xxxx
In the present case, the authority of the assessor is not being questioned. Despite petitioners
protestations, the petition filed before the court a quo primarily involves the correctness of the
assessments, which are questions of fact, that are not allowed in a petition for certiorari, prohibition
and mandamus. The court a quo is therefore precluded from entertaining the petition, and it
appropriately dismissed the petition.18 (Emphasis and underlining supplied)
By analogy, the rationale of the mandatory compliance with the requirement of "payment under
protest" similarly provided under Section 64of the Real Property Tax Code (RPTC) 19 was earlier
emphasized in Meralcov. Barlis,20wherein the Court held:
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We find the petitioners arguments to be without merit. The trial court has no jurisdiction to entertain
a Petition for Prohibition absent petitioners payment under protest, of the tax assessed as required
by Sec.64 of the RPTC. Payment of the tax assessed under protest, is a condition sine qua non before
the trial court could assume jurisdiction over the petition and failure to do so, the RTC has no
jurisdiction to entertain it.
The restriction upon the power of courts to impeach tax assessment without a prior payment, under
protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation
and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state
or, in this case, the local government unit, shall be crippled in dispensing the needed services to the
people, and its machinery gravely disabled.
xxxx
There is no merit in petitioners argument that the trial court could take cognizance of the petition as
it only questions the validity of the issuance of the warrants of garnishment on its bank deposits and
not the tax assessment. Petitioner MERALCO in filing the Petition for Prohibition before the RTC was
in truth assailing the validity of the tax assessment and collection. To resolve the petition, it would
not only be the question of validity of the warrants of garnishments that would have to be tackled,
but in addition the issues of tax assessment and collection would necessarily have to be dealt with
too. As the warrants of garnishment were issued to collect back taxes from petitioner, the petition for
prohibition would be for no other reason than to forestall the collection of back taxes on the basis of
tax assessment arguments. This, petitioner cannot do without first resorting to the proper
administrative remedies, or as previously discussed, by paying under protest the tax assessed, to
allow the court to assume jurisdiction over the petition.
xxxx
It cannot be gainsaid that petitioner should have addressed its arguments to respondent at the first
opportunity - upon receipt of the3 September 1986 notices of assessment signed by Municipal
Treasurer Norberto A. San Mateo. Thereafter, it should have availed of the proper administrative
remedies in protesting an erroneous tax assessment, i.e., to question the correctness of the
assessments before the Local Board of Assessment Appeals (LBAA), and later, invoke the appellate
jurisdiction of the Central Board of Assessment Appeals(CBAA).
Under the doctrine of primacy of administrative remedies, an error in the assessment must be
administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack
of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to
a later adjustment pending the outcome of the appeal. The failure to appeal within the statutory
period shall render the assessment final and unappealable.
Petitioner having failed to exhaust the administrative remedies available to it, the assessment
attained finality and collection would be in order. (Emphasis and underscoring supplied)
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From the foregoing jurisprudential pronouncements, it is clear that the requirement of "payment
under protest" is a condition sine qua non before a protest or an appeal questioning the correctness
of an assessment of real property tax may be entertained.
Moreover, a claim for exemption from payment of real property taxes does not actually question the
assessors authority to assess and collect such taxes, but pertains to the reasonableness or
correctness of the assessment by the local assessor, a question of fact which should be resolved, at
the very first instance, by the LBAA. This may be inferred from Section 206 of RA No. 7160 or the LGC
of 1991which states that:
SEC. 206. Proof of Exemption of Real Property from Taxation. Every person by or for whom real
property is declared, who shall claim tax exemption for such property under this Title shall file with
the provincial, city or municipal assessor within thirty (30) days from the date of the declaration of
real property sufficient documentary evidence in support of such claim including corporate charters,
title of ownership, articles of incorporation, bylaws, contracts, affidavits, certifications and mortgage
deeds, and similar documents.
If the required evidence is not submitted within the period herein prescribed, the property shall be
listed as taxable in the assessment roll. However, if the property shall be proven to be tax exempt,
the same shall be dropped from the assessment roll. (Emphasis supplied)
In other words, by providing that real property not declared and proved as tax-exempt shall be
included in the assessment roll, the above-quoted provision implies that the local assessor has the
authority to assess the property for realty taxes, and any subsequent claim for exemption shall be
allowed only when sufficient proof has been adduced supporting the claim.21
Therefore, if the property being taxed has not been dropped from the assessment roll, taxes must be
paid under protest if the exemption from taxation is insisted upon.
In the case at bench, records reveal that when petitioner received the letter dated 21 March 2002
issued by respondent City Assessor, including copies of ARPs (with ARP Nos. 01-07040-008887 to
01-07040-008922) attached thereto, it filed its protest through a letter dated 3 April 2002seeking
clarification as to the legal basis of said assessments, without payment of the assessed real property
taxes. Afterwards, respondent City Assessor replied thereto in a letter dated 11 April 2002 which
explained the legal basis of the subject assessments and even included an additional ARP against
another real property of petitioner. Subsequently, petitioner then filed before the BTAA its appeal
questioning the validity and propriety of the subject ARPs.
Clearly from the foregoing factual backdrop, petitioner considered the11 April 2002 letter as the
"action" referred to in Section 226 which speaks of the local assessors act of denying the protest
filed pursuant to Section252. However, applying the above-cited jurisprudence in the present case, it
is evident that petitioners failure to comply with the mandatory requirement of payment under
protest in accordance with Section 252 of the LGC of 1991 was fatal to its appeal. Notwithstanding
such failure to comply therewith, the BTAA elected not to immediately dismiss the case but instead
took cognizance of petitioners appeal subject to the condition that payment of the real property tax
Page 13 of 455
TAXATION LAW REVIEW

should first be made before proceeding with the hearing of its appeal, as provided for under Section
7, Rule V of the Rules of Procedure Before the LBAA. Hence, the BTAA simply recognized the
importance of the requirement of "payment under protest" before an appeal may be entertained,
pursuant to Section 252, and in relation with Section231 of the same Code as to non-suspension of
collection of the realty tax pending appeal.
Notably, in its feeble attempt to justify non-compliance with the provision of Section 252, petitioner
contends that the requirement of paying the tax under protest is not applicable when the person
being assessed is a tax-exempt entity, and thus could not be deemed a "taxpayer" within the
meaning of the law. In support thereto, petitioner alleges that it is exempted from paying taxes,
including real property taxes, since it is entitled to the tax incentives and exemptions under the
provisions of RA No. 7227 and Presidential Proclamation No. 420, Series of 1994,22 as stated in and
confirmed by the lease agreement it entered into with the BCDA.23
This Court is not persuaded.
First, Section 206 of RA No. 7160 or the LGC of 1991, as quoted earlier, categorically provides that
every person by or for whom real property is declared, who shall claim exemption from payment of
real property taxes imposed against said property, shall file with the provincial, city or municipal
assessor sufficient documentary evidence in support of such claim. Clearly, the burden of proving
exemption from local taxation is upon whom the subject real property is declared; thus, said person
shall be considered by law as the taxpayer thereof. Failure to do so, said property shall be listed as
taxable in the assessment roll.
In the present case, records show that respondent City Assessor of Baguio City notified petitioner, in
the letters dated 21 March 200224 and 11April 2002,25 about the subject ARPs covering various
buildings owned by petitioner and parcels of land (leased out to petitioner) all located within the
JHSEZ, Baguio City. The subject letters expressed that the assessments were based on the approved
building permits obtained from the City Engineers Office of Baguio City and pursuant to Sections
201 to 206 of RA No. 7160 or the LGC of 1991 which pertains to whom the subject real properties
were declared.
Noticeably, these factual allegations were neither contested nor denied by petitioner. As a matter of
fact, it expressly admitted ownership of the various buildings subject of the assessment and
thereafter focused on the argument of its exemption under RA No. 7227. But petitioner did not
present any documentary evidence to establish that the subject properties being tax exempt have
already been dropped from the assessment roll, in accordance with Section 206. Consequently, the
City Assessor acted in accordance with her mandate and in the regular performance of her official
function when the subject ARPs were issued against petitioner herein, being the owner of the
buildings, and therefore considered as the person with the obligation to shoulder tax liability thereof,
if any, as contemplated by law.
It is an accepted principle in taxation that taxes are paid by the person obliged to declare the same
for taxation purposes. As discussed above, the duty to declare the true value of real property for
taxation purposes is imposed upon the owner, or administrator, or their duly authorized
Page 14 of 455
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representatives. They are thus considered the taxpayers. Hence, when these persons fail or refuse to
make a declaration of the true value of their real property within the prescribed period, the provincial
or city assessor shall declare the property in the name of the defaulting owner and assess the
property for taxation. In this wise, the taxpayer assumes the character of a defaulting owner, or
defaulting administrator, or defaulting authorized representative, liable to pay back taxes. For that
reason, since petitioner herein is the declared owner of the subject buildings being assessed for real
property tax, it is therefore presumed to be the person with the obligation to shoulder the burden of
paying the subject tax in the present case; and accordingly, in questioning the reasonableness or
correctness of the assessment of real property tax, petitioner is mandated by law to comply with the
requirement of payment under protest of the tax assessed, particularly Section 252 of RA No. 7160 or
the LGC of 1991.
Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception. The law does not look with favor on tax exemptions and the entity that would seek to be
thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.26 Thus applying the rule of strict construction of laws granting tax exemptions, and
the rule that doubts should be resolved in favor of provincial corporations, this Court holds that
petitioner is considered a taxable entity in this case.
Second, considering that petitioner is deemed a taxpayer within the meaning of law, the issue on
whether or not it is entitled to exemption from paying taxes, national and local, including real
property taxes, is a matter which would be better resolved, at the very instance, before the LBAA, for
the following grounds: (a) petitioners reliance on its entitlement for exemption under the provisions
of RA No. 7227 and Presidential Proclamation No. 420, was allegedly confirmed by Section
18,27 Article XVI of the Lease Agreement dated 19 October 1996 it entered with the BCDA. However,
it appears from the records that said Lease Agreement has yet to be presented nor formally offered
before any administrative or judicial body for scrutiny; (b) the subject provision of the Lease
Agreement declared a condition that in order to be allegedly exempted from the payment of taxes,
petitioner should have first paid and remitted 5% of the gross income earned by it within ninety (90)
days from the close of the calendar year through the JPDC. Unfortunately, petitioner has neither
established nor presented any evidence to show that it has indeed paid and remitted 5% of said
gross income tax; (c) the right to appeal is a privilege of statutory origin, meaning a right granted
only by the law, and not a constitutional right, natural or inherent. Therefore, it follows that petitioner
may avail of such opportunity only upon strict compliance with the procedures and rules prescribed
by the law itself, i.e. RA No. 7160 or the LGC of 1991; and (d) at any rate, petitioners position of
exemption is weakened by its own admission and recognition of this Courts previous ruling that the
tax incentives granted in RA No. 7227 are exclusive only to the Subic Special Economic and Free Port
Zone; and thus, the extension of the same to the JHSEZ (as provided in the second sentence of
Section 3 of Presidential Proclamation No. 420)28 finds no support therein and therefore declared
null and void and of no legal force and effect.29 Hence, petitioner needs more than mere arguments
and/or allegations contained in its pleadings to establish and prove its exemption, making prior
proceedings before the LBAA a necessity.
With the above-enumerated reasons, it is obvious that in order for a complete determination of
petitioners alleged exemption from payment of real property tax under RA No. 7160 or the LGC of
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1991, there are factual issues needed to be confirmed. Hence, being a question of fact, petitioner
cannot do without first resorting to the proper administrative remedies, or as previously discussed,
by paying under protest the tax assessed in compliance with Section 252 thereof.
Accordingly, the CBAA and the CTA En Banc correctly ruled that real property taxes should first be
paid before any protest thereon may be considered. It is without a doubt that such requirement of
"payment under protest" is a condition sine qua non before an appeal may be entertained. Thus,
remanding the case to the LBAA for further proceedings subject to a full and up-to-date payment,
either in cash or surety, of realty tax on the subject properties was proper.
To reiterate, the restriction upon the power of courts to impeach tax assessment without a prior
payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the
lifeblood of the nation and as such their collection cannot be curtailed by injunction or any like
action; otherwise, the state or, in this case, the local government unit, shall be crippled in dispensing
the needed services to the people, and its machinery gravely disabled.30 The right of local
government units to collect taxes due must always be upheld to avoid severe erosion. This
consideration is consistent with the State policy to guarantee the autonomy of local governments
and the objective of RA No. 7160 or the LGC of 1991 that they enjoy genuine and meaningful local
autonomy to empower them to achieve their fullest development as self-reliant communities and
make them effective partners in the attainment of national goals.31
All told, We go back to what was at the outset stated, that is, that a claim for tax exemption, whether
full or partial, does not question the authority of local assessor to assess real property tax, but merely
raises a question of the reasonableness or correctness of such assessment, which requires
compliance with Section 252 of the LGC of 1991. Such argument which may involve a question of
fact should be resolved at the first instance by the LBAA.
The CTA En Bane was correct in dismissing the petition in C.T.A. EB No. 48, and affirming the CBAA's
position that it cannot delve on the issue of petitioner's alleged non-taxability on the ground of
exemption since the LBAA has not decided the case on the merits. This is in compliance with the
procedural steps prescribed in the law.
WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Tax Appeals En
Bane in C.T.A. EB No. 48 is AFFIRMED. The case is remanded to the Local Board of Assessment
Appeals of Baguio City for further proceedings. No costs.
G.R. No. 197117
April 10, 2013
FIRST LEPANTO TAISHO INSURANCE CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
Before the Court is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure filed by First Lepanto Taisho Corporation, now FLT Prime Insurance Corporation
(petitioner), assailing the March l, 2011 Decision2 and the May 27, 2011 Resolution3 of the Court of
Page 16 of 455
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Tax Appeals (CTA) En Bane, in CTA E.B. No. 563, which affirmed the May 21, 2009 Decision of the
CTA-Second Division.
The Facts:
Petitioner is a non-lire insurance corporation and considered as a "Large Taxpayer under Revenue
Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 effective 1994."4 After
submitting its corporate income tax return for taxable year ending December 31, 1997, petitioner
received a Letter of Authority, dated October 30, 1998, from respondent Commissioner of Internal
Revenue (CIR) to allow it to examine their books of account and other accounting records for 1997
and other unverified prior years.
On December 29, 1999, CIR issued internal revenue tax assessments for deficiency income,
withholding, expanded withholding, final withholding, value-added, and documentary stamp taxes
for taxable year 1997.
On February 24, 2000, petitioner protested the said tax assessments.
During the pendency of the case, particularly on February 15, 2008, petitioner filed its Motion for
Partial Withdrawal of Petition for Review of Assessment Notice Nos. ST-INC-97-0220-99; ST-VAT-970222-99 and ST-DST-97-0217-00, in view of the tax amnesty program it had availed. The CTA Second
Division granted the said motion in a Resolution,5 dated March 31, 2008.
Consequently, on May 21, 2009, the CTA Second Division partially granted the petition.6 It directed
petitioner to pay CIR a reduced tax liability of P1,994,390.86. The dispositive portion reads:
WHEREFORE, in view of the foregoing considerations, the instant Petition for Review is hereby
PARTIALLY GRANTED. Accordingly, petitioner is hereby ORDERED TO PAY deficiency withholding tax
on compensation, expanded withholding tax and final tax in the reduced amount of P1,994,390.86,
computed as follows:
Basic
Surcharges
Interest
Total
P193,550.14
P312.227.34
P1,279,978.03
Tax
Deficiency
P774,200.55
Withholding
Tax on
Compensation
Page 17 of 455
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ST-WC-97-0221-99
Deficiency
132,724.02
33,181.01
53,526.27
219,431.30
299,391.84
74,847.96
120,741.73
494,981.53
P1,206,316.41
P301,579.11
P486,495.34
P1,994,390.86
Expanded
Withholding
Tax ST-EWT-97-021899
Deficiency
Final
Withholding
Tax ST-FT-97-0219-99
TOTALS
Petitioners Motion for Partial Reconsideration7 was likewise denied by the CTA Second Division in its
October 29, 2009 Resolution.8
Unsatisfied, petitioner filed a Petition for Review before the CTA En Banc.9
On March 1, 2011, the CTA En Banc affirmed the decision of the CTA Second Division.10
Petitioner contended that it was not liable to pay Withholding Tax on Compensation on
the P500,000.00 Directors Bonus to their directors, specifically, Rodolfo Bausa, Voltaire Gonzales,
Felipe Yap, and Catalino Macaraig, Jr., because they were not employees and the amount was already
subjected to Expanded Withholding Tax. The CTA En Banc, however, ruled that Section 5 of Revenue
Regulation No. 12-86 expressly identified a director to be an employee.
As to transportation, subsistence and lodging, and representation expenses, the expenses would not
be subject to withholding tax only if the same were reimbursement for actual expenses of the
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company. In the present case, the CTA En Banc declared that petitioner failed to prove that they were
so.
As to deficiency expanded withholding taxes on compensation, petitioner failed to substantiate that
the commissions earned totaling P905,428.36, came from reinsurance activities and should not be
subject to withholding tax. Petitioner likewise failed to prove its direct loss expense, occupancy cost
and service/contractors and purchases.
As to deficiency final withholding taxes, "petitioner failed to present proof of remittance to establish
that it had remitted the final tax on dividends paid as well as the payments for services rendered by
the Malaysian entity."11
As to the imposition of delinquency interest under Section 249 (c) (3) of the 1997 National Internal
Revenue Code (NIRC), records reveal that petitioner failed to pay the deficiency taxes within thirty
(30) days from receipt of the demand letter, thus, delinquency interest accrued from such nonpayment.
Petitioner moved for partial reconsideration, but the CTA En Banc denied the same in its May 27,
2011 Resolution.12
Hence, this petition.13
The principal issue in this case is whether the CTA En Banc erred in holding petitioner liable for:
a. deficiency withholding taxes on compensation on directors bonuses under Assessment No. STWC-97-0021-99;
b. deficiency expanded withholding taxes on transportation, subsistence and lodging, and
representation expense; commission expense; direct loss expense; occupancy cost; and
service/contractor and purchases under Assessment No. ST-EWT-97-0218-99;
c. deficiency final withholding taxes on payment of dividends and computerization expenses to
foreign entities under Assessment No. ST-FT-97-0219-99; and
d. delinquency interest under Section 249 (c) (3) of the NIRC.
The Court finds no merit in the petition.
For taxation purposes, a director is considered an employee under Section 5 of Revenue Regulation
No. 12-86,14to wit:
An individual, performing services for a corporation, whether as an officer and director or merely as a
director whose duties are confined to attendance at and participation in the meetings of the Board
of Directors, is an employee.
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The non-inclusion of the names of some of petitioners directors in the companys Alpha List does
not ipso facto create a presumption that they are not employees of the corporation, because the
imposition of withholding tax on compensation hinges upon the nature of work performed by such
individuals in the company. Moreover, contrary to petitioners attestations, Revenue Regulation No.
2-98,15 specifically, Section 2.57.2. A (9) thereof,16 cannot be applied to this case as the latter is a later
regulation while the accounting books examined were for taxable year 1997.
As to the deficiency withholding tax assessment on transportation, subsistence and lodging, and
representation expense, commission expense, direct loss expense, occupancy cost, service/contractor
and purchases, the Court finds no cogent reason to deviate from the findings of the CTA En Banc. As
correctly observed by the CTA Second Division and the CTA En Banc, petitioner was not able to
sufficiently establish that the transportation expenses reflected in their books were reimbursement
from actual transportation expenses incurred by its employees in connection with their duties as the
only document presented was a Schedule of Transportation
Expenses without pertinent supporting documents. Without said documents, such as but not limited
to, receipts, transportation-related vouchers and/or invoices, there is no way of ascertaining whether
the amounts reflected in the schedule of expenses were disbursed for transportation.
With regard to commission expense, no additional documentary evidence, like the reinsurance
agreements contracts, was presented to support petitioners allegation that the expenditure
originated from reinsurance activities that gave rise to reinsurance commissions, not subject to
withholding tax. As to occupancy costs, records reveal that petitioner failed to compute the correct
total occupancy cost that should be subjected to withholding tax, hence, petitioner is liable for the
deficiency.
As to service/contractors and purchases, petitioner contends that both parties already stipulated that
it correctly withheld the taxes due. Thus, petitioner is of the belief that it is no longer required to
present evidence to prove the correct payment of taxes withheld. As correctly ruled by the CTA
Second Division and En Bane, however, stipulations cannot defeat the right of the State to collect the
correct taxes due on an individual or juridical person because taxes are the lifeblood of our nation so
its collection should be actively pursued without unnecessary impediment.
As to the deficiency final withholding tax assessments for payments of dividends and
computerization expenses incurred by petitioner to foreign entities, particularly Matsui Marine & Fire
Insurance Co. Ltd. (Matsui),17 the Court agrees with CIR that petitioner failed to present evidence to
show the supposed remittance to Matsui.
The Court likewise holds the imposition of delinquency interest under Section 249 (c) (3) of the 1997
NIRC to be proper, because failure to pay the deficiency tax assessed within the time prescribed for
its payment justifies the imposition of interest at the rate of twenty percent (20%) per annum, which
interest shall be assessed and collected from the date prescribed for its payment until full payment is
made.
Page 20 of 455
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It is worthy to note that tax revenue statutes are not generally intended to be liberally
construed.18 Moreover, the CTA being a highly specialized court particularly created for the purpose
of reviewing tax and customs cases, it is settled that its findings and conclusions are accorded great
respect and are generally upheld by this Court, unless there is a clear showing of a reversible error or
an improvident exercise of authority.19 Absent such errors, the challenged decision should be
maintained.
WHEREFORE, the petition is DENIED. The March 1, 2011 Decision and the May 27, 2011 Resolution of
the Court of Tax Appeals En Bane, in CTA E.B. No. 563, are AFFIRMED.
G.R. No. 187485
February 12, 2013

vs.
SAN ROQUE POWER CORPORATION, Respondent.
G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as
well as the Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA EB)
in CTA EB No. 408. The CTA EB affirmed the 29 November 2007 Amended Decision 4 as well as the 11
July 2008 Resolution5 of the Second Division of the Court of Tax Appeals (CTA Second Division) in
CTA Case No. 6647. The CTA Second Division ordered the Commissioner of Internal Revenue
(Commissioner) to refund or issue a tax credit for P483,797,599.65 to San Roque Power Corporation
(San Roque) for unutilized input value-added tax (VAT) on purchases of capital goods and services
for the taxable year 2001.
G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010 as
well as the Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its
Decision, the CTA EB reversed the 8 January 2010 Decision9 as well as the 7 April 2010 Resolution10of
the CTA Second Division and granted the CIRs petition for review in CTA Case No. 7574. The CTA EB
dismissed, for having been prematurely filed, Taganito Mining Corporations (Taganito) judicial claim
for P8,365,664.38 tax refund or credit.
G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December 2010
as well as the Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The CTA
EB affirmed the 20 July 2009 Decision as well as the 10 November 2009 Resolution of the CTA
Second Division in CTA Case No. 7687. The CTA Second Division denied, due to prescription, Philex
Mining Corporations (Philex) judicial claim for P23,956,732.44 tax refund or credit.
On 3 August 2011, the Second Division of this Court resolved14 to consolidate G.R. No. 197156 with
G.R. No. 196113, which were pending in the same Division, and with G.R. No. 187485, which was
assigned to the Court En Banc. The Second Division also resolved to refer G.R. Nos. 197156 and
196113 to the Court En Banc, where G.R. No. 187485, the lower-numbered case, was assigned.
G.R. No. 187485

CIR v. San Roque Power Corporation
Page 21 of 455
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The Facts
The CTA EBs narration of the pertinent facts is as follows:
[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act
upon and approve claims for refund or tax credit, with office at the Bureau of Internal Revenue
("BIR") National Office Building, Diliman, Quezon City.
[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of
the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan. It was
incorporated in October 1997 to design, construct, erect, assemble, own, commission and operate
power-generating plants and related facilities pursuant to and under contract with the Government
of the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any
governmentowned or controlled corporation, or other entity engaged in the development, supply, or
distribution of energy.
As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-501. It is
likewise registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage in
the design, construction, erection, assembly, as well as to own, commission, and operate electric
power-generating plants and related activities, for which it was issued Certificate of Registration No.
97-356 on February 11, 1998.
On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the
National Power Corporation ("NPC") to develop hydro-potential of the Lower Agno River and
generate additional power and energy for the Luzon Power Grid, by building the San Roque MultiPurpose Project located in San Manuel, Pangasinan. The PPA provides, among others, that [San
Roque] shall be responsible for the design, construction, installation, completion, testing and
commissioning of the Power Station and shall operate and maintain the same, subject to NPC
instructions. During the cooperation period of twenty-five (25) years commencing from the
completion date of the Power Station, NPC will take and pay for all electricity available from the
Power Station.
On the construction and development of the San Roque Multi- Purpose Project which comprises of
the dam, spillway and power plant, [San Roque] allegedly incurred, excess input VAT in the amount
of 559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns filed for the
same year. [San Roque] duly filed with the BIR separate claims for refund, in the total amount of
559,709,337.54, representing unutilized input taxes as declared in its VAT returns for taxable year
2001.
However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001
since it increased its unutilized input VAT to the amount of 560,200,283.14. Consequently, [San
Roque] filed with the BIR on even date, separate amended claims for refund in the aggregate
amount of 560,200,283.14.
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[CIRs] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with
the Court [of Tax Appeals] in Division on April 10, 2003.
Trial of the case ensued and on July 20, 2005, the case was submitted for decision.15
The Court of Tax Appeals Ruling: Division
The CTA Second Division initially denied San Roques claim. In its Decision16 dated 8 March 2006, it
cited the following as bases for the denial of San Roques claim: lack of recorded zero-rated or
effectively zero-rated sales; failure to submit documents specifically identifying the purchased
goods/services related to the claimed input VAT which were included in its Property, Plant and
Equipment account; and failure to prove that the related construction costs were capitalized in its
books of account and subjected to depreciation.
The CTA Second Division required San Roque to show that it complied with the following
requirements of Section 112(B) of Republic Act No. 8424 (RA 8424) 17 to be entitled to a tax refund or
credit of input VAT attributable to capital goods imported or locally purchased: (1) it is a VATregistered entity; (2) its input taxes claimed were paid on capital goods duly supported by VAT
invoices and/or official receipts; (3) it did not offset or apply the claimed input VAT payments on
capital goods against any output VAT liability; and (4) its claim for refund was filed within the twoyear prescriptive period both in the administrative and judicial levels.
The CTA Second Division found that San Roque complied with the first, third, and fourth
requirements, thus:
The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint
Stipulation of Facts, Records, p. 157). It was also established that the instant claim of 560,200,823.14
is already net of the 11,509.09 output tax declared by [San Roque] in its amended VAT return for
the first quarter of 2001. Moreover, the entire amount of 560,200,823.14 was deducted by [San
Roque] from the total available input tax reflected in its amended VAT returns for the last two
quarters of 2001 and first two quarters of 2002 (Exhibits M-6, O-6, OO-1 & QQ-1). This means that
the claimed input taxes of 560,200,823.14 did not form part of the excess input taxes of
83,692,257.83, as of the second quarter of 2002 that was to be carried-over to the succeeding
quarters. Further, [San Roques] claim for refund/tax credit certificate of excess input VAT was filed
within the two-year prescriptive period reckoned from the dates of filing of the corresponding
quarterly VAT returns.
For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25,
2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively ( Exhibits "H, J, L, and N").
These returns were all subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O"). On the
other hand, [San Roque] originally filed its separate claims for refund on July 10, 2001, October 10,
2001, February 21, 2002, and May 9, 2002 for the first, second, third, and fourth quarters of 2001,
respectively, (Exhibits "EE, FF, GG, and HH") and subsequently filed amended claims for all quarters
on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for Review was filed on April
10, 2003. Counting from the respective dates when [San Roque] originally filed its VAT returns for the
Page 23 of 455
TAXATION LAW REVIEW

first, second, third and fourth quarters of 2001, the administrative claims for refund (original and
amended) and the Petition for Review fall within the two-year prescriptive period.18
San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November
2007 Amended Decision,19 the CTA Second Division found legal basis to partially grant San Roques
claim. The CTA Second Division ordered the Commissioner to refund or issue a tax credit in favor of
San Roque in the amount of 483,797,599.65, which represents San Roques unutilized input VAT on
its purchases of capital goods and services for the taxable year 2001. The CTA based the adjustment
in the amount on the findings of the independent certified public accountant. The following reasons
were cited for the disallowed claims: erroneous computation; failure to ascertain whether the related
purchases are in the nature of capital goods; and the purchases pertain to capital goods. Moreover,
the reduction of claims was based on the following: the difference between San Roques claim and
that appearing on its books; the official receipts covering the claimed input VAT on purchases of
local services are not within the period of the claim; and the amount of VAT cannot be determined
from the submitted official receipts and invoices. The CTA Second Division denied San Roques claim
for refund or tax credit of its unutilized input VAT attributable to its zero-rated or effectively zerorated sales because San Roque had no record of such sales for the four quarters of 2001.
The dispositive portion of the CTA Second Divisions 29 November 2007 Amended Decision reads:
WHEREFORE, [San Roques] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY
GRANTED and this Courts Decision promulgated on March 8, 2006 in the instant case is hereby
MODIFIED.
Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT
CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty Three Million
Seven Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty Five Centavos
(483,797,599.65) representing unutilized input VAT on purchases of capital goods and services for
the taxable year 2001.
SO ORDERED.20
The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA Second
Division issued a Resolution dated 11 July 2008 which denied the CIRs motion for lack of merit.
The Court of Tax Appeals Ruling: En Banc
The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roques
claim for refund or tax credit in its entirety as well as for the setting aside of the 29 November 2007
Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.
The CTA EB dismissed the CIRs petition for review and affirmed the challenged decision and
resolution.
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TAXATION LAW REVIEW

The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue
Memorandum Circular No. 49-03,22 as its bases for ruling that San Roques judicial claim was not
prematurely filed. The pertinent portions of the Decision state:
More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:
It is true that Section 112(D) of the abovementioned provision applies to the present case. However,
what the petitioner failed to consider is Section 112(A) of the same provision. The respondent is also
covered by the two (2) year prescriptive period. We have repeatedly held that the claim for refund
with the BIR and the subsequent appeal to the Court of Tax Appeals must be filed within the twoyear period.
Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development
Corporation vs. Commissioner of Internal Revenue that the two-year prescriptive period for filing a
claim for input tax is reckoned from the date of the filing of the quarterly VAT return and payment of
the tax due. If the said period is about to expire but the BIR has not yet acted on the application for
refund, the taxpayer may interpose a petition for review with this Court within the two year period.
In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now
Commissioner) takes time in deciding the claim, and the period of two years is about to end, the suit
or proceeding must be started in the Court of Tax Appeals before the end of the two-year period
without awaiting the decision of the Collector.
Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs. The
Honorable Court of Tax Appeals and Planters Products, Inc., the Supreme Court held that the
taxpayer need not wait indefinitely for a decision or ruling which may or may not be forthcoming
and which he has no legal right to expect. It is disheartening enough to a taxpayer to keep him
waiting for an indefinite period of time for a ruling or decision of the Collector (now Commissioner)
of Internal Revenue on his claim for refund. It would make matters more exasperating for the
taxpayer if we were to close the doors of the courts of justice for such a relief until after the Collector
(now Commissioner) of Internal Revenue, would have, at his personal convenience, given his go
signal.
This Court ruled in several cases that once the petition is filed, the Court has already acquired
jurisdiction over the claims and the Court is not bound to wait indefinitely for no reason for whatever
action respondent (herein petitioner) may take. At stake are claims for refund and unlike disputed
assessments, no decision of respondent (herein petitioner) is required before one can go to this
Court. (Emphasis supplied and citations omitted)
Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03
dated August 18, 2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the
Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR and that
taxpayers need not wait for the lapse of the subject 120-day period, to wit:
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TAXATION LAW REVIEW

In response to [the] request of selected taxpayers for adoption of procedures in handling refund
cases that are aligned to the statutory requirements that refund cases should be elevated to the
Court of Tax Appeals before the lapse of the period prescribed by law, certain provisions of RMC No.
42-2003 are hereby amended and new provisions are added thereto.
In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to
wit:
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:
In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving
a claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or
OSS-DOF), the administrative agency and the tax court may act on the case separately. While the
case is pending in the tax court and at the same time is still under process by the administrative
agency, the litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall
request from the head of the investigating/processing office for the docket containing certified true
copies of all the documents pertinent to the claim. The docket shall be presented to the court as
evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the
meantime, the investigating/processing office of the administrative agency shall continue processing
the refund/TCC case until such time that a final decision has been reached by either the CTA or the
administrative agency.
If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the
latter shall cease from processing the claim. On the other hand, if the administrative agency is able to
process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the findings
thereof, the concerned taxpayer must file a motion to withdraw the claim with the CTA.23 (Emphasis
supplied)
G.R. No. 196113

Taganito Mining Corporation v. CIR
The Facts
The CTA Second Divisions narration of the pertinent facts is as follows:
Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by
virtue of the laws of the Philippines, with principal office at 4th Floor, Solid Mills Building, De La Rosa
St., Lega[s]pi Village, Makati City. It is duly registered with the Securities and Exchange Commission
with Certificate of Registration No. 138682 issued on March 4, 1987 with the following primary
purpose:
To carry on the business, for itself and for others, of mining lode and/or placer mining, developing,
exploiting, extracting, milling, concentrating, converting, smelting, treating, refining, preparing for
market, manufacturing, buying, selling, exchanging, shipping, transporting, and otherwise producing
and dealing in nickel, chromite, cobalt, gold, silver, copper, lead, zinc, brass, iron, steel, limestone,
Page 26 of 455
TAXATION LAW REVIEW

and all kinds of ores, metals and their by-products and which by-products thereof of every kind and
description and by whatsoever process the same can be or may hereafter be produced, and generally
and without limit as to amount, to buy, sell, locate, exchange, lease, acquire and deal in lands, mines,
and mineral rights and claims and to conduct all business appertaining thereto, to purchase, locate,
lease or otherwise acquire, mining claims and rights, timber rights, water rights, concessions and
mines, buildings, dwellings, plants machinery, spare parts, tools and other properties whatsoever
which this corporation may from time to time find to be to its advantage to mine lands, and to
explore, work, exercise, develop or turn to account the same, and to acquire, develop and utilize
water rights in such manner as may be authorized or permitted by law; to purchase, hire, make,
construct or otherwise, acquire, provide, maintain, equip, alter, erect, improve, repair, manage, work
and operate private roads, barges, vessels, aircraft and vehicles, private telegraph and telephone
lines, and other communication media, as may be needed by the corporation for its own purpose,
and to purchase, import, construct, machine, fabricate, or otherwise acquire, and maintain and
operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses, waterworks, aqueducts,
shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, electric lights and power plants and
compressed air plants, chemical works of all kinds, concentrators, smelters, smelting plants, and
refineries, matting plants, warehouses, workshops, factories, dwelling houses, stores, hotels or other
buildings, engines, machinery, spare parts, tools, implements and other works, conveniences and
properties of any description in connection with or which may be directly or indirectly conducive to
any of the objects of the corporation, and to contribute to, subsidize or otherwise aid or take part in
any operations;
and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN
8RC0000017494. Likewise, [Taganito] is registered with the Board of Investments (BOI) as an exporter
of beneficiated nickel silicate and chromite ores, with BOI Certificate of Registration No. EP-88-306.
Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with
authority to exercise the functions of the said office, including inter alia, the power to decide refunds
of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code (NIRC) or other laws administered by
Bureau of Internal Revenue (BIR) under Section 4 of the NIRC. He holds office at the BIR National
Office Building, Diliman, Quezon City.
[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period January 1,
2005 to December 31, 2005. For easy reference, a summary of the filing dates of the original and
amended Quarterly VAT Returns for taxable year 2005 of [Taganito] is as follows:
Exhibit(s)
Quarter
Nature
the Return
L to L-4
1st
Original
Electronic
April 15, 2005
M to M-3
Amended
Electronic
July 20, 2005
N to N-4
Amended
Electronic
October 18, 2006
Original
Electronic
July 20, 2005
Q to Q-3
2nd
of Mode of filing
Filing Date
Page 27 of 455
TAXATION LAW REVIEW

R to R-4
U to U-4
3rd
V to V-4
Y to Y-4
4th
Z to Z-4
Amended
Electronic
October 18, 2006
Original
Electronic
October 19, 2005
Amended
Electronic
October 18, 2006
Original
Electronic
January 20, 2006
Amended
Electronic
October 18, 2006
As can be gleaned from its amended Quarterly VAT Returns, [Taganito] reported zero-rated sales
amounting to P1,446,854,034.68; input VAT on its domestic purchases and importations of goods
(other than capital goods) and services amounting to P2,314,730.43; and input VAT on its domestic
purchases and importations of capital goods amounting to P6,050,933.95, the details of which are
summarized as follows:
Period
Covered
Zero-Rated Sales
Input VAT on Input VAT on Total Input VAT

Domestic
Domestic
Purchases
and Purchases
and
Importations
Importations
of Goods and of
Capital
Services
Goods
01/01/05
03/31/05
- P551,179,871.58
P1,491,880.56
P239,803.22
P1,731,683.78
04/01/05
06/30/05
- 64,677,530.78
204,364.17
5,811,130.73
6,015,494.90
07/01/05
09/30/05
- 480,784,287.30
144,887.67
144,887.67
10/01/05
12/31/05
- 350,212,345.02
473,598.03
473,598.03
P2,314,730.43
P6,050,933.95
P8,365,664.38
TOTAL
P1,446,854,034.68
On November 14, 2006, [Taganito] filed with [the CIR], through BIRs Large Taxpayers Audit and
Investigation Division II (LTAID II), a letter dated November 13, 2006 claiming a tax credit/refund of
its supposed input VAT amounting to 8,365,664.38 for the period covering January 1, 2004 to
December 31, 2004. On the same date, [Taganito] likewise filed an Application for Tax
Credits/Refunds for the period covering January 1, 2005 to December 31, 2005 for the same amount.
On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to [the CIR],
to correct the period of the above claim for tax credit/refund in the said amount of 8,365,664.38 as
actually referring to the period covering January 1, 2005 to December 31, 2005.
Page 28 of 455
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As the statutory period within which to file a claim for refund for said input VAT is about to lapse
without action on the part of the [CIR], [Taganito] filed the instant Petition for Review on February 17,
2007.
In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:
4. [Taganitos] alleged claim for refund is subject to administrative investigation/examination
by the Bureau of Internal Revenue (BIR);
5. The amount of 8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT
on domestic purchases of goods and services and on importation of capital goods for the
period January 1, 2005 to December 31, 2005 is not properly documented;
6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D)
and 229 of the National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive
period for claiming tax refund/credit;
7. Proof of compliance with the prescribed checklist of requirements to be submitted
involving claim for VAT refund pursuant to Revenue Memorandum Order No. 5398, otherwise there would be no sufficient compliance with the filing of administrative claim
for refund, the administrative claim thereof being mere proforma, which is a condition sine
qua non prior to the filing of judicial claim in accordance with the provision of Section 229 of
the 1997 Tax Code. Further, Section 112 (D) of the Tax Code, as amended, requires
the submission of complete documents in support of the application filed with the BIR before
the 120-day audit period shall apply, and before the taxpayer could avail of judicial remedies
as provided for in the law. Hence, [Taganitos] failure to submit proof of compliance with the
above-stated requirements warrants immediate dismissal of the petition for review.
8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in
Sections 110 and 113 of the 1997 Tax Code, as amended, in relation to provisions of Revenue
Regulations No. 7-95.
9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right
to refund, and failure to sustain the burden is fatal to the claim for refund/credit (Asiatic
Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue vs. Manila Jockey
Club, Inc., 98 Phil. 670);
10. Claims for refund are construed strictly against the claimant for the same partake the
nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA
95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs.
Commissioner of Internal Revenue, 124 SCRA 1211).
SPECIAL AND AFFIRMATIVE DEFENSES
Page 29 of 455
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11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure
on the part of [Taganito] to comply with the provision of Section 112 (D) of the 1997 Tax Code which
provides, thus:
Section 112. Refunds or Tax Credits of Input Tax.
xxx
xxx
xxx
(D) Period within which refund or Tax Credit of Input Taxes shall be Made. In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.
In cases of full or partial denial for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
of the one hundred twenty dayperiod, appeal the decision or the unacted claim with the Court of Tax
Appeals. (Emphasis supplied.)
12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal Revenue
on November 14, 2006. Subsequently on February 14, 2007, the instant petition was filed. Obviously
the 120 days given to the Commissioner to decide on the claim has not yet lapsed when the petition
was filed. The petition was prematurely filed, hence it must be dismissed for lack of jurisdiction.
During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at proving
its supposed entitlement to the refund in the amount of 8,365,664.38, representing input taxes for
the period covering January 1, 2005 to December 31, 2005. [The CIR], on the other hand, opted not
to present evidence. Thus, in the Resolution promulgated on January 22, 2009, this case was
submitted for decision as of such date, considering [Taganitos] "Memorandum" filed on January 19,
2009 and [the CIRs] "Memorandum" filed on December 19, 2008.24
The CTA Second Division partially granted Taganitos claim. In its Decision25 dated 8 January 2010,
the CTA Second Division found that Taganito complied with the requirements of Section 112(A) of
RA 8424, as amended, to be entitled to a tax refund or credit of input VAT attributable to zero-rated
or effectively zero-rated sales.26
The pertinent portions of the CTA Second Divisions Decision read:
Finally, records show that [Taganitos] administrative claim filed on November 14, 2006, which was
amended on November 29, 2006, and the Petition for Review filed with this Court on February 14,
2007 are well within the two-year prescriptive period, reckoned from March 31, 2005, June 30, 2005,
September 30, 2005, and December 31, 2005, respectively, the close of each taxable quarter covering
the period January 1, 2005 to December 31, 2005.
Page 30 of 455
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In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of
8,249,883.33 representing unutilized input VAT for the four taxable quarters of 2005.
WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY
GRANTED.Accordingly, [the CIR] is hereby ORDERED to REFUND to [Taganito] the amount of EIGHT
MILLION TWO HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY THREE PESOS AND
THIRTY THREE CENTAVOS (P8,249,883.33) representing its unutilized input taxes attributable to zerorated sales from January 1, 2005 to December 31, 2005.
SO ORDERED.27
The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn,
filed a Comment/Opposition on the Motion for Partial Reconsideration on 15 February 2010.
In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIRs motion. The CTA
Second Division ruled that the legislature did not intend that Section 112 (Refunds or Tax Credits of
Input Tax) should be read in isolation from Section 229 (Recovery of Tax Erroneously or Illegally
Collected) or vice versa. The CTA Second Division applied the mandatory statute of limitations in
seeking judicial recourse prescribed under Section 229 to claims for refund or tax credit under
Section 112.
On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8
January 2010 Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that
Taganitos entire claim for refund be denied.
In its 8 December 2010 Decision,29 the CTA EB granted the CIRs petition for review and reversed and
set aside the challenged decision and resolution.
The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning
of the two-year prescriptive period for filing a claim for tax refund or credit over input VAT to be the
close of the taxable quarter when the sales were made. The CTA EB also relied on this Courts rulings
in the cases of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi)30 and Commisioner
of
Internal
Revenue
v.
Mirant
Pagbilao
Corporation
(Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive period to file a refund for input
VAT arising from zero-rated sales should be reckoned from the close of the taxable quarter when the
sales were made. Aichi further emphasized that the failure to await the decision of the Commissioner
or the lapse of 120-day period prescribed in Section 112(D) amounts to a premature filing.
The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well
within the period prescribed under Section 112(A) and (B) of the 1997 Tax Code. However, the CTA
EB found that Taganitos judicial claim was prematurely filed. Taganito filed its Petition for Review
before the CTA Second Division on 14 February 2007. The judicial claim was filed after the lapse of
Page 31 of 455
TAXATION LAW REVIEW

only 92 days from the filing of its administrative claim before the CIR, in violation of the 120-day
period prescribed in Section 112(D) of the 1997 Tax Code.
The dispositive portion of the Decision states:
WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated January
8, 2010 and Resolution dated April 7, 2010 of the Special Second Division of this Court are hereby
REVERSED and SET ASIDE. Another one is hereby entered DISMISSING the Petition for Review filed in
CTA Case No. 7574 for having been prematurely filed.
SO ORDERED.32
In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim before
the CTA. Justice Bautista read Section 112(C) of the 1997 Tax Code (Period within which Refund or
Tax Credit of Input Taxes shall be Made) in conjunction with Section 229 (Recovery of Tax
Erroneously or Illegally Collected). Justice Bautista also relied on this Courts ruling in Atlas
Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue

(Atlas),34 which stated that refundable or creditable input VAT and illegally or erroneously collected
national internal revenue tax are the same, insofar as both are monetary amounts which are currently
in the hands of the government but must rightfully be returned to the taxpayer. Justice Bautista
concluded:
Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or
tax credit of excess or unutilized input tax with this Court, either within 30 days from receipt of the
denial of its claim, or after the lapse of the 120-day period in the event of inaction by the
Commissioner, provided that both administrative and judicial remedies must be undertaken within
the 2-year period.35
Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an
Opposition on 26 January 2011. The CTA EB denied for lack of merit Taganitos motion in a
Resolution36 dated 14 March 2011. The CTA EB did not see any justifiable reason to depart from this
Courts rulings in Aichi and Mirant.
G.R. No. 197156

Philex Mining Corporation v. CIR
The Facts
The CTA EBs narration of the pertinent facts is as follows:
[Philex] is a corporation duly organized and existing under the laws of the Republic of the
Philippines, which is principally engaged in the mining business, which includes the exploration and
operation of mine properties and commercial production and marketing of mine products, with
office address at 27 Philex Building, Fairlaine St., Kapitolyo, Pasig City.
Page 32 of 455
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[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the government
entity tasked with the duties/functions of assessing and collecting all national internal revenue taxes,
fees, and charges, and enforcement of all forfeitures, penalties and fines connected therewith,
including the execution of judgments in all cases decided in its favor by [the Court of Tax Appeals]
and the ordinary courts, where she can be served with court processes at the BIR Head Office, BIR
Road, Quezon City.
On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable year 2005
and Amended VAT Return for the same quarter on December 1, 2005.
On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of 23,956,732.44 with
the One Stop Shop Center of the Department of Finance. However, due to [the CIRs] failure to act on
such claim, on October 17, 2007, pursuant to Sections 112 and 229 of the NIRC of 1997, as amended,
[Philex] filed a Petition for Review, docketed as C.T.A. Case No. 7687.
In [her] Answer, respondent CIR alleged the following special and affirmative defenses:
4. Claims for refund are strictly construed against the taxpayer as the same partake the
nature of an exemption;
5. The taxpayer has the burden to show that the taxes were erroneously or illegally paid.
Failure on the part of [Philex] to prove the same is fatal to its cause of action;
6. [Philex] should prove its legal basis for claiming for the amount being refunded.37
The CTA Second Division, in its Decision dated 20 July 2009, denied Philexs claim due to
prescription. The CTA Second Division ruled that the two-year prescriptive period specified in Section
112(A) of RA 8424, as amended, applies not only to the filing of the administrative claim with the BIR,
but also to the filing of the judicial claim with the CTA. Since Philexs claim covered the 3rd quarter of
2005, its administrative claim filed on 20 March 2006 was timely filed, while its judicial claim filed on
17 October 2007 was filed late and therefore barred by prescription.
On 10 November 2009, the CTA Second Division denied Philexs Motion for Reconsideration.
Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009 Decision
and the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.
The CTA EB, in its Decision38 dated 3 December 2010, denied Philexs petition and affirmed the CTA
Second Divisions Decision and Resolution.
The pertinent portions of the Decision read:
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In this case, while there is no dispute that [Philexs] administrative claim for refund was filed within
the two-year prescriptive period; however, as to its judicial claim for refund/credit, records show that
on March 20, 2006, [Philex] applied the administrative claim for refund of unutilized input VAT in the
amount of 23,956,732.44 with the One Stop Shop Center of the Department of Finance, per
Application No. 52490. From March 20, 2006, which is also presumably the date [Philex] submitted
supporting documents, together with the aforesaid application for refund, the CIR has 120 days, or
until July 18, 2006, within which to decide the claim. Within 30 days from the lapse of the 120-day
period, or from July 19, 2006 until August 17, 2006, [Philex] should have elevated its claim for refund
to the CTA. However, [Philex] filed its Petition for Review only on October 17, 2007, which is 426 days
way beyond the 30- day period prescribed by law.
Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition for
Review in CTA Case No. 7687 should have been dismissed on the ground that the Petition for Review
was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA in
Division; and not due to prescription.
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE COURSE,
and accordingly, DISMISSED. The assailed Decision dated July 20, 2009, dismissing the Petition for
Review in CTA Case No. 7687 due to prescription, and Resolution dated November 10, 2009 denying
[Philexs] Motion for Reconsideration are hereby AFFIRMED, with modification that the dismissal is
based on the ground that the Petition for Review in CTA Case No. 7687 was filed way beyond the 30day prescribed period to appeal.
SO ORDERED.39
G.R. No. 187485

CIR v. San Roque Power Corporation
The Commissioner raised the following grounds in the Petition for Review:
I. The Court of Tax Appeals En Banc erred in holding that [San Roques] claim for refund was
not prematurely filed.
II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of
Tax Appeals (Second Division) granting [San Roques] claim for refund of alleged unutilized
input VAT on its purchases of capital goods and services for the taxable year 2001 in the
amount of P483,797,599.65. 40
G.R. No. 196113

Taganito Mining Corporation v. CIR
Taganito raised the following grounds in its Petition for Review:
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I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of
discretion tantamount to lack or excess of jurisdiction in erroneously applying
the Aichi doctrine in violation of [Taganitos] right to due process.
II. The Court of Tax Appeals committed serious error and acted with grave abuse of discretion
amounting to lack or excess of jurisdiction in erroneously interpreting the provisions of
Section 112 (D).41
G.R. No. 197156

Philex Mining Corporation v. CIR
Philex raised the following grounds in its Petition for Review:
I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that
the petition was filed with the CTA within the period set by prevailing court rulings at the
time it was filed.
II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in
this instant case.42
The Courts Ruling
For ready reference, the following are the provisions of the Tax Code applicable to the present cases:
Section 105:
Persons Liable. Any person who, in the course of trade or business, sells, barters, exchanges,
leasesgoods or properties, renders services, and any person who imports goods shall be subject to
the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to
existing contracts of sale or lease of goods, properties or services at the time of the effectivity of
Republic Act No. 7716.
xxxx
Section 110(B):
Sec. 110. Tax Credits.
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output
tax, the excess shall be carried over to the succeeding quarter or quarters: [Provided, That the input
tax inclusive of input VAT carried over from the previous quarter that may be credited in every
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quarter shall not exceed seventy percent (70%) of the output VAT:] 43 Provided, however, That any
input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded
or credited against other internal revenue taxes, subject to the provisions of Section 112.
Section 112:44
Sec. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-Rated or Effectively Zero-Rated Sales. Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund
of creditable input tax due or paid attributable to such sales, except transitional input tax, to
the extent that such input tax has not been applied against output tax: Provided, however,
That in the case of zero-rated sales under Section 106(A)(2) (a)(1), (2) and (B) and Section
108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zerorated sale and also in taxable or exempt sale of goods or properties or services, and the
amount of creditable input tax due or paid cannot be directly and entirely attributed to any
one of the transactions, it shall be allocated proportionately on the basis of the volume of
sales.
(B) Capital Goods.- A VAT registered person may apply for the issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased, to
the extent that such input taxes have not been applied against output taxes. The application
may be made only within two (2) years after the close of the taxable quarter when the
importation or purchase was made.
(C) Cancellation of VAT Registration. A person whose registration has been cancelled due
to retirement from or cessation of business, or due to changes in or cessation of status under
Section 106(C) of this Code may, within two (2) years from the date of cancellation, apply for
the issuance of a tax credit certificate for any unused input tax which may be used in
payment of his other internal revenue taxes
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsection (A) and (B)
hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may,within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals.
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(E) Manner of Giving Refund. Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of being
countersigned by the Chairman, Commission on Audit, the provisions of the Administrative
Code of 1987 to the contrary notwithstanding: Provided, that refunds under this paragraph
shall be subject to post audit by the Commission on Audit.
Section 229:
Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in

any court for the recovery of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.
(All emphases supplied)
I. Application of the 120+30 Day Periods
a. G.R. No. 187485 - CIR v. San Roque Power Corporation

On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the
Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA docketed as
CTA Case No. 6647. From this we gather two crucial facts: first, San Roque did not wait for the 120day period to lapse before filing its judicial claim;second, San Roque filed its judicial claim more than
four (4) years before the Atlas45 doctrine, which was promulgated by the Court on 8 June 2007.
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law
to the Commissioner to decide whether to grant or deny San Roques application for tax refund or
credit. It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. The waiting period, originally fixed at 60 days only, was part of the provisions of the
first VAT law, Executive Order No. 273, which took effect on 1 January 1988. The waiting period was
extended to 120 days effective 1 January 1998 under RA 8424 or the Tax Reform Act of 1997. Thus,
the waiting period has been in our statute books for more than fifteen (15) years before San Roque
filed its judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates
the doctrine of exhaustion of administrative remedies and renders the petition premature and thus
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without a cause of action, with the effect that the CTA does not acquire jurisdiction over the
taxpayers petition. Philippine jurisprudence is replete with cases upholding and reiterating these
doctrinal principles.46
The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the
Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue taxes."47 When
a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA without waiting for
the decision of the Commissioner, there is no "decision" of the Commissioner to review and thus the
CTA as a court of special jurisdiction has no jurisdiction over the appeal. The charter of the CTA also
expressly provides that if the Commissioner fails to decide within "a specific period" required by law,
such "inaction shall be deemed a denial"48 of the application for tax refund or credit. It is the
Commissioners decision, or inaction "deemed a denial," that the taxpayer can take to the CTA for
review. Without a decision or an "inaction x x x deemed a denial" of the Commissioner, the CTA has
no jurisdiction over a petition for review.49
San Roques failure to comply with the 120-day mandatory period renders its petition for review with
the CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity." San Roques void
petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code
states that such void petition cannot be legitimized "except when the law itself authorizes [its]
validity." There is no law authorizing the petitions validity.
It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law
cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from
his own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states,
"No vested or acquired right can arise from acts or omissions which are against the law or which
infringe upon the rights of others."50 For violating a mandatory provision of law in filing its petition
with the CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roques
petition with the CTA is a mere scrap of paper.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120day period just because the Commissioner merely asserts that the case was prematurely filed with
the CTA and does not question the entitlement of San Roque to the refund. The mere fact that a
taxpayer has undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or
excessively collected from him, does not entitle him as a matter of right to a tax refund or credit.
Strict compliance with the mandatory and jurisdictional conditions prescribed by law to claim such
tax refund or credit is essential and necessary for such claim to prosper. Well-settled is the rule that
tax refunds or credits, just like tax exemptions, are strictly construed against the taxpayer.51 The
burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of
the tax refund or credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply
because the Commissioner chose not to contest the numerical correctness of the claim for tax refund
or credit of the taxpayer. Non-compliance with mandatory periods, non-observance of prescriptive
periods, and non-adherence to exhaustion of administrative remedies bar a taxpayers claim for tax
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refund or credit, whether or not the Commissioner questions the numerical correctness of the claim
of the taxpayer. This Court should not establish the precedent that non-compliance with mandatory
and jurisdictional conditions can be excused if the claim is otherwise meritorious, particularly in
claims for tax refunds or credit. Such precedent will render meaningless compliance with mandatory
and jurisdictional requirements, for then every tax refund case will have to be decided on the
numerical correctness of the amounts claimed, regardless of non-compliance with mandatory and
jurisdictional conditions.
San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San
Roque filed its petition for review with the CTA more than four years before Atlas was
promulgated. The Atlas doctrine did not exist at the time San Roque failed to comply with the 120day period. Thus, San Roque cannot invoke theAtlas doctrine as an excuse for its failure to wait for
the 120-day period to lapse. In any event, the Atlas doctrine merely stated that the two-year
prescriptive period should be counted from the date of payment of the output VAT, not from the
close of the taxable quarter when the sales involving the input VAT were made. The Atlas doctrine
does not interpret, expressly or impliedly, the 120+3052 day periods.
In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the
Court in Atlasas the applicable provision of the law did not yet provide for the 30-day period for the
taxpayer to appeal to the CTA from the decision or inaction of the Commissioner.53 Thus,
the Atlas doctrine cannot be invoked by anyone to disregard compliance with the 30-day mandatory
and jurisdictional period. Also, the difference between the Atlas doctrine on one hand, and
the Mirant54 doctrine on the other hand, is a mere 20 days. TheAtlas doctrine counts the two-year
prescriptive period from the date of payment of the output VAT, which means within 20 days after
the close of the taxable quarter. The output VAT at that time must be paid at the time of filing of the
quarterly tax returns, which were to be filed "within 20 days following the end of each quarter."
Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the
administrative claims filed with the Commissioner, and the petitions for review filed with the CTA,
were all filed within two years from the date of payment of the output VAT, following Section 229:
Period Covered
Date of Filing Return Date

of
Filing Date
of
Filing
& Payment of Tax
Administrative Claim
Petition With CTA
2nd
Quarter,
1990 20 July 1990
Close
of
Quarter
30 June 1990
21 August 1990
20 July 1992
3rd
Quarter,
1990 18 October 1990
Close
of
Quarter
30 September 1990
21 November 1990
9 October 1992
4th
Quarter,
1990 20 January 1991
Close
of
Quarter
31 December 1990
19 February 1991
14 January 1993
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Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and 20th
day after the close of the taxable quarter. Had the twoyear prescriptive period been counted from
the "close of the taxable quarter" as expressly stated in the law, the tax refund claims of Atlas would
have already prescribed. In contrast, the Mirant doctrine counts the two-year prescriptive period
from the "close of the taxable quarter when the sales were made" as expressly stated in the law,
which means the last day of the taxable quarter. The 20-day difference55 between the Atlas doctrine
and the later Mirant doctrine is not material to San Roques claim for tax refund.
Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial because
what is at issue in the present case is San Roques non-compliance with the 120-day mandatory and
jurisdictional period, which is counted from the date it filed its administrative claim with the
Commissioner. The 120-day period may extend beyond the two-year prescriptive period, as long as
the administrative claim is filed within the two-year prescriptive period. However, San Roques fatal
mistake is that it did not wait for the Commissioner to decide within the 120-day period, a
mandatory period whether the Atlas or the Mirant doctrine is applied.
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods
were already in the law. Section 112(C)56 expressly grants the Commissioner 120 days within which to
decide the taxpayers claim. The law is clear, plain, and unequivocal: "x x x the Commissioner shall
grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty
(120) days from the date of submission of complete documents." Following the verba legis doctrine,
this law must be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer
cannot simply file a petition with the CTA without waiting for the Commissioners decision within the
120-day mandatory and jurisdictional period. The CTA will have no jurisdiction because there will be
no "decision" or "deemed a denial" decision of the Commissioner for the CTA to review. In San
Roques case, it filed its petition with the CTA a mere 13 days after it filed its administrative claim
with the Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day period,
and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision
or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the one hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law
should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the
taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioners decision, or if the Commissioner does not act on the taxpayers claim
within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
the 120-day period.
b. G.R. No. 196113 - Taganito Mining Corporation v. CIR
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Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120day period to lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of
the Atlas doctrine. Taganito filed a Petition for Review on 14 February 2007 with the CTA. This is
almost four months before the adoption of the Atlas doctrine on 8 June 2007. Taganito is similarly
situated as San Roque - both cannot claim being misled, misguided, or confused by
the Atlas doctrine.
However, Taganito can invoke BIR Ruling No. DA-489-0357 dated 10 December 2003, which expressly
ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could
seek judicial relief with the CTA by way of Petition for Review." Taganito filed its judicial
claim after the issuance of BIR Ruling No. DA-489-03 but before the adoption of the Aichi doctrine.
Thus, as will be explained later, Taganito is deemed to have filed its judicial claim with the CTA on
time.
c. G.R. No. 197156 Philex Mining Corporation v. CIR

Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005;
(2) filed on 20 March 2006 its administrative claim for refund or credit; (3) filed on 17 October 2007
its Petition for Review with the CTA. The close of the third taxable quarter in 2005 is 30 September
2005, which is the reckoning date in computing the two-year prescriptive period under Section
112(A).
Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period.
Even if the two-year prescriptive period is computed from the date of payment of the output VAT
under Section 229, Philex still filed its administrative claim on time. Thus, the Atlas doctrine is
immaterial in this case. The Commissioner had until 17 July 2006, the last day of the 120-day period,
to decide Philexs claim. Since the Commissioner did not act on Philexs claim on or before 17 July
2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its judicial claim. The
CTA EB held that 17 August 2006 was indeed the last day for Philex to file its judicial claim. However,
Philex filed its Petition for Review with the CTA only on 17 October 2007, or four hundred twenty-six
(426) days after the last day of filing. In short, Philex was late by one year and 61 days in filing its
judicial claim. As the CTA EB correctly found:
Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the Petition
for Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the Petition for
Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the
CTA Division; x x x58(Emphasis supplied)
Unlike San Roque and Taganito, Philexs case is not one of premature filing but of late filing. Philex
did not file any petition with the CTA within the 120-day period. Philex did not also file any petition
with the CTA within 30 days after the expiration of the 120-day period. Philex filed its judicial
claim long after the expiration of the 120-day period, in fact 426 days after the lapse of the 120-day
period. In any event, whether governed by jurisprudence before, during, or after the Atlas case,
Philexs judicial claim will have to be rejected because of late filing. Whether the two-year
prescriptive period is counted from the date of payment of the output VAT following
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the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines, Philexs judicial claim was indisputably filed
late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philexs claim during the 120-day period is, by express provision of law, "deemed a
denial" of Philexs claim. Philex had 30 days from the expiration of the 120-day period to file its
judicial claim with the CTA. Philexs failure to do so rendered the "deemed a denial" decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a
denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The
exercise of such statutory privilege requires strict compliance with the conditions attached by the
statute for its exercise.59 Philex failed to comply with the statutory conditions and must thus bear the
consequences.
II. Prescriptive Periods under Section 112(A) and (C)
There are three compelling reasons why the 30-day period need not necessarily fall within the twoyear prescriptive period, as long as the administrative claim is filed within the two-year prescriptive
period.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer
"may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of the creditable input tax
due or paid to such sales." In short, the law states that the taxpayer may apply with the
Commissioner for a refund or credit "within two (2) years," which means at anytime within
two years. Thus, the application for refund or credit may be filed by the taxpayer with the
Commissioner on the last day of the two-year prescriptive period and it will still strictly
comply with the law. The twoyear prescriptive period is a grace period in favor of the
taxpayer and he can avail of the full period before his right to apply for a tax refund or credit
is barred by prescription.
Second, Section 112(C) provides that the Commissioner shall decide the application for
refund or credit "within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsection (A)."
The reference in Section 112(C) of the submission of documents "in support of the
application filed in accordance with Subsection A" means that the application in Section
112(A) is the administrative claim that the Commissioner must decide within the 120-day
period. In short, the two-year prescriptive period in Section 112(A) refers to the period within
which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise,
the two-year prescriptive period does not refer to the filing of the judicial claim with the CTA
but to the filing of the administrative claim with the Commissioner. As held in Aichi, the
"phrase within two years x x x apply for the issuance of a tax credit or refund refers to
applications for refund/credit with the CIR and not to appeals made to the CTA."
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Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive
period (equivalent to 730 days60), then the taxpayer must file his administrative claim for
refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the
filing of the administrative claim beyond the first 610 days will result in the appeal to the CTA
being filed beyond the two-year prescriptive period. Thus, if the taxpayer files his
administrative claim on the 611th day, the Commissioner, with his 120-day period, will have
until the 731st day to decide the claim. If the Commissioner decides only on the 731st day, or
does not decide at all, the taxpayer can no longer file his judicial claim with the CTA because
the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day period
granted by law to the taxpayer to file an appeal before the CTA becomes utterly useless, even
if the taxpayer complied with the law by filing his administrative claim within the two-year
prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period adds a condition
that is not found in the law. It results in truncating 120 days from the 730 days that the law grants
the taxpayer for filing his administrative claim with the Commissioner. This Court cannot interpret a
law to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and
unequivocal language.
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language.
The taxpayer can file his administrative claim for refund or credit at anytime within the two-year
prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is
still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer
still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the
only logical interpretation of Section 112(A) and (C).
III. "Excess" Input VAT and "Excessively" Collected Tax
The input VAT is not "excessively" collected as understood under Section 229 because at the time the
input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability of, and
legally paid by, a VAT-registered seller61 of goods, properties or services used as input by another
VAT-registered person in the sale of his own goods, properties, or services. This tax liability is true
even if the seller passes on the input VAT to the buyer as part of the purchase price. The second
VAT-registered person, who is not legally liable for the input VAT, is the one who applies the input
VAT as credit for his own output VAT.62 If the input VAT is in fact "excessively" collected as
understood under Section 229, then it is the first VAT-registered person - the taxpayer who is legally
liable and who is deemed to have legally paid for the input VAT - who can ask for a tax refund or
credit under Section 229 as an ordinary refund or credit outside of the VAT System. In such event,
the second VAT-registered taxpayer will have no input VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the
input VAT is not "excessively" collected as understood under Section 229. At the time of payment of
the input VAT the amount paid is the correct and proper amount. Under the VAT System, there is no
claim or issue that the input VAT is "excessively" collected, that is, that the input VAT paid is more
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than what is legally due. The person legally liable for the input VAT cannot claim that he overpaid the
input VAT by the mere existence of an "excess" input VAT. The term "excess" input VAT simply means
that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively
collected because it is more than what is legally due. Thus, the taxpayer who legally paid the input
VAT cannot claim for refund or credit of the input VAT as "excessively" collected under Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the
date of payment of the tax "erroneously, x x x illegally, x x x excessively or in any manner wrongfully
collected." The prescriptive period is reckoned from the date the person liable for the tax pays the
tax. Thus, if the input VAT is in fact "excessively" collected, that is, the person liable for the tax
actually pays more than what is legally due, the taxpayer must file a judicial claim for refund within
two years from his date of payment. Only the person legally liable to pay the tax can file the judicial
claim for refund. The person to whom the tax is passed on as part of the purchase price has no
personality to file the judicial claim under Section 229.63
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess"
input VAT is two years from the close of the taxable quarter when the sale was made by the person
legally liable to pay theoutput VAT. This prescriptive period has no relation to the date of payment of
the "excess" input VAT. The "excess" input VAT may have been paid for more than two years but this
does not bar the filing of a judicial claim for "excess" VAT under Section 112(A), which has a different
reckoning period from Section 229. Moreover, the person claiming the refund or credit of the input
VAT is not the person who legally paid the input VAT. Such person seeking the VAT refund or credit
does not claim that the input VAT was "excessively" collected from him, or that he paid an input VAT
that is more than what is legally due. He is not the taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the
chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on
the value added by the taxpayer, but on the entire selling price of his goods, properties or services.
However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who sold
him the inputs for his goods, properties, or services. The net effect is that the taxpayer pays the VAT
only on the value that he adds to the goods, properties, or services that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only
exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like
companies generating power through renewable sources of energy.64 Thus, a non zero-rated VATregistered taxpayer who has no output VAT because he has no sales cannot claim a tax refund or
credit of his unused input VAT under the VAT System. Even if the taxpayer has sales but his input
VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under
the VAT System. He can only carry-over and apply his "excess" input VAT against his future output
VAT. If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be able to seek a
refund or credit for such "excess" input VAT whether or not he has output VAT. The VAT System does
not allow such refund or credit. Such "excess" input VAT is not an "excessively" collected tax under
Section 229. The "excess" input VAT is a correctly and properly collected tax. However, such "excess"
input VAT can be applied against the output VAT because the VAT is a tax imposed only on the value
added by the taxpayer. If the input VAT is in fact "excessively" collected under Section 229, then it is
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the person legally liable to pay the input VAT, not the person to whom the tax was passed on as part
of the purchase price and claiming credit for the input VAT under the VAT System, who can file the
judicial claim under Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax
under Section 229 may lead taxpayers to file a claim for refund or credit for such "excess" input VAT
under Section 229 as an ordinary tax refund or credit outside of the VAT System. Under Section 229,
mere payment of a tax beyond what is legally due can be claimed as a refund or credit. There is no
requirement under Section 229 for an output VAT or subsequent sale of goods, properties, or
services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is
"erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." In short, there
must be a wrongful payment because what is paid, or part of it, is not legally due. As the Court held
in Mirant, Section 229 should "apply only to instances of erroneous payment or illegal collection of
internal revenue taxes." Erroneous or wrongful payment includes excessive payment because they all
refer to payment of taxes not legally due. Under the VAT System, there is no claim or issue that the
"excess" input VAT is "excessively or in any manner wrongfully collected." In fact, if the "excess" input
VAT is an "excessively" collected tax under Section 229, then the taxpayer claiming to apply such
"excessively" collected input VAT to offset his output VAT may have no legal basis to make such
offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such
"excessively" collected tax, and thus there will no longer be any "excess" input VAT. This will upend
the present VAT System as we know it.
IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the
two-year prescriptive period under Section 229, should be effective only from its promulgation on 8
June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to
the reckoning of the two-year prescriptive period from the date of payment of the output VAT. Prior
to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input VAT
should be governed by Section 112(A) following theverba legis rule. The Mirant ruling, which
abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in
computing the two-year prescriptive period in claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the
application of the 120+30 day periods was not in issue in Atlas. The application of the 120+30 day
periods was first raised inAichi, which adopted the verba legis rule in holding that the 120+30 day
periods are mandatory and jurisdictional. The language of Section 112(C) is plain, clear, and
unambiguous. When Section 112(C) states that "the Commissioner shall grant a refund or issue the
tax credit within one hundred twenty (120) days from the date of submission of complete
documents," the law clearly gives the Commissioner 120 days within which to decide the taxpayers
claim. Resort to the courts prior to the expiration of the 120-day period is a patent violation of the
doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial suit due to
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prematurity. Philippine jurisprudence is awash with cases affirming and reiterating the doctrine of
exhaustion of administrative remedies.65 Such doctrine is basic and elementary.
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of
the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal
the decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30
day periods optional just because the law uses the word "may." The word "may" simply means that
the taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt of
the decision, or within 30 days from the expiration of the 120-day period. Certainly, by no stretch of
the imagination can the word "may" be construed as making the 120+30 day periods optional,
allowing the taxpayer to file a judicial claim one day after filing the administrative claim with the
Commissioner.
The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioners
decision if the two-year prescriptive period is about to expire, cannot apply because that rule was
adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to do
away with the old rule, so that under the VAT System the taxpayer will always have 30 days to file the
judicial claim even if the Commissioner acts only on the 120th day, or does not act at all during the
120-day period. With the 30-day period always available to the taxpayer, the taxpayer can no longer
file a judicial claim for refund or credit of input VAT without waiting for the Commissioner to decide
until the expiration of the 120-day period.
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against
the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is
compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with
the 120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the
effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03
on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again
reinstated the 120+30 day periods as mandatory and jurisdictional.
V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003
There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for
the 120-day period to expire before filing a judicial claim with the CTA. RMC 49-03 merely authorizes
the BIR to continue processing the administrative claim even after the taxpayer has filed its judicial
claim, without saying that the taxpayer can file its judicial claim before the expiration of the 120-day
period. RMC 49-03 states: "In cases where the taxpayer has filed a Petition for Review with the Court
of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency (either
the Bureau of Internal Revenue or the One- Stop Shop Inter-Agency Tax Credit and Duty Drawback
Center of the Department of Finance), the administrative agency and the court may act on the case
separately." Thus, if the taxpayer files its judicial claim before the expiration of the 120-day period,
the BIR will nevertheless continue to act on the administrative claim because such premature filing
cannot divest the Commissioner of his statutory power and jurisdiction to decide the administrative
claim within the 120-day period.
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On the other hand, if the taxpayer files its judicial claim after the 120- day period, the Commissioner
can still continue to evaluate the administrative claim. There is nothing new in this because even after
the expiration of the 120-day period, the Commissioner should still evaluate internally the
administrative claim for purposes of opposing the taxpayers judicial claim, or even for purposes of
determining if the BIR should actually concede to the taxpayers judicial claim. The internal
administrative evaluation of the taxpayers claim must necessarily continue to enable the BIR to
oppose intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to
concede to the judicial claim, resulting in the termination of the judicial proceedings.
What is important, as far as the present cases are concerned, is that the mere filing by a taxpayer of a
judicial claim with the CTA before the expiration of the 120-day period cannot operate to divest the
Commissioner of his jurisdiction to decide an administrative claim within the 120-day mandatory
period,unless the Commissioner has clearly given cause for equitable estoppel to apply as expressly
recognized in Section 246 of the Tax Code.67
VI. BIR Ruling No. DA-489-03 dated 10 December 2003
BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the
Tax Code. BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for
the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for
Review." Prior to this ruling, the BIR held, as shown by its position in the Court of Appeals,68 that the
expiration of the 120-day period is mandatory and jurisdictional before a judicial claim can be filed.
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does
not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period.
There are, however, two exceptions to this rule. The first exception is if the Commissioner, through a
specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such
specific ruling is applicable only to such particular taxpayer. The second exception is where the
Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code,
misleads all taxpayers into filing prematurely judicial claims with the CTA. In these cases, the
Commissioner cannot be allowed to later on question the CTAs assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax Code.
Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the
Commissioner the power to interpret tax laws, thus:
Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. The power to
interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under this Code or other laws or
portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
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Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting
in good faith should not be made to suffer for adhering to general interpretative rules of the
Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous and be
reversed by the Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly provides
that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in good faith
relied on the BIR regulation or ruling prior to its reversal. Section 246 provides as follows:
Sec. 246. Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the rules
and regulations promulgated in accordance with the preceding Sections 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 or 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)
Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers from
the time the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is not
limited to a reversal only by the Commissioner because this Section expressly states, "Any revocation,
modification or reversal" without specifying who made the revocation, modification or reversal.
Hence, a reversal by this Court is covered under Section 246.
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly
on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi69 is proof
that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question
of law. The abandonment of the Atlasdoctrine did not result in Atlas, or other taxpayers similarly
situated, being made to return the tax refund or credit they received or could have received
under Atlas prior to its abandonment. This Court is applying Mirant and Aichiprospectively. Absent
fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued
by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply
prospectively. As held by this Court in CIR v. Philippine Health Care Providers, Inc.:70
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of the
1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a position
contrary to one previously taken where injustice would result to the taxpayer. Hence, where an
assessment for deficiency withholding income taxes was made, three years after a new BIR Circular
reversed a previous one upon which the taxpayer had relied upon, such an assessment was
prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of
good faith, equity, and fair play.
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This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp.1wphi1 in the later
cases ofCommissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v.
Mega Gen. Mdsg. Corp., Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.) Inc.,
and Commissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have no
retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer, as in this
case.
More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer
was entitled to tax refunds or credits based on the BIRs own issuances but later was suddenly
saddled with deficiency taxes due to its subsequent ruling changing the category of the taxpayers
transactions for the purpose of paying its VAT, this Court ruled that applying such ruling retroactively
would be prejudicial to the taxpayer. (Emphasis supplied)
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to
all taxpayers or a specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made,
not by a particular taxpayer, but by a government agency tasked with processing tax refunds and
credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department
of Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling
No. DA-489-03. Thus, while this government agency mentions in its query to the Commissioner the
administrative claim of Lazi Bay Resources Development, Inc., the agency was in fact asking the
Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where
the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this
Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are mandatory
and jurisdictional
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is
admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the
120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third,
prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim
prematurely; and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly
construed against the taxpayer.
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim
prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10 December
2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its judicial claim
prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed its judicial
claim. At the time San Roque filed its judicial claim, the law as applied and administered by the BIR
was that the Commissioner had 120 days to act on administrative claims. This was in fact the position
of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never claimed the
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benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court, the CTA, or before the
Commissioner.
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR
Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim
prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of
its judicial claim from the vice of prematurity.
Philexs situation is not a case of premature filing of its judicial claim but of late filing,
indeed very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which
means non-exhaustion of the 120-day period for the Commissioner to act on an administrative
claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its
judicial claim prematurely but filed it long after the lapse of the 30-day period following the
expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the
30-day period.
VII. Existing Jurisprudence
There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that
the filing dates of the administrative and judicial claims are inconsequential, as long as they are
within the two-year prescriptive period. The effect of the claim of the dissenting opinions is that San
Roques failure to wait for the 120-day mandatory period to lapse is inconsequential, thus allowing
San Roque to claim the tax refund or credit. However, the five cases cited by the dissenting opinions
do not support even remotely the claim that this Court had already made such a ruling. None of
these five cases mention, cite, discuss, rule or even hint that compliance with the 120-day mandatory
period is inconsequential as long as the administrative and judicial claims are filed within the twoyear prescriptive period.
In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT was
actually passed on to Toshiba that it could claim as input VAT subject to tax credit or refund. The
Commissioner argued that "although Toshiba may be a VAT-registered taxpayer, it is not engaged in
a VAT-taxable business." The Commissioner cited Section 4.106-1 of Revenue Regulations No. 75
that "refund of input taxes on capital goods shall be allowed only to the extent that such capital
goods are used in VAT-taxable business." In the words of the Court, "Ultimately, however, the issue
still to be resolved herein shall be whether respondent Toshiba is entitled to the tax credit/refund of
its input VAT on its purchases of capital goods and services, to which this Court answers in the
affirmative." Nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year
In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in the
instant case are (1) whether the absence of the BIR authority to print or the absence of the TIN-V in
petitioners export sales invoices operates to forfeit its entitlement to a tax refund/credit of its
unutilized input VAT attributable to its zero-rated sales; and (2) whether petitioners failure to
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indicate "TIN-V" in its sales invoices automatically invalidates its claim for a tax credit certification."
Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the
In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA First
Division, conceding that petitioners transactions fall under the classification of zero-rated sales,
nevertheless denied petitioners claim for lack of substantiation, x x x." The Court quoted the ruling
of the First Division that "valid VAT official receipts, and not mere sale invoices, should have been
submitted" by petitioner to substantiate its claim. The Court further stated: "x x x the CTA En Banc, x
x x affirmed x x x the CTA First Division," and "petitioners motion for reconsideration having been
denied x x x, the present petition for review was filed." Clearly, the sole issue in this case is whether
petitioner complied with the substantiation requirements in claiming for tax refund or credit. Again,
nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative
and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.
In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this manner:
"Simply put, the sole issue the petition raises is whether or not the CTA erred in granting respondent
Ironcons application for refund of its excess creditable VAT withheld." The Commissioner argued
that "since the NIRC does not specifically grant taxpayers the option to refund excess creditable VAT
withheld, it follows that such refund cannot be allowed." Thus, this case is solely about whether the
taxpayer has the right under the NIRC to ask for a cash refund of excess creditable VAT withheld.
In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to VAT.
Compliance with the 120-day period was never an issue in Cebu Toyo. As the Court explained:
Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that
respondent Cebu Toyo Corporation, as a PEZA-registered enterprise, is exempt from national and
local taxes, including VAT, under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC. Thus,
they contend that respondent Cebu Toyo Corporation is not entitled to any refund or credit on input
taxes it previously paid as provided under Section 4.103-1 of Revenue Regulations No. 7-95,
notwithstanding its registration as a VAT taxpayer. For petitioner claims that said registration was
erroneous and did not confer upon the respondent any right to claim recognition of the input tax
credit.
The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years
from August 7, 1995 making it exempt from income tax but not from other taxes such as VAT. Hence,
according to respondent, its export sales are not exempt from VAT, contrary to petitioners claim, but
its export sales is subject to 0% VAT. Moreover, it argues that it was able to establish through a
report certified by an independent Certified Public Accountant that the input taxes it incurred from
April 1, 1996 to December 31, 1997 were directly attributable to its export sales. Since it did not have
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any output tax against which said input taxes may be offset, it had the option to file a claim for
refund/tax credit of its unutilized input taxes.
Considering the submission of the parties and the evidence on record, we find the petition bereft of
merit.
Petitioners contention that respondent is not entitled to refund for being exempt from VAT is
untenable. This argument turns a blind eye to the fiscal incentives granted to PEZA-registered
enterprises under Section 23 of Rep. Act No. 7916. Note that under said statute, the respondent had
two options with respect to its tax burden. It could avail of an income tax holiday pursuant to
provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not from
other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes,
including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No.
7916. Both the Court of Appeals and the Court of Tax Appeals found that respondent availed of the
income tax holiday for four (4) years starting from August 7, 1995, as clearly reflected in its 1996 and
1997 Annual Corporate Income Tax Returns, where respondent specified that it was availing of the
tax relief under E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly registered
itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt transactions. (Emphasis
supplied)
Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject to VAT at
0% tax rate. If subject to 0% VAT rate, the taxpayer could claim a refund or credit of its input VAT.
While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not bother to
wait for the Resolution of its (administrative) claim by the CIR" before filing its judicial claim with the
CTA, this issue was not raised before the Court. Certainly, this statement of the Court is not a binding
precedent that the taxpayer need not wait for the 120-day period to lapse.
Any issue, whether raised or not by the parties, but not passed upon by the Court, does not have any
value as precedent. As this Court has explained as early as 1926:
It is contended, however, that the question before us was answered and resolved against the
contention of the appellant in the case of Bautista vs. Fajardo (38 Phil. 624). In that case no question
was raised nor was it even suggested that said section 216 did not apply to a public officer. That
question was not discussed nor referred to by any of the parties interested in that case. It has been
frequently decided that the fact that a statute has been accepted as valid, and invoked and applied
for many years in cases where its validity was not raised or passed on, does not prevent a court from
later passing on its validity, where that question is squarely and properly raised and
presented. Where a question passes the Court sub silentio, the case in which the question was so
passed is not binding on the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor should it be
considered as a precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs. Acasio, 31 Phil.
401; U.S. vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs. Sanges, 144 U.S. 310, 319; Cross vs. Burke, 146
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U.S. 82.) For the reasons given in the case of McGirr vs. Hamilton and Abreu, supra, the decision in
the case of Bautista vs. Fajardo, supra, can have no binding force in the interpretation of the question
presented here.76 (Emphasis supplied)
In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even
raised as an issue by any of the parties. The Court never passed upon this issue. Thus, Cebu
Toyo does not constitute binding precedent on the nature of the 120-day period.
There is also the claim that there are numerous CTA decisions allegedly supporting the argument
that the filing dates of the administrative and judicial claims are inconsequential, as long as they are
within the two-year prescriptive period. Suffice it to state that CTA decisions do not constitute
precedents, and do not bind this Court or the public. That is why CTA decisions are appealable to this
Court, which may affirm, reverse or modify the CTA decisions as the facts and the law may warrant.
Only decisions of this Court constitute binding precedents, forming part of the Philippine legal
system.77 As held by this Court in The Philippine Veterans Affairs Office v. Segundo:78
x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws or
the Constitution . . . form part of the legal system of the Philippines," and, as it were, "laws" by their
own right because they interpret what the laws say or mean. Unlike rulings of the lower courts, which
bind the parties to specific cases alone, our judgments are universal in their scope and application,
and equally mandatory in character. Let it be warned that to defy our decisions is to court contempt.
(Emphasis supplied)
The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils., Inc.:79
The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to wit:
ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the
legal system of the Philippines.
It enjoins adherence to judicial precedents. It requires our courts to follow a rule already established
in a final decision of the Supreme Court. That decision becomes a judicial precedent to be followed
in subsequent cases by all courts in the land. The doctrine of stare decisis is based on the principle
that once a question of law has been examined and decided, it should be deemed settled and closed
to further argument. (Emphasis supplied)
VIII. Revenue Regulations No. 7-95 Effective 1 January 1996
Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the
taxpayer files the judicial claim "after" the lapse of the 60-day period, a period with which San Roque
failed to comply. Under Section 4.106-2(c), the 60-day period is still mandatory and jurisdictional.
Moreover, it is a hornbook principle that a prior administrative regulation can never prevail over a
later contrary law, more so in this case where the later law was enacted precisely to amend the prior
administrative regulation and the law it implements.
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The laws and regulation involved are as follows:

1977 Tax Code, as amended by Republic Act No. 7716 (1994)
Sec. 106. Refunds or tax credits of creditable input tax.
(a) x x x x
(d) Period within which refund or tax credit of input tax shall be made - In proper cases, the
Commissioner shall grant a refund or issue the tax credit for creditable input taxes within
sixty (60) days from the date of submission of complete documents in support of the
application filed in accordance with subparagraphs (a) and (b) hereof. In case of full or partial
denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner
to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from receipt of the decision denying the claim or after the expiration
of the sixty-day period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
Revenue Regulations No. 7-95 (1996)
Section 4.106-2. Procedures for claiming refunds or tax credits of input tax (a) x x x
xxxx
(c) Period within which refund or tax credit of input taxes shall be made. In proper cases, the
Commissioner shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the
date of submission of complete documents in support of the application filed in accordance with
subparagraphs (a) and (b) above.
In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of
Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from
the receipt of said denial, otherwise the decision will become final. However, if no action on the claim
for tax credit/refund has been taken by the Commissioner of Internal Revenue after the sixty (60) day
period from the date of submission of the application but before the lapse of the two (2) year period
from the date of filing of the VAT return for the taxable quarter, the taxpayer may appeal to the
Court of Tax Appeals.
xxxx
1997 Tax Code
Section 112. Refunds or Tax Credits of Input Tax
(A) x x x
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xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be made. In proper cases, the
Commissioner shall grant the refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of
the application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of
the Commissioner to act on the application within the period prescribed above, the taxpayer affected
of the hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716,
the Commissioner has a 60-day period to act on the administrative claim. This 60-day period is
mandatory and jurisdictional.
Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no
longer mandatory and jurisdictional? The obvious answer is no.
Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the Commissioner
fails to act on the administrative claim, the taxpayer may file the judicial claim even "before the lapse
of the two (2) year period." Thus, under Section 4.106-2(c) the 60-day period is still mandatory and
jurisdictional.
Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented
it, for two reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day period.
This cannot be disputed.1wphi1
Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner
during the 60-day period is deemed a denial of the claim. Thus, Section 4.106-2(c) states that "if no
action on the claim for tax refund/credit has been taken by the Commissioner after the sixty (60) day
period," the taxpayer "may" already file the judicial claim even long before the lapse of the two-year
prescriptive period. Prior to the amendment by RA 7716, the taxpayer had to wait until the two-year
prescriptive period was about to expire if the Commissioner did not act on the claim.80 With the
amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive period is about to
expire before filing the judicial claim because mere inaction by the Commissioner during the 60-day
period is deemed a denial of the claim. This is the meaning of the phrase "but before the lapse of the
two (2) year period" in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial claim can
be filed only "after the sixty (60) day period," this period remains mandatory and jurisdictional.
Clearly, Section 4.106-2(c) did not amend Section 106(d) but merely faithfully implemented it.
Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95,
an administrative issuance, amended Section 106(d) of the Tax Code to make the period given to the
Commissioner non-mandatory, still the 1997 Tax Code, a much later law, reinstated the original
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intent and provision of Section 106(d) by extending the 60-day period to 120 days and re-adopting
the original wordings of Section 106(d). Thus, Section 4.106-2(c), a mere administrative issuance,
becomes inconsistent with Section 112(D), a later law. Obviously, the later law prevails over a prior
inconsistent administrative issuance.
Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has
120 days to act on an administrative claim. The taxpayer can file the judicial claim (1) only within
thirty days after the Commissioner partially or fully denies the claim within the 120- day period, or
(2) only within thirty days from the expiration of the 120- day period if the Commissioner does not
act within the 120-day period.
There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more than
five yearsbefore San Roque filed its administrative claim on 28 March 2003, the law has been clear:
the 120- day period is mandatory and jurisdictional. San Roques claim, having been filed
administratively on 28 March 2003, is governed by the 1997 Tax Code, not the 1977 Tax Code. Since
San Roque filed its judicial claim before the expiration of the 120-day mandatory and jurisdictional
period, San Roques claim cannot prosper.
San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can only
file the judicial claim "after" the lapse of the 60-day period from the filing of the administrative
claim. San Roque filed its judicial claim just 13 days after filing its administrative claim. To recall, San
Roque filed its judicial claim on 10 April 2003, a mere 13 days after it filed its administrative claim.
Even if, contrary to all principles of statutory construction as well as plain common sense, we
gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque cannot
recover any refund or credit because San Roque did not wait for the 60-day period to lapse, contrary
to the express requirement in Section 4.106-2(c). In short, San Roque does not even comply with
Section 4.106-2(c). A claim for tax refund or credit is strictly construed against the taxpayer, who
must prove that his claim clearly complies with all the conditions for granting the tax refund or
credit. San Roque did not comply with the express condition for such statutory grant.
A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its
tax efficiency collection for the longest time with minimal success. Consequently, the Philippines has
suffered the economic adversities arising from poor tax collections, forcing the government to
continue borrowing to fund the budget deficits. This Court cannot turn a blind eye to this economic
malaise by being unduly liberal to taxpayers who do not comply with statutory requirements for tax
refunds or credits. The tax refund claims in the present cases are not a pittance. Many other
companies stand to gain if this Court were to rule otherwise. The dissenting opinions will turn on its
head the well-settled doctrine that tax refunds are strictly construed against the taxpayer.
WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue in
G.R. No. 187485 to DENY the P483,797,599.65 tax refund or credit claim of San Roque Power
Corporation; (2) GRANTSthe petition of Taganito Mining Corporation in G.R. No. 196113 for a tax
refund or credit of P8,365,664.38; and (3) DENIES the petition of Philex Mining Corporation in G.R.
No. 197156 for a tax refund or credit of P23,956,732.44.
Page 56 of 455
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G.R. No. 134062
April 17, 2007

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA) dated May 29,
1998 in CA-G.R. SP No. 41025 which reversed and set aside the decision3 and resolution4 of the Court
of Tax Appeals (CTA) dated November 16, 1995 and May 27, 1996, respectively, in CTA Case No.
4715.
In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed
respondent Bank of the Philippine Islands (BPIs) deficiency percentage and documentary stamp
taxes for the year 1986 in the total amount of P129,488,656.63:
1986 Deficiency Percentage Tax
Deficiency percentage tax
P 7, 270,892.88
Add: 25% surcharge
1,817,723.22
20% interest from 1-21-87 to 10-28-88
3,215,825.03
15,000.00
Compromise penalty
TOTAL AMOUNT DUE AND COLLECTIBLE
P12,319,441.13
1986 Deficiency Documentary Stamp Tax

Deficiency percentage tax
P93,723,372.40
Add: 25% surcharge
23,430,843.10
Compromise penalty
15,000.00
P117,169,215.50.5
Both notices of assessment contained the following note:

Please be informed that your [percentage and documentary stamp taxes have] been assessed as
shown above. Said assessment has been based on return (filed by you) (as verified) (made by
this Office) (pending investigation) (after investigation). You are requested to pay the above
amount to this Office or to our Collection Agent in the Office of the City or Deputy Provincial
Treasurer of xxx6
In a letter dated December 10, 1988, BPI, through counsel, replied as follows:
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1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed,
even in the vaguest terms, why it is being assessed a deficiency. The very purpose of a
deficiency assessment is to inform taxpayer why he has incurred a deficiency so that he can
make an intelligent decision on whether to pay or to protest the assessment. This is all the
more so when the assessment involves astronomical amounts, as in this case.
We therefore request that the examiner concerned be required to state, even in the briefest
form, why he believes the taxpayer has a deficiency documentary and percentage taxes, and
as to the percentage tax, it is important that the taxpayer be informed also as to what
particular percentage tax the assessment refers to.
2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise
forged between your office and the Bankers Association of the Philippines [BAP] on this issue
and of BPIs submission of its computations under this compromise. There is therefore no
basis whatsoever for this assessment, assuming it is on the subject of the BAP compromise.
On the other hand, if it relates to documentary stamp tax on some other issue, we should like
to be informed about what those issues are.
3. As to the alleged deficiency percentage tax, we are completely at a loss on how such
assessment may be protested since your letter does not even tell the taxpayer what particular
percentage tax is involved and how your examiner arrived at the deficiency. As soon as this is
explained and clarified in a proper letter of assessment, we shall inform you of the taxpayers
decision on whether to pay or protest the assessment.7
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:
although in all respects, your letter failed to qualify as a protest under Revenue Regulations No.
12-85 and therefore not deserving of any rejoinder by this office as no valid issue was raised against
the validity of our assessment still we obliged to explain the basis of the assessments.
xxx xxx xxx
this constitutes the final decision of this office on the matter.8
On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIRs May 8, 1991
letter.9 This was denied in a letter dated December 12, 1991, received by BPI on January 21, 1992.10
On February 18, 1992, BPI filed a petition for review in the CTA.11 In a decision dated November 16,
1995, the CTA dismissed the case for lack of jurisdiction since the subject assessments had become
final and unappealable. The CTA ruled that BPI failed to protest on time under Section 270 of the
National Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA
1125.12 It denied reconsideration in a resolution dated May 27, 1996.13
On appeal, the CA reversed the tax courts decision and resolution and remanded the case to the
CTA14 for a decision on the merits.15 It ruled that the October 28, 1988 notices were not valid
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assessments because they did not inform the taxpayer of the legal and factual bases therefor. It
declared that the proper assessments were those contained in the May 8, 1991 letter which provided
the reasons for the claimed deficiencies.16 Thus, it held that BPI filed the petition for review in the
CTA on time.17 The CIR elevated the case to this Court.
This petition raises the following issues:
1) whether or not the assessments issued to BPI for deficiency percentage and documentary
stamp taxes for 1986 had already become final and unappealable and
2) whether or not BPI was liable for the said taxes.
The former Section 27018 (now renumbered as Section 228) of the NIRC stated:
Sec. 270. Protesting of assessment. When the [CIR] or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within a period to
be prescribed by implementing regulations, the taxpayer shall be required to respond to said notice.
If the taxpayer fails to respond, the [CIR] shall issue an assessment based on his findings.
xxx xxx xxx (emphasis supplied)
Were the October 28, 1988 Notices Valid Assessments?
The first issue for our resolution is whether or not the October 28, 1988 notices19 were valid
assessments. If they were not, as held by the CA, then the correct assessments were in the May 8,
1991 letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter, seasonably asked for a
reconsideration of the findings which the CIR denied in his December 12, 1991 letter, received by BPI
on January 21, 1992. Consequently, the petition for review filed by BPI in the CTA on February 18,
1992 would be well within the 30-day period provided by law.20
The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalid
assessments. He asserts that he used BIR Form No. 17.08 (as revised in November 1964) which was
designed for the precise purpose of notifying taxpayers of the assessed amounts due and
demanding payment thereof.21 He contends that there was no law or jurisprudence then that
required notices to state the reasons for assessing deficiency tax liabilities.22
BPI counters that due process demanded that the facts, data and law upon which the assessments
were based be provided to the taxpayer. It insists that the NIRC, as worded now (referring to Section
228), specifically provides that:
"[t]he taxpayer shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void."
According to BPI, this is declaratory of what sound tax procedure is and a confirmation of what due
process requires even under the former Section 270.
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BPIs contention has no merit. The present Section 228 of the NIRC provides:
Sec. 228. Protesting of Assessment. When the [CIR] or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however,
That a preassessment notice shall not be required in the following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void.
xxx xxx xxx (emphasis supplied)
Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of
the deficiency taxes were made. He merely notified BPI of his findings, consisting only of the
computation of the tax liabilities and a demand for payment thereof within 30 days after receipt.
In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270
prior to its amendment by RA 8424 (also known as the Tax Reform Act of 1997).23 In CIR v.
Reyes,24 we held that:
In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 229 prior to its amendment by [RA] 8424,
otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIR's findings was changed in
1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment
would be made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued.
During those dates, RA 8424 was already in effect. The notice required under the old law was no
longer sufficient under the new law.25 (emphasis supplied; italics in the original)
Accordingly, when the assessments were made pursuant to the former Section 270, the only
requirement was for the CIR to "notify" or inform the taxpayer of his "findings." Nothing in the old
law required a written statement to the taxpayer of the law and facts on which the assessments were
based. The Court cannot read into the law what obviously was not intended by Congress. That would
be judicial legislation, nothing less.
Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax
liabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed
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period.26 Everything considered, there was no doubt the October 28, 1988 notices sufficiently met
the requirements of a valid assessment under the old law and jurisprudence.
The sentence
[t]he taxpayers shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void
was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997.
Evidently, the legislature saw the need to modify the former Section 270 by inserting the
aforequoted sentence.27 The fact that the amendment was necessary showed that, prior to the
introduction of the amendment, the statute had an entirely different meaning.28
Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not an
affirmation of what the law required under the former Section 270. The amendment introduced by
RA 8424 was an innovation and could not be reasonably inferred from the old law. 29 Clearly, the
legislature intended to insert a new provision regarding the form and substance of assessments
issued by the CIR.30
In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:
xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] of the
legal and factual basis of the formers decision to charge the latter for deficiency documentary stamp
and gross receipts taxes.31
In other words, the CAs theory was that BPI was deprived of due process when the CIR failed to
inform it in writing of the factual and legal bases of the assessments even if these were not called
for under the old law.
We disagree.
Indeed, the underlying reason for the law was the basic constitutional requirement that "no person
shall be deprived of his property without due process of law."32 We note, however, what the CTA had
to say:
xxx xxx xxx
From the foregoing testimony, it can be safely adduced that not only was [BPI] given the opportunity
to discuss with the [CIR] when the latter issued the former a Pre-Assessment Notice (which [BPI]
ignored) but that the examiners themselves went to [BPI] and "we talk to them and we try to [thresh]
out the issues, present evidences as to what they need." Now, how can [BPI] and/or its counsel
honestly tell this Court that they did not know anything about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,]
contrary to the allegations of its counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant Manager
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of the Accounting Department of [BPI]. He testified to the fact that he prepared worksheets which
contain his analysis regarding the findings of the [CIRs] examiner, Mr. San Pedro and that the same
worksheets were presented to Mr. Carlos Tan, Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature
and basis of the assessments, and was given all the opportunity to contest the same but ignored it
despite the notice conspicuously written on the assessments which states that "this ASSESSMENT
becomes final and unappealable if not protested within 30 days after receipt." Counsel resorted to
dilatory tactics and dangerously played with time. Unfortunately, such strategy proved fatal to the
cause of his client.33
The CA never disputed these findings of fact by the CTA:
[T]his Court recognizes that the [CTA], which by the very nature of its function is dedicated
exclusively to the consideration of tax problems, has necessarily developed an expertise on the
subject, and its conclusions will not be overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on appeal if they are not supported by
substantial evidence or there is a showing of gross error or abuse on the part of the [CTA].34
Under the former Section 270, there were two instances when an assessment became final and
unappealable: (1) when it was not protested within 30 days from receipt and (2) when the adverse
decision on the protest was not appealed to the CTA within 30 days from receipt of the final
decision:35
Sec. 270. Protesting of assessment.
xxx xxx xxx
Such assessment may be protested administratively by filing a request for reconsideration or
reinvestigation in such form and manner as may be prescribed by the implementing regulations
within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final
and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation adversely
affected by the decision on the protest may appeal to the [CTA] within thirty (30) days from receipt
of the said decision; otherwise, the decision shall become final, executory and demandable.
Implications Of A Valid Assessment
Considering that the October 28, 1988 notices were valid assessments, BPI should have protested the
same within 30 days from receipt thereof. The December 10, 1988 reply it sent to the CIR did not
qualify as a protest since the letter itself stated that "[a]s soon as this is explained and clarified in a
proper letter of assessment, we shall inform you of the taxpayers decision on whether to pay or
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protest the assessment."36 Hence, by its own declaration, BPI did not regard this letter as a protest
against the assessments. As a matter of fact, BPI never deemed this a protest since it did not even
consider the October 28, 1988 notices as valid or proper assessments.
The inevitable conclusion is that BPIs failure to protest the assessments within the 30-day period
provided in the former Section 270 meant that they became final and unappealable. Thus, the CTA
correctly dismissed BPIs appeal for lack of jurisdiction. BPI was, from then on, barred from disputing
the correctness of the assessments or invoking any defense that would reopen the question of its
liability on the merits.37 Not only that. There arose a presumption of correctness when BPI failed to
protest the assessments:
Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has
the duty to prove otherwise. In the absence of proof of any irregularities in the performance of
duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his
superior officers will not be disturbed. All presumptions are in favor of the correctness of tax
assessments.38
Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed
to have failed to appeal the CIRs final decision regarding the disputed assessments within the 30day period provided by law. The CIR, in his May 8, 1991 response, stated that it was his "final decision
on the matter." BPI therefore had 30 days from the time it received the decision on June 27, 1991
to appeal but it did not. Instead it filed a request for reconsideration and lodged its appeal in the
CTA only on February 18, 1992, way beyond the reglementary period. BPI must now suffer the
repercussions of its omission. We have already declared that:
the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever his
action on an assessment questioned by a taxpayer constitutes his final determination on the
disputed assessment, as contemplated by Sections 7 and 11 of [RA 1125], as amended. On the basis
of his statement indubitably showing that the Commissioner's communicated action is his final
decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse
to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to
determine when his right to appeal to the tax court accrues.
The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to
continually delay the finality of the assessment and, consequently, the collection of the amount
demanded as taxes by repeated requests for recomputation and reconsideration. On the part of
the [CIR], this would encourage his office to conduct a careful and thorough study of every
questioned assessment and render a correct and definite decision thereon in the first instance. This
would also deter the [CIR] from unfairly making the taxpayer grope in the dark and speculate as to
which action constitutes the decision appealable to the tax court. Of greater import, this rule of
conduct would meet a pressing need for fair play, regularity, and orderliness in administrative
action.39 (emphasis supplied)
Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the
subject tax assessments.
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We realize that these assessments (which have been pending for almost 20 years) involve a
considerable amount of money. Be that as it may, we cannot legally presume the existence of
something which was never there. The state will be deprived of the taxes validly due it and the public
will suffer if taxpayers will not be held liable for the proper taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting the general welfare and wellbeing of the people.40
WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court of Appeals in
CA-G.R. SP No. 41025 is REVERSED and SET ASIDE.
COMMISSIONER OF INTERNAL REVENUE vs. MANUEL B. PINEDA, as one of the heirs of deceased
ATANASIO PINEDA, G.R. No. L-22734, September 15, 1967
On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children,
the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First
Instance of Manila (Case No. 71129) wherein the surviving widow was appointed administratrix. The
estate was divided among and awarded to the heirs and the proceedings terminated on June 8,
1948. Manuel B. Pineda's share amounted to about P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue investigated the
income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the
corresponding income tax returns were not filed. Thereupon, the representative of the Collector of
Internal Revenue filed said returns for the estate on the basis of information and data obtained from
the aforesaid estate proceedings and issued an assessment for the following:
1.
Deficiency income tax

1945
P135.83
1946
436.95
1947
1,206.91
Add: 5% surcharge
P1,779.69
88.98
1% monthly interest from November 30, 1953 to April 15,

1957
720.77
Compromise for late filing
80.00
Compromise for late payment
40.00
Total amount due
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P2,707.44
===========
P14.50
2.
Additional residence tax for 1945
3.
Real Estate dealer's tax for the fourth quarter of 1946 and the whole P207.50
year of 1947
===========
===========
Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he
appealed to the Court of Tax Appeals alleging that he was appealing "only that proportionate part or
portion pertaining to him as one of the heirs."
After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision
of the Commissioner on the ground that his right to assess and collect the tax has prescribed. The
Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the
assessment for income tax for the year 1947 but held that the right to assess and collect the taxes for
1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed on August 24, 1953;
assessments for both taxable years were made within five years therefrom or on October 19, 1953;
and the action to collect the tax was filed within five years from the latter date, on August 7, 1957.
For taxable year 1947, however, the return was filed on March 1, 1948; the assessment was made on
October 19, 1953, more than five years from the date the return was filed; hence, the right to assess
income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court for further
appropriate proceedings.1
In the Tax Court, the parties submitted the case for decision without additional evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda
liable for the payment corresponding to his share of the following taxes:
Deficiency income tax
1945
1946
P135.8
3
436.95
Real estate dealer's fixed tax 4th quarter of 1946 and whole year of 1947 P187.50
The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel
B. Pineda liable for the payment of all the taxes found by the Tax Court to be due from the estate in
the total amount of P760.28 instead of only for the amount of taxes corresponding to his share in
the estate.
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Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid
income tax due the estate only up to the extent of and in proportion to any share he received. He
relies on Government of the Philippine Islands v. Pamintuan2 where We held that "after the partition
of an estate, heirs and distributees are liable individually for the payment of all lawful outstanding
claims against the estate in proportion to the amount or value of the property they have respectively
received from the estate."
We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes
assessed.
Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging
to the estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate
to the share he received from the inheritance.3 His liability, however, cannot exceed the amount of
his share.4
As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of
the property in his possession. The reason is that the Government has a lien on the P2,500.00
received by him from the estate as his share in the inheritance, for unpaid income taxes4a for which
said estate is liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we quote
hereunder:
If any person, corporation, partnership, joint-account (cuenta en participacion),
association, or insurance company liable to pay the income tax, neglects or refuses to pay the
same after demand, the amount shall be a lien in favor of the Government of the Philippines
from the time when the assessment was made by the Commissioner of Internal Revenue until
paid with interest, penalties, and costs that may accrue in addition thereto upon all property
and rights to property belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the property in Pineda's
possession, i.e., the P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such
payment, Pineda will have a right of contribution from his co-heirs,5 to achieve an adjustment of the
proper share of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by going after all
the heirs and collecting from each one of them the amount of the tax proportionate to the
inheritance received. This remedy was adopted in Government of the Philippine Islands v.
Pamintuan, supra. In said case, the Government filed an action against all the heirs for the collection
of the tax. This action rests on the concept that hereditary property consists only of that part which
remains after the settlement of all lawful claims against the estate, for the settlement of which the
entire estate is first liable.6 The reason why in case suit is filed against all the heirs the tax due from
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the estate is levied proportionately against them is to achieve thereby two results: first, payment of
the tax; and second, adjustment of the shares of each heir in the distributed estate as lessened by the
tax.
Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property
and rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said
property of the estate which is in the hands of an heir or transferee to the payment of the tax due,
the estate. This second remedy is the very avenue the Government took in this case to collect the tax.
The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary
discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the
particular provision of the Tax Code above quoted, because taxes are the lifeblood of government
and their prompt and certain availability is an imperious need.7 And as afore-stated in this case the
suit seeks to achieve only one objective: payment of the tax. The adjustment of the respective shares
due to the heirs from the inheritance, as lessened by the tax, is left to await the suit for contribution
by the heir from whom the Government recovered said tax.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to
pay to the Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945
and 1946, and real estate dealer's fixed tax for the fourth quarter of 1946 and for the whole year
1947, without prejudice to his right of contribution for his co-heirs. No costs. So ordered.
MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional Director,
Revenue Region No. 14, Bureau of Internal Revenue vs. HON. JOSE F. FERNANDEZ, Judge of the
Court of First Instance of Negros Occidental, Branch V, and FRANCIS A. TONGOY, Administrator of
the Estate of the late LUIS D. TONGOY, G.R. No. L-31364 March 30, 1979
Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special
Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
dismissing the Motion for Allowance of Claim and for an Order of Payment of Taxes by the
Government of the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for
deficiency income taxes for the years 1963 and 1964 of the decedent in the total amount of
P3,254.80, inclusive 5% surcharge, 1% monthly interest and compromise penalties, and the second,
dated October 7, 1969, denying the Motion for reconsideration of the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3,
1969 in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The
claim represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency
income taxes in the total sum of P3,254.80 as above stated, covered by Assessment Notices Nos. 1150-29-1-11061-21-63 and 11-50-291-1 10875-64, to which motion was attached Proof of Claim
(Annex B, Petition, pp. 21-22, Rollo). The Administrator opposed the motion solely on the ground
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that the claim was barred under Section 5, Rule 86 of the Rules of Court (par. 4, Opposition to
Motion for Allowance of Claim, pp. 23-24, Rollo). Finding the opposition well-founded, the
respondent Judge, Jose F. Fernandez, dismissed the motion for allowance of claim filed by herein
petitioner, Regional Director of the Bureau of Internal Revenue, in an order dated July 29, 1969
(Annex D, Petition, p. 26, Rollo). On September 18, 1969, a motion for reconsideration was filed, of
the order of July 29, 1969, but was denied in an Order dated October 7, 1969.
Hence, this appeal on certiorari, petitioner assigning the following errors:
1. The lower court erred in holding that the claim for taxes by the government
against the estate of Luis D. Tongoy was filed beyond the period provided in Section
2, Rule 86 of the Rules of Court.
2. The lower court erred in holding that the claim for taxes of the government was
already barred under Section 5, Rule 86 of the Rules of Court.
which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New
Rule of Court, bars claim of the government for unpaid taxes, still within the period of limitation
prescribed in Section 331 and 332 of the National Internal Revenue Code.
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for
Allowance of Claim, etc. of the petitioners reads as follows:
All claims for money against the decedent, arising from contracts, express or implied,
whether the same be due, not due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in they notice; otherwise they are
barred forever, except that they may be set forth as counter claims in any action that
the executor or administrator may bring against the claimants. Where the executor or
administrator commence an action, or prosecutes an action already commenced by
the deceased in his lifetime, the debtor may set forth may answer the claims he has
against the decedents, instead of presenting them independently to the court has
herein provided, and mutual claims may be set off against each other in such action;
and in final judgment is rendered in favored of the decedent, the amount to
determined shall be considered the true balance against the estate, as though the
claim has been presented directly before the court in the administration proceedings.
Claims not yet due, or contingent may be approved at their present value.
A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different character from
the claims expressly enumerated therein, such as: "all claims for money against the decedent arising
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from contract, express or implied, whether the same be due, not due or contingent, all claim for
funeral expenses and expenses for the last sickness of the decedent and judgment for money against
the decedent." Under the familiar rule of statutory construction of expressio unius est exclusio
alterius, the mention of one thing implies the exclusion of another thing not mentioned. Thus, if a
statute enumerates the things upon which it is to operate, everything else must necessarily, and by
implication be excluded from its operation and effect (Crawford, Statutory Construction, pp. 334335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L23081, December 30, 1969, it was held that the assessment, collection and recovery of taxes, as well
as the matter of prescription thereof are governed by the provisions of the National Internal revenue
Code, particularly Sections 331 and 332 thereof, and not by other provisions of law. (See also Lim Tio,
Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R. No. L-10681,
March 29, 1958). Even without being specifically mentioned, the provisions of Section 2 of Rule 86 of
the Rules of Court may reasonably be presumed to have been also in the mind of the Court as not
affecting the aforecited Section of the National Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes
assessed against the estate of a deceased person ... need not be submitted to the committee on
claims in the ordinary course of administration. In the exercise of its control over the administrator,
the court may direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate." The abolition of the Committee on Claims does not alter the basic
ruling laid down giving exception to the claim for taxes from being filed as the other claims
mentioned in the Rule should be filed before the Court. Claims for taxes may be collected even after
the distribution of the decedent's estate among his heirs who shall be liable therefor in proportion of
their share in the inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. 13).
The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form
of exception from the application of the statute of non-claims, is not hard to find. Taxes are the
lifeblood of the Government and their prompt and certain availability are imperious need.
(Commissioner of Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105).
Upon taxation depends the Government ability to serve the people for whose benefit taxes are
collected. To safeguard such interest, neglect or omission of government officials entrusted with the
collection of taxes should not be allowed to bring harm or detriment to the people, in the same
manner as private persons may be made to suffer individually on account of his own negligence, the
presumption being that they take good care of their personal affairs. This should not hold true to
government officials with respect to matters not of their own personal concern. This is the
philosophy behind the government's exception, as a general rule, from the operation of the principle
of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No.
761, Benevolent and Protective Order of the Elks Inc. vs. Court of Appeals, L-41001, September 30,
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1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571;
Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA
110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance
Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L- 23041,
July 31, 1969, 28 SCRA 119.) As already shown, taxes may be collected even after the distribution of
the estate of the decedent among his heirs (Government of the Philippines vs. Pamintuan,supra;
Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. Commissioner of Internal Revenue, G. R.
No. L-16661, January 31, 1962).
Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph
of Section 315 of the Tax Code payment of income tax shall be a lien in favor of the Government of
the Philippines from the time the assessment was made by the Commissioner of Internal Revenue
until paid with interests, penalties, etc. By virtue of such lien, this court held that the property of the
estate already in the hands of an heir or transferee may be subject to the payment of the tax due the
estate. A fortiori before the inheritance has passed to the heirs, the unpaid taxes due the decedent
may be collected, even without its having been presented under Section 2 of Rule 86 of the Rules of
Court. It may truly be said that until the property of the estate of the decedent has vested in the
heirs, the decedent, represented by his estate, continues as if he were still alive, subject to the
payment of such taxes as would be collectible from the estate even after his death. Thus in the case
above cited, the income taxes sought to be collected were due from the estate, for the three years
1946, 1947 and 1948 following his death in May, 1945.
Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section
2, Rule 86 of the Rules of Court, the claim in question may be filed even after the expiration of the
time originally fixed therein, as may be gleaned from the italicized portion of the Rule herein cited
which reads:
Section 2. Time within which claims shall be filed. - In the notice provided in the
preceding section, the court shall state the time for the filing of claims against the
estate, which shall not be more than twelve (12) nor less than six (6) months after the
date of the first publication of the notice. However, at any time before an order of
distribution is entered, on application of a creditor who has failed to file his claim
within the time previously limited the court may, for cause shown and on such terms
as are equitable, allow such claim to be flied within a time not exceeding one (1)
month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order
of Payment of Taxes) which, though filed after the expiration of the time previously limited but
before an order of the distribution is entered, should have been granted by the respondent court, in
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the absence of any valid ground, as none was shown, justifying denial of the motion, specially
considering that it was for allowance Of claim for taxes due from the estate, which in effect
represents a claim of the people at large, the only reason given for the denial that the claim was filed
out of the previously limited period, sustaining thereby private respondents' contention, erroneously
as has been demonstrated.
WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the
total amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code
is a final one and the respondent estate's sole defense of prescription has been herein overruled, the
Motion for Allowance of Claim is herein granted and respondent estate is ordered to pay and
discharge the same, subject only to the limitation of the interest collectible thereon as provided by
the Tax Code. No pronouncement as to costs.
G.R. No. 106611 July 21, 1994
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX
APPEALS, respondents.
The judicial proceedings over the present controversy commenced with CTA Case No. 4099, wherein
the Court of Tax Appeals ordered herein petitioner Commissioner of Internal Revenue to grant a
refund to herein private respondent Citytrust Banking Corporation (Citytrust) in the amount of
P13,314,506.14, representing its overpaid income taxes for 1984 and 1985, but denied its claim for
the alleged refundable amount reflected in its 1983 income tax return on the ground of
prescription. 1 That judgment of the tax court was affirmed by respondent Court of Appeals in its
judgment in CA-G.R. SP No. 26839. 2 The case was then elevated to us in the present petition for
review on certiorari wherein the latter judgment is impugned and sought to be nullified and/or set
aside.
It appears that in a letter dated August 26, 1986, herein private respondent corporation filed a claim
for refund with the Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00 representing
the alleged aggregate of the excess of its carried-over total quarterly payments over the actual
income tax due, plus carried-over withholding tax payments on government securities and rental
income, as computed in its final income tax return for the calendar year ending December 31, 1985. 3
Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive period,
Citytrust filed a petition with the Court of Tax Appeals, docketed therein as CTA Case No. 4099,
claiming the refund of its income tax overpayments for the years 1983, 1984 and 1985 in the total
amount of P19,971,745.00. 4
In the answer filed by the Office of the Solicitor General, for and in behalf of therein respondent
commissioner, it was asserted that the mere averment that Citytrust incurred a net loss in 1985 does
not ipso facto merit a refund; that the amounts of P6,611,223.00, P1,959,514.00 and P28,238.00
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claimed by Citytrust as 1983 income tax overpayment, taxes withheld on proceeds of government
securities investments, as well as on rental income, respectively, are not properly documented; that
assuming arguendo that petitioner is entitled to refund, the right to claim the same has prescribed
with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and 295 of
the National Internal Revenue Code of 1977, as amended, since the petition was filed only on August
28, 1986. 5
On February 20, 1991, the case was submitted for decision based solely on the pleadings and
evidence submitted by herein private respondent Citytrust. Herein petitioner could not present any
evidence by reason of the repeated failure of the Tax Credit/Refund Division of the BIR to transmit
the records of the case, as well as the investigation report thereon, to the Solicitor General. 6
However, on June 24, 1991, herein petitioner filed with the tax court a manifestation and motion
praying for the suspension of the proceedings in the said case on the ground that the claim of
Citytrust for tax refund in the amount of P19,971,745.00 was already being processed by the Tax
Credit/Refund Division of the BIR, and that said bureau was only awaiting the submission by Citytrust
of the required confirmation receipts which would show whether or not the aforestated amount was
actually paid and remitted to the BIR. 7
Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals already acquired
jurisdiction over the case, it could no longer be divested of the same; and, further, that the
proceedings therein could not be suspended by the mere fact that the claim for refund was being
administratively processed, especially where the case had already been submitted for decision.
It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y, Y-1, Y-2 and Y3 adduced in the case, which clearly showed that there was an overpayment of income taxes and for
which a tax credit or refund was due to Citytrust. The Foregoing exhibits are allegedly conclusive
proof of and an admission by herein petitioner that there had been an overpayment of income
taxes. 8
The tax court denied the motion to suspend proceedings on the ground that the case had already
been submitted for decision since February 20, 1991. 9
Thereafter, said court rendered its decision in the case, the decretal portion of which declares:
WHEREFORE, in view of the foregoing, petitioner is entitled to a refund but only for
the overpaid taxes incurred in 1984 and 1985. The refundable amount as shown in its
1983 income tax return is hereby denied on the ground of prescription. Respondent
is hereby ordered to grant a refund to petitioner Citytrust Banking Corp. in the
amount of P13,314,506.14 representing the overpaid income taxes for 1984 and
1985, recomputed as follows:
1984 Income tax due P 4,715,533.00
Less: 1984 Quarterly payments P 16,214,599.00*
1984 Tax Credits
W/T on int. on gov't. sec. 1,921,245.37*
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W/T on rental inc. 26,604.30* 18,162,448.67

Tax Overpayment (13,446,915.67)
Less: FCDU payable 150,252.00
Amount refundable for 1984 P (13,296,663.67)

1985 Income tax due (loss) P 0
Less: W/T on rentals 36,716.47*
Tax Overpayment (36,716.47)*

Less: FCDU payable 18,874.00
Amount Refundable for 1985 P (17,842.47)

* Note:
These credits are smaller than the claimed amount because only the
above figures are well supported by the various exhibits presented
during the hearing.
No pronouncement as to costs.
SO ORDERED. 10
The order for refund was based on the following findings of the Court of Tax Appeals: (1) the fact of
withholding has been established by the statements and certificates of withholding taxes
accomplished by herein private respondent's withholding agents, the authenticity of which were
neither disputed nor controverted by herein petitioner; (2) no evidence was presented which could
effectively dispute the correctness of the income tax return filed by herein respondent corporation
and other material facts stated therein; (3) no deficiency assessment was issued by herein petitioner;
and (4) there was an audit report submitted by the BIR Assessment Branch, recommending the
refund of overpaid taxes for the years concerned (Exhibits Y to Y-3), which enjoys the presumption of
regularity in the performance of official duty. 11
A motion for the reconsideration of said decision was initially filed by the Solicitor General on the
sole ground that the statements and certificates of taxes allegedly withheld are not conclusive
evidence of actual payment and remittance of the taxes withheld to the BIR. 12 A supplemental
motion for reconsideration was thereafter filed, wherein it was contended for the first time that
herein private respondent had outstanding unpaid deficiency income taxes. Petitioner alleged that
through an inter-office memorandum of the Tax Credit/Refund Division, dated August 8, 1991, he
came to know only lately that Citytrust had outstanding tax liabilities for 1984 in the amount of
P56,588,740.91 representing deficiency income and business taxes covered by Demand/Assessment
Notice No. FAS-1-84-003291-003296. 13
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Oppositions to both the basic and supplemental motions for reconsideration were filed by private
respondent Citytrust. 14 Thereafter, the Court of Tax Appeals issued a resolution denying both
motions for the reason that Section 52 (b) of the Tax Code, as implemented by Revenue Regulation
6-85, only requires that the claim for tax credit or refund must show that the income received was
declared as part of the gross income, and that the fact of withholding was duly established.
Moreover, with regard to the argument raised in the supplemental motion for reconsideration anent
the deficiency tax assessment against herein petitioner, the tax court ruled that since that matter was
not raised in the pleadings, the same cannot be considered, invoking therefor the salutary purpose
of the omnibus motion rule which is to obviate multiplicity of motions and to discourage dilatory
pleadings. 15
As indicated at the outset, a petition for review was filed by herein petitioner with respondent Court
of Appeals which in due course promulgated its decision affirming the judgment of the Court of Tax
Appeals. Petitioner eventually elevated the case to this Court, maintaining that said respondent court
erred in affirming the grant of the claim for refund of Citytrust, considering that, firstly, said private
respondent failed to prove and substantiate its claim for such refund; and, secondly, the bureau's
findings of deficiency income and business tax liabilities against private respondent for the year 1984
bars such payment. 16
After a careful review of the records, we find that under the peculiar circumstances of this case, the
ends of substantial justice and public interest would be better subserved by the remand of this case
to the Court of Tax Appeals for further proceedings.
It is the sense of this Court that the BIR, represented herein by petitioner Commissioner of Internal
Revenue, was denied its day in court by reason of the mistakes and/or negligence of its officials and
employees. It can readily be gleaned from the records that when it was herein petitioner's turn to
present evidence, several postponements were sought by its counsel, the Solicitor General, due to
the unavailability of the necessary records which were not transmitted by the Refund Audit Division
of the BIR to said counsel, as well as the investigation report made by the Banks/Financing and
Insurance Division of the said bureau/ despite repeated requests. 17 It was under such a predicament
and in deference to the tax court that ultimately, said records being still unavailable, herein
petitioner's counsel was constrained to submit the case for decision on February 20, 1991 without
presenting any evidence.
For that matter, the BIR officials and/or employees concerned also failed to heed the order of the
Court of Tax Appeals to remand the records to it pursuant to Section 2, Rule 7 of the Rules of the
Court of Tax Appeals which provides that the Commissioner of Internal Revenue and the
Commissioner of Customs shall certify and forward to the Court of Tax Appeals, within ten days after
filing his answer, all the records of the case in his possession, with the pages duly numbered, and if
the records are in separate folders, then the folders shall also be numbered.
The aforestated impass came about due to the fact that, despite the filing of the aforementioned
initiatory petition in CTA Case No. 4099 with the Court of Tax Appeals, the Tax Refund Division of the
BIR still continued to act administratively on the claim for refund previously filed therein, instead of
forwarding the records of the case to the Court of Tax Appeals as ordered. 18
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It is a long and firmly settled rule of law that the Government is not bound by the errors committed
by its agents.19 In the performance of its governmental functions, the State cannot be estopped by
the neglect of its agent and officers. Although the Government may generally be estopped through
the affirmative acts of public officers acting within their authority, their neglect or omission of public
duties as exemplified in this case will not and should not produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. 20 It is axiomatic that the
Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the
lifeblood of the nation through which the government agencies continue to operate and with which
the State effects its functions for the welfare of its constituents.21 The errors of certain administrative
officers should never be allowed to jeopardize the Government's financial position, 22 especially in
the case at bar where the amount involves millions of pesos the collection whereof, if justified, stands
to be prejudiced just because of bureaucratic lethargy.
Further, it is also worth nothing that the Court of Tax Appeals erred in denying petitioner's
supplemental motion for reconsideration alleging bringing to said court's attention the existence of
the deficiency income and business tax assessment against Citytrust. The fact of such deficiency
assessment is intimately related to and inextricably intertwined with the right of respondent bank to
claim for a tax refund for the same year. To award such refund despite the existence of that
deficiency assessment is an absurdity and a polarity in conceptual effects. Herein private respondent
cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for the
same year.
The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts
stated therein are true and correct. The deficiency assessment, although not yet final, created a
doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said
return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the
refund.
Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law
when the claim of Citytrust was filed, provides that "(w)hen an assessment is made in case of any list,
statement, or return, which in the opinion of the Commissioner of Internal Revenue was false or
fraudulent or contained any understatement or undervaluation, no tax collected under such
assessment shall be recovered by any suits unless it is proved that the said list, statement, or return
was not false nor fraudulent and did not contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or to be made in good faith regarding
annual depreciation of oil or gas wells and mines."
Moreover, to grant the refund without determination of the proper assessment and the tax due
would inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should
subsequently be upheld, the Government will be forced to institute anew a proceeding for the
recovery of erroneously refunded taxes which recourse must be filed within the prescriptive period of
ten years after discovery of the falsity, fraud or omission in the false or fraudulent return
involved. 23 This would necessarily require and entail additional efforts and expenses on the part of
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the Government, impose a burden on and a drain of government funds, and impede or delay the
collection of much-needed revenue for governmental operations.
Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically
necessary and legally appropriate that the issue of the deficiency tax assessment against Citytrust be
resolved jointly with its claim for tax refund, to determine once and for all in a single proceeding the
true and correct amount of tax due or refundable.
In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be only just and fair
that the taxpayer and the Government alike be given equal opportunities to avail of remedies under
the law to defeat each other's claim and to determine all matters of dispute between them in one
single case. It is important to note that in determining whether or not petitioner is entitled to the
refund of the amount paid, it would necessary to determine how much the Government is entitled to
collect as taxes. This would necessarily include the determination of the correct liability of the
taxpayer and, certainly, a determination of this case would constitute res judicata on both parties as
to all the matters subject thereof or necessarily involved therein.
The Court cannot end this adjudication without observing that what caused the Government to lose
its case in the tax court may hopefully be ascribed merely to the ennui or ineptitude of officialdom,
and not to syndicated intent or corruption. The evidential cul-de-sac in which the Solicitor General
found himself once again gives substance to the public perception and suspicion that it is another
proverbial tip in the iceberg of venality in a government bureau which is pejoratively rated over the
years. What is so distressing, aside from the financial losses to the Government, is the erosion of trust
in a vital institution wherein the reputations of so many honest and dedicated workers are
besmirched by the acts or omissions of a few. Hence, the liberal view we have here taken pro hac
vice, which may give some degree of assurance that this Court will unhesitatingly react to any bane
in the government service, with a replication of such response being likewise expected by the people
from the executive authorities.
WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is hereby SET
ASIDE and the case at bar is REMANDED to the Court of Tax Appeals for further proceedings and
appropriate action, more particularly, the reception of evidence for petitioner and the corresponding
disposition of CTA Case No. 4099 not otherwise inconsistent with our adjudgment herein.
COMMISSIONER OF INTERNAL REVENUE vs. ALGUE, INC., and THE COURT OF TAX APPEALS, G.R. No.
L-28896 February 17, 1988
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.
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The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its
income tax returns. The corollary issue is whether or not the appeal of the private respondent from
the decision of the Collector of Internal Revenue was made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged
in engineering, construction and other allied activities, received a letter from the petitioner assessing
it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On
January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp
received on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint
and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who
refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of
the case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent
Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara 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 earlier sought to be served. 5 Sixteen days later, on April 23, 1965,
Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the
Court of Tax Appeals. 6
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. 7 It is
true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and
renders hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof
and makes the said request deemed rejected." 10 But there is a special circumstance in the case at bar
that prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent 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 the
private respondent was definitely informed of the implied rejection of the said protest and the
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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.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it
was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered. The payment was in the form of promotional fees.
These were collected by the Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees
to be personal holding company income 12 but later conformed to the decision of the respondent
court rejecting this assertion. 13 In fact, as the said court found, the amount was earned through the
joint efforts of the persons among whom it was distributed It has been established that the
Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing
it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto
Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the
formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in
it. 14 Ultimately, after its incorporation largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties. 15 For this sale, Algue received as agent a commission
of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to
the aforenamed individuals. 16
There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate assessment
by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made
in one lump sum but periodically and in different amounts as each payee's need arose. 19 It should
be remembered that this was a family corporation where strict business procedures were not applied
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and immediate issuance of receipts was not required. Even so, at the end of the year, when the
books were to be closed, each payee made an accounting of all of the fees received by him or her, to
make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement
was understandable, however, in view of the close relationship among the persons in the family
corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was
P125,000.00.21 After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit
from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties. This finding of the respondent court is in accord with the following 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; ... 22
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. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price
of services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers
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of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. . .
. (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity
of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent 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.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person who
is able to must contribute his share in the running of the government. 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.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure.
If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For
all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.
G.R. No. 124043 October 14, 1998
vs.
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COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S CHRISTIAN ASSOCIATION OF THE
PHILIPPINES, INC., respondents.
Is the income derived from rentals of real property owned by the Young Men's Christian Association
of the Philippines, Inc. (YMCA) established as "a welfare, educational and charitable non-profit
corporation" subject to income tax under the National Internal Revenue Code (NIRC) and the
Constitution?
The Case
This is the main question raised before us in this petition for review on certiorari challenging two
Resolutions issued by the Court of Appeals 1 on September 28, 1995 2 and February 29, 1996 3 in CAGR SP No. 32007. Both Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing
the YMCA to claim tax exemption on the latter's income from the lease of its real property.
The Facts
The facts are undisputed. 4 Private Respondent YMCA is a non-stock, non-profit institution, which
conducts various programs and activities that are beneficial to the public, especially the young
people, pursuant to its religious, educational and charitable objectives.
In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a
portion of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00
from parking fees collected from non-members. On July 2, 1984, the commissioner of internal
revenue (CIR) issued an assessment to private respondent, in the total amount of P415,615.01
including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes
on rentals and professional fees and deficiency withholding tax on wages. Private respondent
formally protested the assessment and, as a supplement to its basic protest, filed a letter dated
October 8, 1985. In reply, the CIR denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals
(CTA) on March 14, 1989. In due course, the CTA issued this ruling in favor of the YMCA:
. . . [T]he leasing of [private respondent's] facilities to small shop owners, to
restaurant and canteen operators and the operation of the parking lot are reasonably
incidental to and reasonably necessary for the accomplishment of the objectives of
the [private respondents]. It appears from the testimonies of the witnesses for the
[private respondent] particularly Mr. James C. Delote, former accountant of YMCA,
that these facilities were leased to members and that they have to service the needs
of its members and their guests. The rentals were minimal as for example, the
barbershop was only charged P300 per month. He also testified that there was
actually no lot devoted for parking space but the parking was done at the sides of
the building. The parking was primarily for members with stickers on the windshields
of their cars and they charged P.50 for non-members. The rentals and parking fees
were just enough to cover the costs of operation and maintenance only. The
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earning[s] from these rentals and parking charges including those from lodging and
other charges for the use of the recreational facilities constitute [the] bulk of its
income which [is] channeled to support its many activities and attainment of its
objectives. As pointed out earlier, the membership dues are very insufficient to
support its program. We find it reasonably necessary therefore for [private
respondent] to make [the] most out [of] its existing facilities to earn some income. It
would have been different if under the circumstances, [private respondent] will
purchase a lot and convert it to a parking lot to cater to the needs of the general
public for a fee, or construct a building and lease it out to the highest bidder or at
the market rate for commercial purposes, or should it invest its funds in the buy and
sell of properties, real or personal. Under these circumstances, we could conclude
that the activities are already profit oriented, not incidental and reasonably necessary
to the pursuit of the objectives of the association and therefore, will fall under the
last paragraph of Section 27 of the Tax Code and any income derived therefrom shall
be taxable.
Considering our findings that [private respondent] was not engaged in the business
of operating or contracting [a] parking lot, we find no legal basis also for the
imposition of [a] deficiency fixed tax and [a] contractor's tax in the amount[s] of
P353.15 and P3,129.73, respectively.
xxx xxx xxx
WHEREFORE, in view of all the foregoing, the following assessments are hereby
dismissed for lack of merit:
1980 Deficiency Fixed Tax P353,15;
1980 Deficiency Contractor's Tax P3,129.23;
1980 Deficiency Income Tax P372,578.20.
While the following assessments are hereby sustained:
1980 Deficiency Expanded Withholding Tax P1,798.93;
1980 Deficiency Withholding Tax on Wages P33,058.82
plus 10% surcharge and 20% interest per annum from July 2, 1984 until fully paid but
not to exceed three (3) years pursuant to Section 51(e)(2) & (3) of the National
Internal Revenue Code effective as of 1984. 5
Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals (CA). In its
Decision of February 16, 1994, the CA 6 initially decided in favor of the CIR and disposed of the
appeal in the following manner:
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the ruling in the afore-cited cases of Province of Abra vs.

Hernando and Abra Valley College Inc. vs. Aquino, the ruling of the respondent Court
Following
of Tax Appeals that "the leasing of petitioner's (herein respondent's) facilities to small
shop owners, to restaurant and canteen operators and the operation of the parking
lot are reasonably incidental to and reasonably necessary for the accomplishment of
the objectives of the petitioners, and the income derived therefrom are tax exempt,
must be reversed.
WHEREFORE, the appealed decision is hereby REVERSED in so far as it dismissed the
assessment for:
1980 Deficiency Income Tax P 353.15
1980 Deficiency Contractor's Tax P 3,129.23, &
1980 Deficiency Income Tax P 372,578.20
but the same is AFFIRMED in all other respect. 7
Aggrieved, the YMCA asked for reconsideration based on the following grounds:
I
The findings of facts of the Public Respondent Court of Tax Appeals being supported
by substantial evidence [are] final and conclusive.
II
The conclusions of law of [p]ublic [r]espondent exempting [p]rivate [r]espondent
from the income on rentals of small shops and parking fees [are] in accord with the
applicable law and jurisprudence. 8
Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed itself and
promulgated on September 28, 1995 its first assailed Resolution which, in part, reads:
The Court cannot depart from the CTA's findings of fact, as they are supported by
evidence beyond what is considered as substantial.
xxx xxx xxx
The second ground raised is that the respondent CTA did not err in saying that the
rental from small shops and parking fees do not result in the loss of the exemption.
Not even the petitioner would hazard the suggestion that YMCA is designed for
profit. Consequently, the little income from small shops and parking fees help[s] to
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keep its head above the water, so to speak, and allow it to continue with its laudable
work.
The Court, therefore, finds the second ground of the motion to be meritorious and in
accord with law and jurisprudence.
WHEREFORE, the motion for reconsideration is GRANTED; the respondent CTA's
decision is AFFIRMED in toto. 9
The internal revenue commissioner's own Motion for Reconsideration was denied by Respondent
Court in its second assailed Resolution of February 29, 1996. Hence, this petition for review under
Rule 45 of the Rules of Court. 10
The Issues
Before us, petitioner imputes to the Court of Appeals the following errors:
I
In holding that it had departed from the findings of fact of Respondent Court of Tax
Appeals when it rendered its Decision dated February 16, 1994; and
II
In affirming the conclusion of Respondent Court of Tax Appeals that the income of
private respondent from rentals of small shops and parking fees [is] exempt from
taxation. 11
This Court's Ruling

First Issue:
Factual Findings of the CTA
Private respondent contends that the February 16, 1994 CA Decision reversed the factual findings of
the CTA. On the other hand, petitioner argues that the CA merely reversed the " ruling of the CTA
that the leasing of private respondent's facilities to small shop owners, to restaurant and canteen
operators and the operation of parking lots are reasonably incidental to and reasonably necessary
for the accomplishment of the objectives of the private respondent and that the income derived
therefrom are tax exempt." 12 Petitioner insists that what the appellate court reversed was the legal
conclusion, not the factual finding, of the CTA. 13 The commissioner has a point.
Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by
substantial evidence, will be disturbed on appeal unless it is shown that the said court committed
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gross error in the appreciation of facts.14 In the present case, this Court finds that the February 16,
1994 Decision of the CA did not deviate from this rule. The latter merely applied the law to the facts
as found by the CTA and ruled on the issue raised by the CIR: "Whether or not the collection or
earnings of rental income from the lease of certain premises and income earned from parking fees
shall fall under the last paragraph of Section 27 of the National Internal Revenue Code of 1977, as
amended." 15
Clearly, the CA did not alter any fact or evidence. It merely resolved the aforementioned issue, as
indeed it was expected to. That it did so in a manner different from that of the CTA did not
necessarily imply a reversal of factual findings.
The distinction between a question of law and a question of fact is clear-cut. It has been held that
"[t]here is a question of law in a given case when the doubt or difference arises as to what the law is
on a certain state of facts; there is a question of fact when the doubt or difference arises as to the
truth or falsehood of alleged facts."16 In the present case, the CA did not doubt, much less change,
the facts narrated by the CTA. It merely applied the law to the facts. That its interpretation or
conclusion is different from that of the CTA is not irregular or abnormal.
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental income of the YMCA from its real estate subject to
tax? At the outset, we set forth the relevant provision of the NIRC:
Sec. 27. Exemptions from tax on corporations. The following organizations shall
not be taxed under this Title in respect to income received by them as such
xxx xxx xxx
(g) Civic league or organization not organized for profit but operated exclusively for
the promotion of social welfare;
(h) Club organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net income of which inures to the benefit of any
private stockholder or member;
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 the tax imposed under this
Code. (as amended by Pres. Decree No. 1457)
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Petitioner argues that while the income received by the organizations enumerated in Section 27
(now Section 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect to income
received by them as such," the exemption does not apply to income derived ". . . 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 . . . ."
Petitioner adds that "rental income derived by a tax-exempt organization from the lease of its
properties, real or personal, [is] not, therefore, exempt from income taxation, even if such income [is]
exclusively used for the accomplishment of its objectives." 17 We agree with the commissioner.
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in
interpretation in construing tax exemptions. 18 Furthermore, a claim of statutory exemption from
taxation should be manifest. and unmistakable from the language of the law on which it is based.
Thus, the claimed exemption "must expressly be granted in a statute stated in a language too clear
to be mistaken." 19
In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording
of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt
organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax
imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax
the rent income of the YMCA from its real property,20 the Court is duty-bound to abide strictly by its
literal meaning and to refrain from resorting to any convoluted attempt at construction.
It is axiomatic that where the language of the law is clear and unambiguous, its express terms must
be applied. 21Parenthetically, a consideration of the question of construction must not even begin,
particularly when such question is on whether to apply a strict construction or a liberal one on
statutes that grant tax exemptions to "religious, charitable and educational propert[ies] or
institutions." 22
The last paragraph of Section 27, the YMCA argues, should be "subject to the qualification that the
income from the properties must arise from activities 'conducted for profit' before it may be
considered taxable." 23 This argument is erroneous. As previously stated, a reading of said paragraph
ineludibly shows that the income from any property of exempt organizations, as well as that arising
from any activity it conducts for profit, is taxable. The phrase "any of their activities conducted for
profit" does not qualify the word "properties." This makes from the property of the organization
taxable, regardless of how that income is used whether for profit or for lofty non-profit purposes.
Verba legis non est recedendum. Hence, Respondent Court of Appeals committed reversible error
when it allowed, on reconsideration, the tax exemption claimed by YMCA on income it derived from
renting out its real property, on the solitary but unconvincing ground that the said income is not
collected for profit but is merely incidental to its operation. The law does not make a distinction. The
rental income is taxable regardless of whence such income is derived and how it is used or disposed
of. Where the law does not distinguish, neither should we.
Constitutional Provisions
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On Taxation
Invoking not only the NIRC but also the fundamental law, private respondent submits that Article VI,
Section 28 of par. 3 of the 1987 Constitution, 24 exempts "charitable institutions" from the payment
not only of property taxes but also of income tax from any source. 25 In support of its novel theory, it
compares the use of the words "charitable institutions," "actually" and "directly" in the 1973 and the
1987 Constitutions, on the one hand; and in Article VI, Section 22, par. 3 of the 1935 Constitution, on
the other hand. 26
Private respondent enunciates three points. First, the present provision is divisible into two
categories: (1) "[c]haritable institutions, churches and parsonages or convents appurtenant thereto,
mosques and non-profit cemeteries," the incomes of which are, from whatever source, all taxexempt; 27 and (2) "[a]ll lands, buildings and improvements actually and directly used for religious,
charitable or educational purposes," which are exempt only from property taxes. 28 Second, Lladoc v.
Commissioner of Internal Revenue, 29 which limited the exemption only to the payment of property
taxes, referred to the provision of the 1935 Constitution and not to its counterparts in the 1973 and
the 1987 Constitutions. 30 Third, the phrase "actually, directly and exclusively used for religious,
charitable or educational purposes" refers not only to "all lands, buildings and improvements," but
also to the above-quoted first category which includes charitable institutions like the private
respondent. 31
The Court is not persuaded. The debates, interpellations and expressions of opinion of the framers of
the Constitution reveal their intent which, in turn, may have guided the people in ratifying the
Charter. 32 Such intent must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is now a
member of this Court, stressed during the Concom debates that ". . . 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." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution and also a member
of the Concom, adhered to the same view that the exemption created by said provision pertained
only to property taxes. 34
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax exemption
covers propertytaxes only." 35 Indeed, the income tax exemption claimed by private respondent finds
no basis in Article VI, Section 26, par. 3 of the Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3 of the Character, 36 claiming that the
YMCA "is a non-stock, non-profit educational institution whose revenues and assets are used
actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties
and income." 37 We reiterate that private respondent is exempt from the payment of property tax,
but not income tax on the rentals from its property. The bare allegation alone that it is a non-stock,
non-profit educational institution is insufficient to justify its exemption from the payment of income
tax.
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As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the
YMCA to be granted the exemption it claims under the aforecited provision, it must prove with
substantial evidence 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. However, the Court notes that not a scintilla of evidence was
submitted by private respondent to prove that it met the said requisites.
Is the YMCA an educational institution within the purview of Article XIV, Section 4, par. 3 of the
Constitution? We rule that it is not. The term "educational institution" or "institution of learning" has
acquired a well-known technical meaning, of which the members of the Constitutional Commission
are deemed cognizant. 38 Under the Education Act of 1982, such term refers to schools. 39 The school
system is synonymous with formal education, 40 which "refers to the hierarchically structured and
chronologically graded learnings organized and provided by the formal school system and for which
certification is required in order for the learner to progress through the grades or move to the higher
levels." 41 The Court has examined the "Amended Articles of Incorporation" and "By-Laws" 43 of the
YMCA, but found nothing in them that even hints that it is a school or an educational institution. 44
Furthermore, under the Education Act of 1982, even non-formal education is understood to be
school-based and "private auspices such as foundations and civic-spirited organizations" are ruled
out. 45 It is settled that the term "educational institution," when used in laws granting tax exemptions,
refers to a ". . . school seminary, college or educational establishment . . . ." 46 Therefore, the private
respondent cannot be deemed one of the educational institutions covered by the constitutional
provision under consideration.
. . . Words used in the Constitution are to be taken in their ordinary acceptation.
While in its broadest and best sense education embraces all forms and phases of
instruction, improvement and development of mind and body, and as well of
religious and moral sentiments, yet in the common understanding and application it
means a place where systematic instruction in any or all of the useful branches of
learning is given by methods common to schools and institutions of learning. That
we conceive to be the true intent and scope of the term [educational institutions,] as
used in the Constitution. 47
Moreover, without conceding that Private Respondent YMCA is an educational institution, the Court
also notes that the former did not submit proof of the proportionate amount of the subject income
that was actually, directly and exclusively used for educational purposes. Article XIII, Section 5 of the
YMCA by-laws, which formed part of the evidence submitted, is patently insufficient, since the same
merely signified that "[t]he net income derived from the rentals of the commercial buildings shall be
apportioned to the Federation and Member Associations as the National Board may decide." 48 In
sum, we find no basis for granting the YMCA exemption from income tax under the constitutional
provision invoked.
Cases Cited by Private

Respondent Inapplicable
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The cases 49 relied on by private respondent do not support its cause. YMCA of Manila v. Collector of
Internal Revenue50 and Abra Valley College, Inc. v. Aquino 51 are not applicable, because the
controversy in both cases involved exemption from the payment of property tax, not income
tax. Hospital de San Juan de Dios, Inc. v. Pasay City 52 is not in point either, because it involves a
claim for exemption from the payment of regulatory fees, specifically electrical inspection fees,
imposed by an ordinance of Pasay City an issue not at all related to that involved in a claimed
exemption from the payment of income taxes imposed on property leases. In Jesus Sacred Heart
College v. Com. of Internal Revenue, 53 the party therein, which claimed an exemption from the
payment of income tax, was an educational institution which submitted substantial evidence that the
income subject of the controversy had been devoted or used solely for educational purposes. On the
other hand, the private respondent in the present case has not given any proof that it is an
educational institution, or that part of its rent income is actually, directly and exclusively used for
educational purposes.
Epilogue
In deliberating on this petition, the Court expresses its sympathy with private respondent. It
appreciates the nobility of its cause. However, the Court's power and function are limited merely to
applying the law fairly and objectively. It cannot change the law or bend it to suit its sympathies and
appreciations. Otherwise, it would be overspilling its role and invading the realm of legislation.
We concede that private respondent deserves the help and the encouragement of the government.
It needs laws that can facilitate, and not frustrate, its humanitarian tasks. But the Court regrets that,
given its limited constitutional authority, it cannot rule on the wisdom or propriety of legislation.
That prerogative belongs to the political departments of government. Indeed, some of the members
of the Court may even believe in the wisdom and prudence of granting more tax exemptions to
private respondent. But such belief, however well-meaning and sincere, cannot bestow upon the
Court the power to change or amend the law.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated September 28,
1995 and February 29, 1996 are hereby REVERSED and SET ASIDE. The Decision of the Court of
Appeals dated February 16, 1995 is REINSTATED, insofar as it ruled that the income derived by
petitioner from rentals of its real property is subject to income tax. No pronouncement as to costs.
DAVAO GULF LUMBER CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, G.R. No. 117359 July 23, 1998
Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly
against the grantee and liberally in favor of the government. Otherwise stated, any exemption from
the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied
therefrom.
Statement of the Case
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This principium is applied by the Court in resolving this petition for review under Rule 45 of the Rules
of Court, assailing the Decision 1 of Respondent Court of Appeals 2 in CA-GR SP No. 34581 dated
September 26, 1994, which affirmed the June 21, 1994 Decision 3 of the Court of Tax Appeals 4 in
CTA Case No. 3574. The dispositive portion of the CTA Decision affirmed by Respondent Court reads:
WHEREFORE, judgment is hereby rendered ordering the respondent to refund to the
petitioner the amount of P2,923.15 representing the partial refund of specific taxes
paid on manufactured oils and fuels.5
The Antecedent Facts

The facts are undisputed. 6 Petitioner is a licensed forest concessionaire possessing a Timber License
Agreement granted by the Ministry of Natural Resources (now Department of Environment and
Natural Resources). From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil
companies, refined and manufactured mineral oils as well as motor and diesel fuels, which it used
exclusively for the exploitation and operation of its forest concession. Said oil companies paid the
specific taxes imposed, under Sections 153 and 156 7 of the 1977 National Internal Revenue Code
(NIRC), on the sale of said products. Being included in the purchase price of the oil products, the
specific taxes paid by the oil companies were eventually passed on to the user, the petitioner in this
case.
On December 13, 1982, petitioner filed before Respondent Commissioner of Internal Revenue (CIR) a
claim for refund in the amount of P120,825.11, representing 25% of the specific taxes actually paid
on the above-mentioned fuels and oils that were used by petitioner in its operations as forest
concessionaire. The claim was based on Insular Lumber Co. vs. Court of Tax Appeals 8 and Section 5
of RA 1435 which reads:
Sec. 5. The proceeds of the additional tax on manufactured oils shall accrue to the
road and bridge funds of the political subdivision for whose benefit the tax is
collected: Provided, however, That whenever any oils mentioned above are used by
miners or forest concessionaires in their operations, twenty-five per centum of the
specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon
submission of proof of actual use of oils and under similar conditions enumerated in
subparagraphs one and two of section one hereof, amending section one hundred
forty-two of the Internal Revenue Code: Provided, further, That no new road shall be
constructed unless the routes or location thereof shall have been approved by the
Commissioner of Public Highways after a determination that such road can be made
part of an integral and articulated route in the Philippine Highway System, as
required in section twenty-six of the Philippine Highway Act of 1953.
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It is an unquestioned fact that petitioner complied with the procedure for refund, including the
submission of proof of the actual use of the aforementioned oils in its forest concession as required
by the above-quoted law. Petitioner, in support of its claim for refund, submitted to the CIR the
affidavits of its general manager, the president of the Philippine Wood Products Association, and
three disinterested persons, all attesting that the said manufactured diesel and fuel oils were actually
used in the exploitation and operation of its forest concession.
On January 20, 1983, petitioner filed at the CTA a petition for review docketed as CTA Case No. 3574.
On June 21, 1994, the CTA rendered its decision finding petitioner entitled to a partial refund of
specific taxes the latter had paid in the reduced amount of P2,923.15. The CTA ruled that the claim
on purchases of lubricating oil (from July 1, 1980 to January 19, 1981) and on manufactured oils
other than lubricating oils (from July 1, 1980 to January 4, 1981) had prescribed. Disallowed on the
ground that they were not included in the original claim filed before the CIR were the claims for
refund on purchases of manufactured oils from January 1, 1980 to June 30, 1980 and from February
1, 1982 to June 30, 1982. In regard to the other purchases, the CTA granted the claim, but it
computed the refund based on rates deemed paid under RA 1435, and not on the higher rates
actualhy paid by petitioner under the NIRC.
Insisting that the basis for computing the refund should be the increased rates prescribed by
Sections 153 and 156 of the NIRC, petitioner elevated the matter to the Court of Appeals. As noted
earlier, the Court of Appeals affirmed the CTA Decision. Hence, this petition for review. 9
Public Respondent's Ruling

In its petition before the Court of Appeals, petitioner raised the following arguments:
I. The respondent Court of Tax Appeals failed to apply the Supreme Court's Decision
in Insular Lumber Co. v. Court of Tax Appeals which granted the claim for partial refund of
specific taxes paid by the claimant, without qualification or limitation.
II. The respondent Court of Tax Appeals ignored the increase in rates imposed by succeeding
amendatory laws,under which the petitioner paid the specific taxes on manufactured and
diesel fuels.
III. In its decision, the respondent Court of Tax Appeals ruled contrary to established tenets of
law when it lent itself to interpreting Section 5 of R.A. 1435, when the construction of said
law is not necessary.
IV. Sections 1 and 2 of R.A. 1435 are not the operative provisions to be applied but rather,
Sections 153 and 156 of the National Internal Revenue Code, as amended.
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V. To rule that the basis for computation of the refunded taxes should be Sections 1 and 2 of
R.A. 1435 rather than Section 153 and 156 of the National Internal Revenue Code is unfair,
erroneous, arbitrary, inequitable and oppressive. 10
The Court of Appeals held that the claim for refund should indeed be computed on the basis of the
amounts deemed paid under Sections 1 and 2 of RA 1435. In so ruling, it cited our pronouncement
in Commissioner of Internal Revenue v. Rio Tuba Nickel Mining Corporation 11 and subsequent
Resolution dated June 15, 1992 clarifying the said Decision. Respondent Court further ruled that the
claims for refund which prescribed and those which were not filed at the administrative level must be
excluded.
The Issue
In its Memorandum, petitioner raises one critical issue:
Whether or not petitioner is entitled under Republic Act No. 1435 to the refund of 25% of the
amount of specific taxes it actually paid on various refined and manufactured mineral oils
and other oil products taxed under Sec. 153 and Sec. 156 of the 1977 (Sec. 142 and Sec. 145
of the 1939) National Internal Revenue Code. 12
In the main, the question before us pertains only to the computation of the tax refund. Petitioner
argues that the refund should be based on the increased rates of specific taxes which it actually paid,
as prescribed in Sections 153 and 156 of the NIRC. Public respondent, on the other hand, contends
that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435.
The Court's Ruling

The petition is not meritorious.
Petitioner Entitled to Refund Under Sec. 5 of RA 1435

At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5 of RA
1435, which was enacted to provide means for increasing the Highway Special Fund.
The rationale for this grant of partial refund of specific taxes paid on purchases of manufactured
diesel and fuel oils rests on the character of the Highway Special Fund. The specific taxes collected
on gasoline and fuel accrue to the Fund, which is to be used for the construction and maintenance of
the highway system. But because the gasoline and fuel purchased by mining and lumber
concessionaires are used within their own compounds and roads, and their vehicles seldom use the
national highways, they do not directly benefit from the Fund and its use. Hence, the tax refund gives
the mining and the logging companies a measure of relief in light of their peculiar situation. 13 When
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the Highway Special Fund was abolished in 1985, the reason for the refund likewise ceased to
exist. 14 Since petitioner purchased the subject manufactured diesel and fuel oils from July 1, 1980 to
January 31, 1982 and submitted the required proof that these were actually used in operating its
forest concession, it is entitled to claim the refund under Section 5 of RA 1435.
Tax Refund Strictly Constrtued Against the Grantee

Petitioner submits that it is entitled to the refund of 25 percent of the specific taxes it had actually
paid for the petroleum products used in its operations. In other words, it claims a refund based on
the increased rates under Sections 153 and 156 of the NIRC. 15 Petitioner argues that the statutory
grant of the refund privilege, specifically the phrase "twenty-five per centum of the specific tax paid
thereon shall be refunded by the Collector of Internal Revenue," is "clear and unambiguous" enough
to require construction or qualification thereof. 16 In addition, it cites our pronouncement in Insular
Lumber vs. Court of Tax Appeals: 17

. . . Sec. 5 [of RA 1435] makes reference to subparagraphs 1 and 2 of Section 1 only for the
purpose of prescribing the procedure for refund. This express reference cannot be expanded
in scope to include the limitation of the period of refund. If the limitation of the period of
refund of specific taxes paid on oils used in aviation and agriculture is intended to cover
similar taxes paid on oil used by miners and forest concessionaires, there would have been
no need of dealing with oil used by miners and forest concessions separately and Section 5
would very well have been included in Section 1 of Republic Act No. 1435, notwithstanding
the different rate of exemption.
Petitioner then reasons that "the express mention of Section 1 of RA 1435 in Section 5 cannot be
expanded to include a limitation on the tax rates to be applied . . . [otherwise,] Section 5 should very
well have been included in Section 1 . . . ." 18
The Court is nor persuaded. The relevant statutory provisions do not clearly support petitioner's
claim for refund. RA 1435 provides:
Sec. 1 Section one hundred and forty-two of the National Internal Revenue Code, as
amended, is further amended to read as follows:
Sec. 142. Specific tax on manufactured oils and other fuels. On refined and manufactured
mineral oils and motor fuels, there shall be collected the following taxes:
(a) Kerosene or petroleum, per liter of volume capacity, two and one-half centavos;
(b) Lubricating oils, per liter of volume capacity, seven centavos;
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(c) Naptha, gasoline, and all other similar products of distillation, per liter of volume capacity,
eight centavos; and
(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
centavo:Provided, That if the denatured alcohol is mixed with gasoline, the specific tax on
which has already been paid, only the alcohol content shall be subject to the tax herein
prescribed. For the purpose of this subsection, the removal of denatured alcohol of not less
than one hundred eighty degrees proof (ninety per centum absolute alcohol) shall be
deemed to have been removed for motive power, unless shown to the contrary.
Whenever any of the oils mentioned above are, during the five years from June eighteen,
nineteen hundred and fifty two, used in agriculture and aviation, fifty per centum of the
specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon the
submission of the following:
(1) A sworn affidavit of the producer and two disinterested persons proving that the said oils
were actually used in agriculture, or in lieu thereof.
(2) Should the producer belong to any producers' association or federation, duly registered
with the Securities and Exchange Commission, the affidavit of the president of the
association or federation, attesting to the fact that the oils were actually used in agriculture.
(3) In the case of aviation oils, a sworn certificate satisfactory to the Collector proving that the
said oils were actually used in aviation: Provided, That no such refunds shall be granted in
respect to the oils used in aviation by citizens and corporations of foreign countries which do
not grant equivalent refunds or exemptions in respect to similar oils used in aviation by
citizens and corporations of the Philippines.
Sec. 2 Section one hundred and forty-five of the National Internal Revenue Code, as
amended, is further amended to read as follows:
Sec. 145. Specific Tax on Diesel fuel oil. On fuel oil, commercially known as diesel fuel oil,
and on all similar fuel oils, having more or less the same generating power, there shall be
collected, per metric ton, one peso.
xxx xxx xxx
Sec. 5. The proceeds of the additional tax on manufactured oils shall accrue to the road and
bridge
funds
of
the
political
subdivision
for
whose
benefit
the
tax
is
collected: Provided, however, That whenever any oils mentioned above are used by miners or
forest concessionaires in their operations, twenty-five per centum of the specific tax paid
Page 94 of 455
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thereon shall be refunded by the Collector of Internal Revenue upon submission of proof of
actual use of oils and under similar conditions enumerated in subparagraphs one and two of
section one hereof, amending section one hundred forty-two of the Internal Revenue
Code: Provided, further, That no new road shall be constructed unless the route or location
thereof shall have been approved by the Commissioner of Public Highways after a
determination that such road can be made part of an integral and articulated route in the
Philippine Highway System, as required in section twenty-six of the Philippine Highway Act of
1953.
Subsequently the 1977 NIRC, PD 1672 and EO 672 amended the first two provisions, renumbering
them and prescribing higher rates. Accordingly, petitioner paid specific taxes on petroleum products
purchased from July 1, 1980 to January 31, 1982 under the following statutory provisions.
From February 8, 1980 to March 20, 1981, Sections 153 and 156 provided as follows:
mineral oils and motor fuels, there shall be collected the following taxes which shall attach to
the articles hereunder enumerated as soon as they are in existence as such:
(a) Kerosene, per liter of volume capacity, seven centavos;
(b) Lubricating oils, per liter of volume capacity, eighty centavos;
(c) Naphtha, gasoline and all other similar products of distillation, per liter of volume
capacity, ninety-one centavos: Provided, That on premium and aviation gasoline, the tax shall
be one peso per liter of volume capacity;
centavo:Provided, That unless otherwise provided for by special laws, if the denatured
alcohol is mixed with gasoline, the specific tax on which has already been paid, only the
alcohol content shall be subject to the tax herein prescribed. For the purposes of this
subsection, the removal of denatured alcohol of not less than one hundred eighty degrees
proof (ninety per centum absolute alcohol) shall be deemed to have been removed for
motive power, unless shown to the contrary;
(e) Processed gas, per liter of volume capacity, three centavos;
(f) Thinners and solvents, per liter of volume capacity, fifty-seven centavos;
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(g) Liquefied petroleum gas, per kilogram, fourteen centavos: Provided, That liquefied
petroleum gas used for motive power shall be taxed at the equivalent rate as the specific tax
on diesel fuel oil;
(h) Asphalts, per kilogram, eight centavos;
(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
(j) Aviation turbo jet fuel, per liter of volume capacity, fifty-five centavos. (As amended by
Sec. 1, P.D. No. 1672.)
xxx xxx xxx
Sec. 156. Specific tax on diesel fuel oil. On fuel oil, commercially known as diesel fuel oil,
and on all similar fuel oils, having more or less the same generating power, per liter of
volume capacity, seventeen and one-half centavos, which tax shall attach to this fuel oil as
soon as it is in existence as such.
Then on March 21, 1981, these provisions were amended by EO 672 to read:
mineral oils and motor fuels, there shall be collected the following taxes which shall attach to
the articles hereunder enumerated as soon as they are in existence as such:
(a) Kerosene, per liter of volume capacity, nine centavos;
(b) Lubricating oils, per liter of volume capacity, eighty centavos;
(c) Naphtha, gasoline and all other similar products of distillation, per liter of volume
capacity, one peso and six centavos: Provided, That on premium and aviation gasoline, the
tax shall be one peso and ten centavos and one peso, respectively, per liter of volume
capacity;
centavo;Provided, That unless otherwise provided for by special laws, if the denatured
alcohol is mixed with gasoline, the specific tax on which has already been paid, only the
alcohol content shall be subject to the tax herein prescribed. For the purpose of this
subsection, the removal of denatured alcohol of not less than one hundred eighty degrees
proof (ninety per centum absolute alcohol) shall be deemed to have been removed for
motive power, unless shown to the contrary;
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(e) Processed gas, per liter of volume capacity, three centavos;

(f) Thinners and solvents, per liter of volume capacity, sixty-one centavos;
(g) Liquefied petroleum gas, per kilogram, twenty-one centavos: Provided, That, liquified
petroleum gas used for motive power shall be taxed at the equivalent rate as the specific tax
on diesel fuel oil;
(h) Asphalts, per kilogram, twelve centavos;
(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
(j) Aviation turbo-jet fuel, per liter of volume capacity, sixty-four centavos.
xxx xxx xxx
Sec. 156. Specific tax on diesel fuel oil. On fuel oil, commercially known as diesel fuel oil,
and all similar fuel oils, having more or less the same generating power, per liter of volume
capacity, twenty-five and one-half centavos, which tax shall attach to this fuel oil as soon as it
is in existence as such.
A tax cannot be imposed unless it is supported by the clear and express language of a statute; 19 on
the other hand, once the tax is unquestionably imposed, "[a] claim of exemption from tax payments
must be clearly shown and based on language in the law too plain to be mistaken." 20 Since the
partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, 21 it must be
construed strictissimi Juris against the grantee. Hence, petitioner's claim of refund on the basis of the
specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to
be mistaken.
We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and found no
expression of a legislative will authorizing a refund based on the higher rates claimed by petitioner.
The mere fact that the privilege of refund was included in Section 5, and not in Section 1, is
insufficient to support petitioner's claim. When the law itself does not explicitly provide that a refund
under RA 1435 may be based on higher rates which were nonexistent at the time of its enactment,
this Coure cannot presume otherwise. A legislative lacuna cannot be filled by judicial fiat. 22
The issue is not really novel. In Commissioner of Internal Revenue vs. Court of Appeals and Atlas
Consolidated Mining and Development Corporation 23 (the second Atlas case), the CIR contended
that the refund should be based on Sections 1 and 2 of RA 1435, not Sections 153 and 156 of the
NIRC of 1977. In categorically ruling that Private Respondent Atlas Consolidated Mining and
Development Corporation was entitled to a refund based on Sections 1 and 2 of RA 1435, the Court,
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through Mr. Justice Hilario G. Davide, Jr., reiterated our pronouncement in Commissioner of Internal
Revenue vs. Rio Tuba Nickel and Mining Corporation:

Our Resolution of 25 March 1992 modifying our 30 September 1991 Decision in the Rio
Tuba case sets forth the controlling doctrine. In that Resolution, we stated:
Since the private respondent's claim for refund covers specific taxes paid from 1980 to July
1983 then we find that the private respondent is entitled to a refund. It should be made clear,
however, that Rio Tuba is not entitled to the whole amount it claims as refund.
The specific taxes on oils which Rio Tuba paid for the aforesaid period were no longer based
on the rates specified by Sections 1 and 2 of R.A. No. 1435 but on the increased rates
mandated under Sections 153 and 156 of the National Internal Revenue Code of 1977. We
note however, that the latter law does not specifically provide for a refund to these mining
and lumber companies of specific taxes paid on manufactured and diesel fuel oils.
In Insular Lumber Co. v. Court of Tax Appeals, (104 SCRA 710 [1981]), the Court held that the
authorized partial refund under Section 5 of R.A. No. 1435 partakes of the nature of a tax
exemption and therefore cannot be allowed unless granted in the most explicit and
categorical language. Since the grant of refund privileges must be strictly construed against
the taxpayer, the basis for the refund shall be the amounts deemed paid under Sections 1
and 2 of R.A. No. 1435.
ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby MODIFIED. The private
respondent's CLAIM for REFUND is GRANTED, computed on the basis of the amounts
deemed paid under Sections 1 and 2 of R.A. No. 1435, without interest. 24
We rule, therefore, that since Atlas's claims for refund cover specific taxes paid before 1985, it
should be granted the refund based on the rates specified by Sections 1 and 2 of R.A. No.
1435 and not on the increased rates under Sections 153 and 156 of the Tax Code of 1977,
provided the claims are not yet barred by prescription. (Emphasis supplied.)
Insular Lumber Co. and First Atlas Case Not Inconsistent With Rio Tuba and Second Atlas
Case
Petitioner argues that the applicable jurisprudence in this case should be Commissioner of Internal
Revenue vs. Atlas Consolidated and Mining Corp. (the first Atlas case), an unsigned resolution,
and Insular Lumber Co. vs. Court of Tax Appeals, an en banc decision. 25 Petitioner also asks the
Court to take a "second look" at Rio Tuba and the second Atlas case, both decided by Divisions, in
view of Insular which was decided en banc. Petitioner posits that "[I]n view of the similarity of the
situation of herein petitioner with Insular Lumber Company (claimant in Insular Lumber) and Rio
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Tuba Nickel Mining Corporation (claimant in Rio Tuba), a dilemma has been created as to whether or
not Insular Lumber, which has been decided by the Honorable Court en banc, orRio Tuba, which was
decided only [by] the Third Division of the Honorable Court, should apply." 26
We find no conflict between these two pairs of cases. Neither Insular Lumber Co. nor the first Atlas
case ruled on the issue of whether the refund privilege under Section 5 should be computed based
on the specific tax deemed paid under Sections 1 and 2 of RA 1435, regardless of what was actually
paid under the increased rates. Rio Tuba and the second Atlas case did.
Insular Lumber Co. decided a claim for refund on specific tax paid on petroleum products purchased
in the year 1963, when the increased rates under the NIRC of 1977 were nor yet in effect. Thus, the
issue now before us did not exist at the time, since the applicable rates were still those prescribed
under Sections 1 and 2 of RA 1435.
On the other hand, the issue raised in the first Atlas case was whether the claimant was entitled to
the refund under Section 5, notwithstanding its failure to pay any additional tax under a municipal or
city ordinance. Although Atlas purchased petroleum products in the years, 1976 to 1978 when the
rates had already been changed, the Court did not decide or make any pronouncement on the issue
in that case.
Clearly, it is impossible for these two decisions to clash with our pronouncement in Rio Tuba and
second Atlas case, in which we ruled that the refund granted be computed on the basis of the
amounts deemed paid under Sections 1 and 2 of RA 1435. In this light, we find no basis for
petitioner's invocation of the constitutional proscription that "no doctrine or principle of law laid
down by the Court in a decision rendered en banc or in division may be modified or reversed except
by the Court sitting en banc. 27
Finally, petitioner asserts that "equity and justice demand that the computation of the tax refunds be
based on actual amounts paid under Sections 153 and 156 of the NIRC." 28 We disagree. According
to an eminent authority on taxation, "there is no tax exemption solely on the, ground of equity." 29
WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of Appeals is
AFFIRMED.
FERDINAND R. MARCOS II vs. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE and HERMINIA D. DE GUZMAN, G.R. No. 120880 June 5, 1997
In this Petition for Review on Certiorari, Government action is once again assailed as precipitate and
unfair, suffering the basic and oftly implored requisites of due process of law. Specifically, the
petition assails the Decision 1 of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No.
31363, where the said court held:
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In view of all the foregoing, we rule that the deficiency income tax assessments and
estate tax assessment, are already final and (u)nappealable-and-the subsequent levy
of real properties is a tax remedy resorted to by the government, sanctioned by
Section 213 and 218 of the National Internal Revenue Code. This summary tax
remedy is distinct and separate from the other tax remedies (such as Judicial Civil
actions and Criminal actions), and is not affected or precluded by the pendency of
any other tax remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the
petition forcertiorari with prayer for Restraining Order and Injunction.
No pronouncements as to costs.
SO ORDERED.
More than seven years since the demise of the late Ferdinand E. Marcos, the former President of the
Republic of the Philippines, the matter of the settlement of his estate, and its dues to the
government in estate taxes, are still unresolved, the latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questions
the actuations of the respondent Commissioner of Internal Revenue in assessing, and collecting
through the summary remedy of Levy on Real Properties, estate and income tax delinquencies upon
the estate and properties of his father, despite the pendency of the proceedings on probate of the
will of the late president, which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court of
Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition
with an application for writ of preliminary injunction and/or temporary restraining order on June 28,
1993, seeking to
I. Annul and set aside the Notices of Levy on real property dated February 22, 1993
and May 20, 1993, issued by respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from
proceeding with the Auction of the real properties covered by Notices of Sale.
After the parties had pleaded their case, the Court of Appeals rendered its Decision 2 on November
29, 1994, ruling that the deficiency assessments for estate and income tax made upon the petitioner
and the estate of the deceased President Marcos have already become final and unappealable, and
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may thus be enforced by the summary remedy of levying upon the properties of the late President,
as was done by the respondent Commissioner of Internal Revenue.
WHEREFORE, premises considered judgment is hereby rendered DISMISSING the
petition forCertiorari with prayer for Restraining Order and Injunction.
No pronouncements as to cost.
SO ORDERED.
Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision,
assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX
REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND
PRECLUDED BY THE PENDENCY OF THE SPECIAL PROCEEDING FOR THE
ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS
PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM PART OF
THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO THE
EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT SINCE
THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY BECOME
FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS OF THE
GROUNDS CITED IN THE PETITION. INDEPENDENT OF WHETHER THE TAX
ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE
RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH TAX
COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER AND
DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED
THE MERITS OF THE FOLLOWING GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued beyond the period provided in
the Revenue Memorandum Circular No. 38-68.
(2) [a] The numerous pending court cases questioning the late President's ownership
or interests in several properties (both personal and real) make the total value of his
estate, and the consequent estate tax due, incapable of exact pecuniary
determination at this time. Thus, respondents' assessment of the estate tax and their
issuance of the Notices of Levy and Sale are premature, confiscatory and oppressive.
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[b] Petitioner, as one of the late President's compulsory heirs, was never notified,
much less served with copies of the Notices of Levy, contrary to the mandate of
Section 213 of the NIRC. As such, petitioner was never given an opportunity to
contest the Notices in violation of his right to due process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT
MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE
RELIEF TO PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS
POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN
RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD OF
COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF
LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:
On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations
and examinations of the tax liabilities and obligations of the late president, as well as
that of his family, associates and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26, 1991. The investigation disclosed
that the Marcoses failed to file a written notice of the death of the decedent, an
estate tax returns [sic], as well as several income tax returns covering the years 1982
to 1986, all in violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the
Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized
under Sections 253 and 254 in relation to Section 252 a & b) of the National
Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of
the Estate Tax Return for the estate of the late president, the Income Tax Returns of
the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand "Bongbong" Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment
no. FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos
in the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no.
FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-002451
(against the Spouses Ferdinand and Imelda Marcos in the amounts of P149,551.70
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and P184,009,737.40 representing deficiency income tax for the years 1985 and
1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to FAC-1-8591-002463 (against petitioner Ferdinand "Bongbong" Marcos II in the amounts of
P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing
his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate and
income tax assessments were all personally and constructively served on August 26,
1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr.
Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes
"D" and "E" of the Petition). Likewise, copies of the deficiency tax assessments issued
against petitioner Ferdinand "Bongbong" Marcos II were also personally and
constructively served upon him (through his caretaker) on September 12, 1991, at his
last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan, M.M.
(Annexes "J" and "J-1" of the Petition). Thereafter, Formal Assessment notices were
served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office, House of
Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to Taxpayer
inviting Mrs. Marcos (or her duly authorized representative or counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel but
to no avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos
and the other heirs of the late president, within 30 days from service of said
assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on
real property against certain parcels of land owned by the Marcoses to satisfy the
alleged estate tax and deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and
213 of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of
herein petitioner) calling the attention of the BIR and requesting that they be duly
notified of any action taken by the BIR affecting the interest of their client Ferdinand
"Bongbong" Marcos II, as well as the interest of the late president copies of the
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aforesaid notices were, served on April 7, 1993 and on June 10, 1993, upon Mrs.
Imelda Marcos, the petitioner, and their counsel of record, "De Borja, Medialdea, Ata,
Bello, Guevarra and Serapio Law Office".
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the
City Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels of
land took place on July 5, 1993. There being no bidder, the lots were declared
forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand "Bongbong" Marcos II filed the instant
petition for certiorariand prohibition under Rule 65 of the Rules of Court, with prayer
for temporary restraining order and/or writ of preliminary injunction.
It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the
collection of taxes, is of paramount importance for the sustenance of government. Taxes are the
lifeblood of the government and 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 taxation, which is the promotion of the
common good, may be achieved. 3
Whether or not the proper avenues of assessment and collection of the said tax obligations were
taken by the respondent Bureau is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late
President Marcos effected by the BIR are null and void for disregarding the established procedure for
the enforcement of taxes due upon the estate of the deceased. The case of Domingo vs. Garlitos 4 is
specifically cited to bolster the argument that "the ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased, person, as in an inheritance (estate) tax, is for the
claimant to present a claim before the probate court so that said court may order the administrator
to pay the amount therefor." This remedy is allegedly, exclusive, and cannot be effected through any
other means.
Petitioner goes further, submitting that the probate court is not precluded from denying a request
by the government for the immediate payment of taxes, and should order the payment of the same
only within the period fixed by the probate court for the payment of all the debts of the decedent. In
this regard, petitioner cites the case of Collector of Internal Revenue vs. The Administratrix of the
Estate of Echarri (67 Phil 502), where it was held that:

The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal
Revenue (52 Phil 803), relied upon by the petitioner-appellant is good authority on
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the proposition that the court having control over the administration proceedings
has jurisdiction to entertain the claim presented by the government for taxes due and
to order the administrator to pay the tax should it find that the assessment was
proper, and that the tax was legal, due and collectible. And the rule laid down in that
case must be understood in relation to the case of Collector of Customs
vs. Haygood, supra., as to the procedure to be followed in a given case by the

government to effectuate the collection of the tax. Categorically stated, where during
the pendency of judicial administration over the estate of a deceased person a claim
for taxes is presented by the government, the court has the authority to order
payment by the administrator; but, in the same way that it has authority to order
payment or satisfaction, it also has the negative authority to deny the same. While
there are cases where courts are required to perform certain duties mandatory and
ministerial in character, the function of the court in a case of the present character is
not one of them; and here, the court cannot be an organism endowed with latitude
of judgment in one direction, and converted into a mere mechanical contrivance in
another direction.
On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes
is paramount. Thus, the pendency of probate proceedings over the estate of the deceased does not
preclude the assessment and collection, through summary remedies, of estate taxes over the same.
According to the respondent, claims for payment of estate and income taxes due and assessed after
the death of the decedent need not be presented in the form of a claim against the estate. These can
and should be paid immediately. The probate court is not the government agency to decide whether
an estate is liable for payment of estate of income taxes. Well-settled is the rule that the probate
court is a court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a
probate court over estate of deceased individual, is not a trifling thing. The court's jurisdiction, once
invoked, and made effective, cannot be treated with indifference nor should it be ignored with
impunity by the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate court to approve
the sale of properties of a deceased person by his prospective heirs before final adjudication; 5 to
determine who are the heirs of the decedent; 6 the recognition of a natural child; 7 the status of a
woman claiming to be the legal wife of the decedent; 8 the legality of disinheritance of an heir by the
testator; 9 and to pass upon the validity of a waiver of hereditary rights. 10
The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal
Revenue to collect by the summary remedy of levying upon, and sale of real properties of the
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decedent, estate tax deficiencies, without the cognition and authority of the court sitting in probate
over the supposed will of the deceased.
The nature of the process of estate tax collection has been described as follows:
Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to
the complete settlement of an estate, and, under some statutes, it is made the duty
of the probate court to make the amount of the inheritance tax a part of the final
decree of distribution of the estate. It is not against the property of decedent, nor is it
a claim against the estate as such, but it is against the interest or property right which
the heir, legatee, devisee, etc., has in the property formerly held by decedent. Further,
under some statutes, it has been held that it is not a suit or controversy between the
parties, nor is it an adversary proceeding between the state and the person who owes
the tax on the inheritance. However, under other statutes it has been held that the
hearing and determination of the cash value of the assets and the determination of
the tax are adversary proceedings. The proceeding has been held to be necessarily a
proceeding in rem. 11
In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as
the legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of the
National Internal Revenue Code attests to this:
Sec. 3. Powers and duties of the Bureau. The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith, including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said
Bureau shall also give effect to and administer the supervisory and police power
conferred to it by this Code or other laws.
Thus, it was in Vera vs. Fernandez 12 that the court recognized the liberal treatment of claims for
taxes charged against the estate of the decedent. Such taxes, we said, were exempted from the
application of the statute of non-claims, and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei
publicae taxes are the sinews of the state.

Taxes assessed against the estate of a deceased person, after administration is
opened, need not be submitted to the committee on claims in the ordinary course of
administration. In the exercise of its control over the administrator, the court may
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direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate.
Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to
allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution
of the estate's properties.
Claims for taxes, whether assessed before or after the death of the deceased, can be
collected from the heirs even after the distribution of the properties of the decedent.
They are exempted from the application of the statute of non-claims. The heirs shall
be liable therefor, in proportion to their share in the inheritance. 13
Thus, the Government has two ways of collecting the taxes in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. Another remedy, pursuant to the lien
created by Section 315 of the Tax Code upon all property and rights to property
belong to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due the
estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15,
1967.)
From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a
settlement tribunal over the deceased is not a mandatory requirement in the collection of estate
taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and
sale of the properties allegedly owned by the late President, on the ground that it was required to
seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent
remedial laws that implies the necessity of the probate or estate settlement court's approval of the
state's claim for estate taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden
not to authorize the executor or judicial administrator of the decedent's estate to deliver any
distributive share to any party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the
petitioner's contention that it is the probate court which approves the assessment and collection of
the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should have
been pursued through the proper administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
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Sec. 229. Protesting of assessment. When the Commissioner of Internal Revenue

or his duly authorized representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner shall issue an assessment based on
his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed by
implementing regulations within (30) days from receipt of the assessment; otherwise,
the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation
adversely affected by the decision on the protest may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of said decision; otherwise, the decision
shall become final, executory and demandable. (As inserted by P.D. 1773)
Apart from failing to file the required estate tax return within the time required for the filing of the
same, petitioner, and the other heirs never questioned the assessments served upon them, allowing
the same to lapse into finality, and prompting the BIR to collect the said taxes by levying upon the
properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken
by the Government, collection thereof may have been done in violation of the law. Thus, the manner
and method in which the latter is enforced may be questioned separately, and irrespective of the
finality of the former, because the Government does not have the unbridled discretion to enforce
collection without regard to the clear provision of law." 14
Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing
Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the
Marcos properties, were issued beyond the allowed period, and are therefore null and void:
. . . the Notices of Levy on Real Property (Annexes O to NN of Annex C of this
Petition) in satisfaction of said assessments were still issued by respondents well
beyond the period mandated in Revenue Memorandum Circular No. 38-68. These
Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at least
seventeen (17) months had already lapsed from the last service of tax assessment on
12 September 1991. As no notices of distraint of personal property were first issued
by respondents, the latter should have complied with Revenue Memorandum Circular
No. 38-68 and issued these Notices of Levy not earlier than three (3) months nor later
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than six (6) months from 12 September 1991. In accordance with the Circular,
respondents only had until 12 March 1992 (the last day of the sixth month) within
which to issue these Notices of Levy. The Notices of Levy, having been issued beyond
the period allowed by law, are thus void and of no effect. 15
We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive period
and in accordance with the provisions of the present Tax Code. The deficiency tax assessment, having
already become final, executory, and demandable, the same can now be collected through the
summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and collection of tax
deficiency in this instance is Article 223 of the NIRC, which pertinently provides:
Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes.
(a) In the case of a false or fraudulent return with intent to evade tax or of a failure
to file a return, the tax may be assessed, or a proceeding in court for the collection of
such tax may be begun without assessment, at any time within ten (10) years after
the discovery of the falsity, fraud, or omission:Provided, That, in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection thereof.
xxx xxx xxx
(c) Any internal revenue tax which has been assessed within the period of limitation
above prescribed, may be collected by distraint or levy or by a proceeding in court
within three years following the assessment of the tax.
xxx xxx xxx
The omission to file an estate tax return, and the subsequent failure to contest or appeal the
assessment made by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in
case of failure to file a return, the tax may be assessed at any time within ten years after the
omission, and any tax so assessed may be collected by levy upon real property within three years
following the assessment of the tax. Since the estate tax assessment had become final and
unappealable by the petitioner's default as regards protesting the validity of the said assessment,
there is now no reason why the BIR cannot continue with the collection of the said tax. Any objection
against the assessment should have been pursued following the avenue paved in Section 229 of the
NIRC on protests on assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the late president's
ownership or interests in several properties (both real and personal) make the total value of his
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estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time.
Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale
are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 00010034 and 0141, which were filed by the government to question the ownership and interests of the
late President in real and personal properties located within and outside the Philippines. Petitioner,
however, omits to allege whether the properties levied upon by the BIR in the collection of estate
taxes upon the decedent's estate were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at
issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect
the enforcement of tax assessments over the properties indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total assessment of
P23,292,607,638.00, stating that this amount deviates from the findings of the Department of
Justice's Panel of Prosecutors as per its resolution of 20 September 1991. Allegedly, this is clear
evidence of the uncertainty on the part of the Government as to the total value of the estate of the
late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had
already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to determine the amount
of taxes due upon the subject estate, but the Bureau of Internal Revenue, 16 whose determinations
and assessments are presumed correct and made in good faith. 17 The taxpayer has the duty of
proving otherwise. In the absence of proof of any irregularities in the performance of official duties,
an assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and
lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of
proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to
present proof of error in the assessment will justify the judicial affirmance of said assessment. 18 In
this instance, petitioner has not pointed out one single provision in the Memorandum of the Special
Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the
petitioner's attack on the assessment bears mainly on the alleged improbable and unconscionable
amount of the taxes charged. But mere rhetoric cannot supply the basis for the charge of
impropriety of the assessments made.
Moreover, these objections to the assessments should have been raised, considering the ample
remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court
of Tax Appeals, as described earlier, and cannot be raised now via Petition for Certiorari, under the
pretext of grave abuse of discretion. The course of action taken by the petitioner reflects his
disregard or even repugnance of the established institutions for governance in the scheme of a wellordered society. The subject tax assessments having become final, executory and enforceable, the
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same can no longer be contested by means of a disguised protest. In the main, Certiorari may not be
used as a substitute for a lost appeal or remedy. 19 This judicial policy becomes more pronounced in
view of the absence of sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the
respondent appellate court's pronouncements sound and resilient to petitioner's attacks.
Anent grounds 3(b) and (B) both alleging/claiming lack of notice We find, after
considering the facts and circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments, levy and sale, sent to
herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.
Even if we are to rule out the notices of assessments personally given to the caretaker
of Mrs. Marcos at the latter's last known address, on August 26, 1991 and September
12, 1991, as well as the notices of assessment personally given to the caretaker of
petitioner also at his last known address on September 12, 1991 the subsequent
notices given thereafter could no longer be ignored as they were sent at a time when
petitioner was already here in the Philippines, and at a place where said notices
would surely be called to petitioner's attention, and received by responsible persons
of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos
c/o the petitioner, at his office, House of Representatives, Batasan Pambansa, Q.C.
(Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210, Comment/Memorandum of OSG).
Moreover, a notice to taxpayer dated October 8, 1992 inviting Mrs. Marcos to a
conference relative to her tax liabilities, was furnished the counsel of Mrs. Marcos
Dean Antonio Coronel (Annex "B", p. 211, ibid). Thereafter, copies of Notices were
also served upon Mrs. Imelda Marcos, the petitioner and their counsel "De Borja,
Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7, 1993 and June
10, 1993. Despite all of these Notices, petitioner never lifted a finger to protest the
assessments, (upon which the Levy and sale of properties were based), nor appealed
the same to the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner (and his mother) and it
appearing that petitioner continuously ignored said Notices despite several
opportunities given him to file a protest and to thereafter appeal to the Court of Tax
Appeals, the tax assessments subject of this case, upon which the levy and sale of
properties were based, could no longer be contested (directly or indirectly) via this
instant petition for certiorari. 20
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Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been
issued without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent,
petitioner avers that he has an interest in the subject estate, and notices of levy upon its properties
should have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the
delinquent taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the petitioner
as heir of the deceased. In the same vein, in the matter of income tax delinquency of the late
president and his spouse, petitioner is not the taxpayer liable. Thus, it follows that service of notices
of levy in satisfaction of these tax delinquencies upon the petitioner is not required by law, as under
Section 213 of the NIRC, which pertinently states:
xxx xxx xxx
. . . Levy shall be effected by writing upon said certificate a description of the property
upon which levy is made. At the same time, written notice of the levy shall be mailed
to or served upon the Register of Deeds of the province or city where the property is
located and upon the delinquent taxpayer, or if he be absent from the Philippines, to
his agent or the manager of the business in respect to which the liability arose, or if
there be none, to the occupant of the property in question.
xxx xxx xxx
The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale
were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner
himself on April 12, 1993 at his office at the Batasang Pambansa. 21 We cannot therefore,
countenance petitioner's insistence that he was denied due process. Where there was an opportunity
to raise objections to government action, and such opportunity was disregarded, for no justifiable
reason, the party claiming oppression then becomes the oppressor of the orderly functions of
government. He who comes to court must come with clean hands. Otherwise, he not only taints his
name, but ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court of
Appeals dated November 29, 1994 is hereby AFFIRMED in all respects.
JOSE B. L. REYES and EDMUNDO A. REYES vs. PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE
ROO, in their capacities as appointed and Acting Members of the CENTRAL 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, G.R. Nos. L-49839-46 April 26, 1991
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This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board of
Assessment Appeals 1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board
of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29, 1976
decision of the Board of Tax Assessment Appeals 2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E,
"Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. City
Assessor of Manila" upholding the classification and assessments made by the City Assessor of
Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo
and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling sites by
tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos (P300.00) in
July, 1971. On July 14, 1971, the National Legislature 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 three hundred pesos (P300.00) a
month but allowing an increase in rent by not more than 10% thereafter. The said Act also
suspended paragraph (1) of Article 1673 of the Civil Code for two years from its effectivity thereby
disallowing the ejectment of lessees upon the expiration of the usual legal period of lease. On
October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by indefinitely suspending the
aforementioned provision of the Civil Code, excepting leases with a definite period. Consequently,
the Reyeses, petitioners herein, were precluded from raising the rentals and from ejecting the
tenants. In 1973, respondent 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 Secretary of Finance.
The revision, as expected, entailed an increase in the corresponding tax rates prompting 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
adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the
assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to submit concrete
evidence which could overcome the presumptive regularity of the classification and
assessments appear to be in accordance with the base schedule of market values and
of the base schedule of building unit values, as approved by the Secretary of Finance,
the cases should be, as they are hereby, upheld.
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SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).

The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among others,
the summary of the yearly rentals to show the income derived from the properties. Respondent City
Assessor, on the other hand, submitted three (3) deeds of sale showing the different market values of
the real property situated in the same vicinity where the subject properties of petitioners are located.
To better appreciate the locational and physical features of the land, the Board of Hearing
Commissioners conducted an ocular inspection with the presence of two representatives of the City
Assessor prior to the healing of the case. Neither the owners nor their authorized representatives
were present during the said ocular inspection despite proper notices served them. It was found that
certain parcels of land were below street level and were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive
portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and assessment of the
lots covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1)
PD-266, the appealed Decision is modified by allowing a 20% reduction in their
respective market values and applying therein the assessment level of 30% to arrive
at the corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES
APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in question.
Petitioners 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, respondent 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
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admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under
P.D. 20. Hence, petitioners protested against the levels of the values assigned to their properties as
revised and increased on the ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that the
income approach is used in determining land values in some vicinities, it maintains 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 (Rollo, p. 21). Thus, respondents opted instead for the "Comparable
Sales Approach" 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 (Ibid.). Otherwise stated, public respondents would have this
Court completely ignore the effects of the restrictions of P.D. No. 20 on the market value of
properties within its coverage. In any event, it is unquestionable that both the "Comparable Sales
Approach" and the "Income Approach" are generally acceptable methods of appraisal for taxation
purposes (The Law on Transfer and Business Taxation by Hector S. De Leon, 1988 Edition). However,
it is conceded that the propriety of one as against the other would of course depend on several
factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v. Wenceslao Trinidad, G.R.
No. 19297 (44 Phil. 383), it has been stressed that the assessors, in finding the value of the property,
have to consider all the circumstances and elements of value and must exercise a prudent discretion
in reaching conclusions.
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]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of
taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221, Second
Edition). Thus, the need to examine closely and determine the specific mandate of the Constitution.
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.).
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
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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]).
In the same vein, 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 (Sison v. Ancheta, supra).
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 (Ibid., p. 662).
Finally 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."
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much lesser
market value in view 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 public respondents,
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 (Rollo, p. 27). 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. As a general rule, there were no
takers 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. Neither can the given
circumstances be nonchalantly dismissed by public respondents as imposed under distressed
conditions clearly implying that the same were merely temporary in character. At this point in time,
the falsity of such premises cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.
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
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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.
By the public respondents' own computation the assessment by income approach would amount to
only P10.00 per sq. meter at the time in question.
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 (Rollo, p. 71).
PHILIPPINE BANK OF COMMUNICATIONS vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF
TAX APPEALS and COURT OF APPEALS, G.R. No. 112024 January 28, 1999
This petition for review assails the Resolution 1 of the Court of Appeals dated September 22,
1993 affirming the Decision 2 and a Resolution 3 of the Court Of Tax Appeals which denied the claims
of the petitioner for tax refund and tax credits, and disposing as follows:
IN VIEW OF ALL, THE FOREGOING, the instant petition for review, is DENIED due
course. The Decision of the Court of Tax Appeals dated May 20, 1993 and its
resolution dated July 20, 1993, are hereby AFFIRMED in toto.
SO ORDERED. 4
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, Petitioner's claim for refund/tax credits of overpaid income tax for 1985
in the amount of P5,299,749.95 is hereby denied for having been filed beyond the
reglementary period. The 1986 claim for refund amounting to P234,077.69 is likewise
denied since petitioner has opted and in all likelihood automatically credited the
same to the succeeding year. The petition for review is dismissed for lack of merit.
SO ORDERED. 5
The facts on record show the antecedent circumstances pertinent to this case.
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Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly

organized under Philippine laws, filed its quarterly income tax returns for the first and second
quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due
were settled by applying PBCom's tax credit memos and accordingly, the Bureau of Internal Revenue
(BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00,
respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns
for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00,
and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees
withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and
P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a
tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of
1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their
lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted
a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was
docketed as CTA Case No. 4309 entitled: "Philippine Bank of Communications vs. Commissioner of
Internal Revenue."
The losses petitioner incurred as per the summary of petitioner's claims for refund and tax credit for
1985 and 1986, filed before the Court of Tax Appeals, are as follows:
1985 1986

Net Income (Loss) (P25,317,288.00) (P14,129,602.00)
Tax Due NIL NIL
Quarterly tax.
Payments Made 5,016,954.00
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Tax Withheld at Source 282,795.50 234,077.69

Excess Tax Payments P5,299,749.50* P234,077.69
=============== =============
* CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A
forty five centavo difference was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of
petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was
filed beyond the two-year reglementary period provided for by law. The petitioner's claim for refund
in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was automatically
credited by PBCom against its tax payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's decision but the same
was denied due course for lack of merit. 6
Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the
Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto the CTA's
resolution dated July 20, 1993. Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom which relied in good faith on the formal assurances of
BIR in RMC No. 7-85 and did not immediately file with the CTA a petition for review
asking for the refund/tax credit of its 1985-86 excess quarterly income tax payments
can be prejudiced by the subsequent BIR rejection, applied retroactivity, of its
assurances in RMC No. 7-85 that the prescriptive period for the refund/tax credit of
excess quarterly income tax payments is not two years but ten (10). 7
II. Whether the Court of Appeals seriously erred in affirming the CTA decision which
denied PBCom's claim for the refund of P234,077.69 income tax overpaid in 1986 on
the mere speculation, without proof, that there were taxes due in 1987 and that
PBCom availed of tax-crediting that year. 8
Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea
for tax refund or tax credits on the ground of prescription, despite petitioner's reliance on RMC No.
7-85, changing the prescriptive period of two years to ten years?
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Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying
on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular
states that overpaid income taxes are not covered by the two-year prescriptive period under the tax
Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the
BIR within ten (10) years under Article 1144 of the Civil Code. The pertinent portions of the circular
reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS
CORPORATE INCOME TAX RESULTING FROM THE FILING OF THE
FINAL ADJUSTMENT RETURN.
TO: All Internal Revenue Officers and Others Concerned.
Sec. 85 And 86 Of the National Internal Revenue Code provide:
xxx xxx xxx
The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos.
10-77 which provide;
xxx xxx xxx
It has been observed, however, that because of the excess tax payments,
corporations file claims for recovery of overpaid income tax with the Court of Tax
Appeals within the two-year period from the date of payment, in accordance with
sections 292 and 295 of the National Internal Revenue Code. It is obvious that the
filing of the case in court is to preserve the judicial right of the corporation to claim
the refund or tax credit.
It should he noted, however, that this is not a case of erroneously or illegally paid tax
under the provisions of Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for the refund
of the overpaid income tax or claim for automatic tax credit. To insure prompt action
on corporate annual income tax returns showing refundable amounts arising from
overpaid quarterly income taxes, this Office has promulgated Revenue Memorandum
Order No. 32-76 dated June 11, 1976, containing the procedure in processing said
returns. Under these procedures, the returns are merely pre-audited which consist
mainly of checking mathematical accuracy of the figures of the return. After which,
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the refund or tax credit is granted, and, this procedure was adopted to facilitate
immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the Court of
Tax Appeals in order to preserve the right to claim refund or tax credit the two year
period. As already stated, actions hereon by the Bureau are immediate after only a
cursory pre-audit of the income tax returns. Moreover, a taxpayer may recover from
the Bureau of Internal Revenue excess income tax paid under the provisions of
Section 86 of the Tax Code within 10 years from the date of payment considering
that it is an obligation created by law (Article 1144 of the Civil Code). 9 (Emphasis
supplied.)
Petitioner argues that the government is barred from asserting a position contrary to its declared
circular if it would result to injustice to taxpayers. Citing ABS CBN Broadcasting Corporation vs. Court
of Tax Appeals 10petitioner claims that rulings or circulars promulgated by the Commissioner of
Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers, In ABS-CBN case,
the Court held that the government is precluded from adopting a position inconsistent with one
previously taken where injustice would result therefrom or where there has been a misrepresentation
to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this
rules as follows:
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 or in 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;
c). where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through Solicitor General, argues that the two-year
prescriptive period for filing tax cases in court concerning income tax payments of Corporations is
reckoned from the date of filing the Final Adjusted Income Tax Return, which is generally done on
April 15 following the close of the calendar year. As precedents, respondent Commissioner cited
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cases which adhered to this principle, to witACCRA Investments Corp. vs. Court of Appeals, et
al., 11 and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al.. 12 Respondent Commissioner
also states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985
was supposed to be filed on April 15, 1986, the latter had only until April 15, 1988 to seek relief from
the court. Further, respondent Commissioner stresses that when the petitioner filed the case before
the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such failure is
fatal to petitioner's cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary
to the petitioner's contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as
it disregards the two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate
funds for the State to finance the needs of the citizenry and to advance the common weal. 13 Due
process of law under the Constitution does not require judicial proceedings in tax cases. This must
necessarily be so because it is upon taxation that the government chiefly relies to obtain the means
to carry on its operations and it is of utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered with as little as possible. 14
From the same perspective, claims for refund or tax credit should be exercised within the time fixed
by law because the BIR being an administrative body enforced to collect taxes, its functions should
not be unduly delayed or hampered by incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides
for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally
collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. No suit or proceeding
shall be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, or of any sum alleged
to have been excessive or in any manner wrongfully collected, until a claim for refund
or credit has been duly filed with the Commissioner; but such suit or proceeding may
be maintained, whether or not such tax, penalty, or sum has been paid under protest
or duress.
In any case, no such suit or proceedings shall begun after the expiration of two years
from the date of payment of the tax or penalty regardless of any supervening cause
that may arise after payment;Provided however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on the face of the
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return upon which payment was made, such payment appears clearly to have been
erroneously paid. (Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of
Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced.
The two-year prescriptive period provided, should be computed from the time of filing the
Adjustment Return and final payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co ., 15 this Court
explained the application of Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to run only from the
time that the refund is ascertained, which can only be determined after a final
adjustment return is accomplished. In the present case, this date is April 16, 1984,
and two years from this date would be April 16, 1986. . . . As we have earlier said in
the TMX Sales case, Sections 68. 16 69, 17 and 70 18 on Quarterly Corporate Income
Tax Payment and Section 321 should be considered in conjunction with it 19
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive
period of two years to ten years on claims of excess quarterly income tax payments, such circular
created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not
simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the
sense of more specific and less general interpretations of tax laws) which are issued from time to
time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed
upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by
the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found
to be erroneous. 20 Thus, courts will not countenance administrative issuances that override, instead
of remaining consistent and in harmony with the law they seek to apply and implement. 21
In the case of People vs. Lim, 22 it was held that rules and regulations issued by administrative
officials to implement a law cannot go beyond the terms and provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only
inconsistent with but is contrary to the provisions and spirit of Act. No 4003 as
amended, because whereas the prohibition prescribed in said Fisheries Act was for
any single period of time not exceeding five years duration, FAO No 37-1 fixed no
period, that is to say, it establishes an absolute ban for all time. This discrepancy
between Act No. 4003 and FAO No. 37-1 was probably due to an oversight on the
part of Secretary of Agriculture and Natural Resources. Of course, in case of
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discrepancy, the basic Act prevails, for the reason that the regulation or rule issued to
implement
law
cannot
go
beyond the
terms
and
provisions
of
the
latter. . . . In this connection, the attention of the technical men in the offices of
Department Heads who draft rules and regulation is called to the importance and
necessity of closely following the terms and provisions of the law which they
intended to implement, this to avoid any possible misunderstanding or confusion as
in the present case. 23
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of
its officials or agents. 24 As pointed out by the respondent courts, the nullification of RMC No. 7-85
issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is
not in harmony with Sec. 230 of 1977 NIRC. for being contrary to the express provision of a statute.
Hence, his interpretation could not be given weight for to do so would, in effect, amend the statute.
It is likewise argued that the Commissioner of Internal Revenue, after promulgating
RMC No. 7-85, is estopped by the principle of non-retroactively of BIR rulings. Again
We do not agree. The Memorandum Circular, stating that a taxpayer may recover the
excess income tax paid within 10 years from date of payment because this is an
obligation created by law, was issued by the Acting Commissioner of Internal
Revenue. On the other hand, the decision, stating that the taxpayer should still file a
claim for a refund or tax credit and corresponding petition fro review within the
two-year prescription period, and that the lengthening of the period of limitation on
refund from two to ten years would be adverse to public policy and run counter to
the positive mandate of Sec. 230, NIRC, - was the ruling and judicial interpretation of
the Court of Tax Appeals. Estoppel has no application in the case at bar because it
was not the Commissioner of Internal Revenue who denied petitioner's claim of
refund or tax credit. Rather, it was the Court of Tax Appeals who denied (albeit
correctly) the claim and in effect, ruled that the RMC No. 7-85 issued by the
Commissioner of Internal Revenue is an administrative interpretation which is out of
harmony with or contrary to the express provision of a statute (specifically Sec. 230,
NIRC), hence, cannot be given weight for to do so would in effect amend the
statute. 25
Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes as part of the
legal system of the country. But administrative decisions do not enjoy that level of recognition. A
memorandum-circular of a bureau head could not operate to vest a taxpayer with shield against
judicial action. For there are no vested rights to speak of respecting a wrong construction of the law
by the administrative officials and such wrong interpretation could not place the Government in
estoppel to correct or overrule the same. 27 Moreover, the non-retroactivity of rulings by the
Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85
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was declared by respondent courts and not by the Commissioner of Internal Revenue. Lastly, it must
be noted that, as repeatedly held by this Court, a claim for refund is in the nature of a claim for
exemption and should be construed in strictissimi juris against the taxpayer. 28
On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming
CTA's decision denying its claim for refund of P234,077.69 (tax overpaid in 1986), based on mere
speculation, without proof, that PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the total
quarterly payments over the actual income tax computed in the adjustment or final corporate
income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the
estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the option box
provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax
credit for the succeeding taxable year. To ease the administration of tax collection, these remedies
are in the alternative, and the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 the Court of Tax
Appeals, after examining the adjusted final corporate annual income tax return for
taxable year 1986, found out that petitioner opted to apply for automatic tax credit.
This was the basis used (vis-avis the fact that the 1987 annual corporate tax return
was not offered by the petitioner as evidence) by the CTA in concluding that
petitioner had indeed availed of and applied the automatic tax credit to the
succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of
refund and tax credit are alternative. 30
That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as
specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must respect.
Moreover, the 1987 annual corporate tax return of the petitioner was not offered as evidence to
contovert said fact. Thus, we are bound by the findings of fact by respondent courts, there being no
showing of gross error or abuse on their part to disturb our reliance thereon. 31
WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appeals appealed from is
AFFIRMED, with COSTS against the petitioner.
THE PHILIPPINE GUARANTY CO., INC. vs. THE COMMISSIONER OF INTERNAL REVENUE and THE
COURT OF TAX APPEALS, G.R. No. L-22074 April 30, 1965
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The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts,
on various dates, with foreign insurance companies not doing business in the Philippines namely:
Imperio Compaia de Seguros, La Union y El Fenix Espaol, Overseas Assurance Corp., Ltd., Socieded
Anonima de Reaseguros Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union Assurance Society
Ltd., Swiss Reinsurance Company and Tariff Reinsurance Limited. Philippine Guaranty Co., Inc.,
thereby agreed to cede to the foreign reinsurers a portion of the premiums on insurance it has
originally underwritten in the Philippines, in consideration for the assumption by the latter of liability
on an equivalent portion of the risks insured. Said reinsurrance contracts were signed by Philippine
Guaranty Co., Inc. in Manila and by the foreign reinsurers outside the Philippines, except the contract
with Swiss Reinsurance Company, which was signed by both parties in Switzerland.
The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that
of Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc. was
required to keep a register in Manila where the risks ceded to the foreign reinsurers where entered,
and entry therein was binding upon the reinsurers. A proportionate amount of taxes on insurance
premiums not recovered from the original assured were to be paid for by the foreign reinsurers. The
foreign reinsurers further agreed, in consideration for managing or administering their affairs in the
Philippines, to compensate the Philippine Guaranty Co., Inc., in an amount equal to 5% of the
reinsurance premiums. Conflicts and/or differences between the parties under the reinsurance
contracts were to be arbitrated in Manila. Philippine Guaranty Co., Inc. and Swiss Reinsurance
Company stipulated that their contract shall be construed by the laws of the Philippines.
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign
reinsurers the following premiums:
1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71
1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85
Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it file its
income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them.
Consequently, per letter dated April 13, 1959, the Commissioner of Internal Revenue assessed
against Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums, thus:
1953
Gross premium per investigation . . . . . . . . . .
P768,580.00
Withholding tax due thereon at 24% . . . . . . . . P184,459.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . .
46,114.00
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Compromise for non-filing of withholding

income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL AMOUNT DUE & COLLECTIBLE . . . .
100.00
P230,673.00
==========
1954
Gross premium per investigation . . . . . . . . . .
P780.880.68
Withholding tax due thereon at 24% . . . . . . . . P184,411.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . .
Compromise for non-filing of withholding
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL AMOUNT DUE & COLLECTIBLE . . . .
P184,411.00
100.00
P234,364.00
==========
Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums
ceded to foreign reinsurers not doing business in the Philippines are not subject to withholding tax.
Its protest was denied and it appealed to the Court of Tax Appeals.
On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion:
IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Guaranty Co., Inc. is
hereby ordered to pay to the Commissioner of Internal Revenue the respective sums of
P202,192.00 and P173,153.00 or the total sum of P375,345.00 as withholding income taxes
for the years 1953 and 1954, plus the statutory delinquency penalties thereon. With costs
against petitioner.
Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of Internal
Revenue's assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to
the foreign reinsurers.
Petitioner maintain that the reinsurance premiums in question did not constitute income from
sources within the Philippines because the foreign reinsurers did not engage in business in the
Philippines, nor did they have office here.
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The reinsurance contracts, however, show that the transactions or activities that constituted the
undertaking to reinsure Philippine Guaranty Co., Inc. against loses arising from the original
insurances in the Philippines were performed in the Philippines. The liability of the foreign reinsurers
commenced simultaneously with the liability of Philippine Guaranty Co., Inc. under the original
insurances. Philippine Guaranty Co., Inc. kept in Manila a register of the risks ceded to the foreign
reinsurers. Entries made in such register bound the foreign resinsurers, localizing in the Philippines
the actual cession of the risks and premiums and assumption of the reinsurance undertaking by the
foreign reinsurers. Taxes on premiums imposed by Section 259 of the Tax Code for the privilege of
doing insurance business in the Philippines were payable by the foreign reinsurers when the same
were not recoverable from the original assured. The foreign reinsurers paid Philippine Guaranty Co.,
Inc. an amount equivalent to 5% of the ceded premiums, in consideration for administration and
management by the latter of the affairs of the former in the Philippines in regard to their reinsurance
activities here. Disputes and differences between the parties were subject to arbitration in the City of
Manila. All the reinsurance contracts, except that with Swiss Reinsurance Company, were signed by
Philippine Guaranty Co., Inc. in the Philippines and later signed by the foreign reinsurers abroad.
Although the contract between Philippine Guaranty Co., Inc. and Swiss Reinsurance Company was
signed by both parties in Switzerland, the same specifically provided that its provision shall be
construed according to the laws of the Philippines, thereby manifesting a clear intention of the
parties to subject themselves to Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within
the Philippines. The word "sources" has been interpreted as the activity, property or service giving
rise to the income. 1 The reinsurance premiums were income created from the undertaking of the
foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc., against liability for loss
under original insurances. Such undertaking, as explained above, took place in the Philippines. These
insurance premiums, therefore, came from sources within the Philippines and, hence, are subject to
corporate income tax.
The
foreign
insurers'
place
of business should
not
be
confused
with
their
place
of
activity. Business should not be continuity and progression of transactions while activity may consist
of only a single transaction. An activity may occur outside the place of business. Section 24 of the Tax
Code does not require a foreign corporation to engage in business in the Philippines in subjecting its
income to tax. It suffices that the activity creating the income is performed or done in the Philippines.
What is controlling, therefore, is not the place of business but the place of activity that created an
income.
Petitioner further contends that the reinsurance premiums are not income from sources within the
Philippines because they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is
not an all-inclusive enumeration, for it merely directs that the kinds of income mentioned therein
Page 128 of 455
TAXATION LAW REVIEW

should be treated as income from sources within the Philippines but it does not require that other
kinds of income should not be considered likewise.
The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a
necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to
resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve,
public improvement designed for the enjoyment of the citizenry and those which come within the
State's territory, and facilities and protection which a government is supposed to provide.
Considering that the reinsurance premiums in question were afforded protection by the government
and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such
reinsurance premiums and reinsurers should share the burden of maintaining the state.
Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of
Internal Revenue requiring no withholding of the tax due on the reinsurance premiums in question
relieved it of the duty to pay the corresponding withholding tax thereon. This defense of petitioner
may free if from the payment of surcharges or penalties imposed for failure to pay the
corresponding withholding tax, but it certainly would not exculpate if from liability to pay such
withholding tax The Government is not estopped from collecting taxes by the mistakes or errors of
its agents.3
In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax
Code, suffice it to state that this question has already been answered in the affirmative in Alexander
Howden & Co., Ltd. vs. Collector of Internal Revenue, L-19393, April 14, 1965.
Finally, petitioner contends that the withholding tax should be computed from the amount actually
remitted to the foreign reinsurers instead of from the total amount ceded. And since it did not remit
any amount to its foreign insurers in 1953 and 1954, no withholding tax was due.
The pertinent section of the Tax Code States:
Sec. 54. Payment of corporation income tax at source. In the case of foreign corporations
subject to taxation under this Title not engaged in trade or business within the Philippines
and not having any office or place of business therein, there shall be deducted and withheld
at the source in the same manner and upon the same items as is provided in Section fiftythree a tax equal to twenty-four per centum thereof, and such tax shall be returned and paid
in the same manner and subject to the same conditions as provided in that section.
The applicable portion of Section 53 provides:
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(b) Nonresident
aliens. All persons, corporations and general copartnerships

(compaias colectivas), in what ever capacity acting, including lessees or mortgagors of real
or personal property, trustees acting in any trust capacity, executors, administrators,
receivers, conservators, fiduciaries, employers, and all officers and employees of the
Government of the Philippines having the control, receipt, custody, disposal, or payment of
interest, dividends, rents, salaries, wages, premiums, annuities, compensation, remunerations,
emoluments, or other fixed or determinable annual or periodical gains, profits, and income of
any nonresident alien individual, not engaged in trade or business within the Philippines and
not having any office or place of business therein, shall (except in the case provided for in
subsection [a] of this section) deduct and withhold from such annual or periodical gains,
profits, and income a tax equal to twelve per centum thereof: Provided That no deductions or
withholding shall be required in the case of dividends paid by a foreign corporation unless
(1) such corporation is engaged in trade or business within the Philippines or has an office or
place of business therein, and (2) more than eighty-five per centum of the gross income of
such corporation for the three-year period ending with the close of its taxable year preceding
the declaration of such dividends (or for such part of such period as the corporation has
been in existence)was derived from sources within the Philippines as determined under the
provisions of section thirty-seven: Provided, further, That the Collector of Internal Revenue
may authorize such tax to be deducted and withheld from the interest upon any securities
the owners of which are not known to the withholding agent.
The above-quoted provisions allow no deduction from the income therein enumerated in
determining the amount to be withheld. According, in computing the withholding tax due on the
reinsurance premium in question, no deduction shall be recognized.
WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby
ordered to pay to the Commissioner of Internal Revenue the sums of P202,192.00 and P173,153.00,
or a total amount of P375,345.00, as withholding tax for the years 1953 and 1954, respectively. If the
amount of P375,345.00 is not paid within 30 days from the date this judgement becomes final, there
shall be collected a surcharged of 5% on the amount unpaid, plus interest at the rate of 1% a month
from the date of delinquency to the date of payment, provided that the maximum amount that may
be collected as interest shall not exceed the amount corresponding to a period of three (3) years.
With costs againsts petitioner.
PHILEX MINING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS,
and THE COURT OF TAX APPEALS, G.R. No. 125704 August 28, 1998
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8,
1996 in CA-G.R. SP No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872
dated March 16, 1995 2 ordering it to pay the amount of P110,677,668.52 as excise tax liability for the
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TAXATION LAW REVIEW

period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from
August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the 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 in the
total amount of P123,821.982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52 3
========= ========= ========= =========
In a letter dated August 20, 1992, 4 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 P119,977,037.02 plus interest. Therefore these claims for tax credit/refund
should be applied against the tax liabilities, citing our ruling in Commissioner of Internal Revenue v.
Itogon-Suyoc Mines, Inc. 5

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In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since
these pending claims have not yet been established or determined with certainty, it follows that no
legal compensation can take place. Hence, the BIR reiterated its demand that Philex settle the
amount plus interest within 30 days from the receipt of the letter.
In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its
excise tax obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. 7 In
the course of the proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount of
P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52; effectively
lowered the latter's tax obligation to P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated and
demandable. "Liquidated" debts are those where the exact amount has already been
determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition, p.
259). In the instant case, the claims of the Petitioner for VAT refund is still pending
litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A
fortiori, the liquidated debt of the Petitioner to the government cannot, therefore, be
set-off against the unliquidated claim which Petitioner conceived to exist in its favor
(see Compaia General de Tabacos vs. French and Unson, No. 14027, November 8,
1918, 39 Phil. 34). 8
Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation
since claim for taxes is not a debt or contract." 9 The dispositive portion of the CTA
decision 10 provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and
Petitioner is hereby ORDERED to PAY the Respondent the amount of P110,677,668.52
representing excise tax liability for the period from the 2nd quarter of 1991 to the
2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid
pursuant to Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CAGR. CV No. 36975.11 Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the Court of Tax
Appeals observation. The pertinent portion of which reads: 12
WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the
decision dated March 16, 1995 is AFFIRMED.
Page 132 of 455
TAXATION LAW REVIEW

Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July
11, 1996. 13
However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its
VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994,
computed as follows: 14
Period Covered Tax Credit Date
By Claims For Certificate of
VAT refund/credit Number Issue Amount
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso
jure, off-set its excise tax liabilities 15 since both had already become "due and demandable, as well
as fully liquidated;" 16 hence, legal compensation can properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made the pronouncement that taxes
cannot be subject to compensation for the simple reason that the government and the taxpayer are
not creditors and debtors of each other.17 There is a material distinction between a tax and debt.
Debts are due to the Government in its corporate capacity, while taxes are due to the Government in
its sovereign capacity. 18 We find no cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held
that taxes cannot be subject to set-off or compensation, thus:
We have consistently ruled that 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
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TAXATION LAW REVIEW

greater than the tax being collected. The collection of a tax cannot await the results
of a lawsuit against the government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v.
Commission on Audit, 20which reiterated 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.
Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines
Inc., wherein we ruled that a pending refund may be set off against an existing tax liability even
though the refund has not yet been approved by the Commissioner, 21 is no longer without any
support in statutory law.
It is important to note, that the premise of our ruling in the aforementioned case was anchored on
Section 51 (d) of the National Revenue Code of 1939. However, when the National Internal Revenue
Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was
based was omitted. 22 Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by
Philex.
Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of
surcharge and interest for the non-payment of the excise taxes within the time prescribed was
unjustified. Philex posits the theory that it had no obligation to pay the excise tax liabilities within the
prescribed period since, after all, it still has pending claims for VAT input credit/refund with BIR. 23
We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax
law that taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. 24 Evidently, to countenance Philex's whimsical reason would render ineffective our tax
collection system. Too simplistic, it finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has
a pending tax claim for refund or credit against the government which has not yet been granted. It
must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of
bargain. 25 Hence, a tax does not depend upon the consent of the taxpayer. 26 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 government. 27 Moreover,
Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can
Page 134 of 455
TAXATION LAW REVIEW

easily give rise to confusion and abuse, depriving the government of authority over the manner by
which taxpayers credit and offset their tax liabilities.
Corollarily, 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 Section 248 and 249 of the
Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with any
authority to waive the collection thereof. 28 The same cannot be condoned for flimsy
reasons, 29 similar to the one advanced by Philex in justifying its non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code of
1977, which requires the refund of input taxes within 60 days, 31 when it took five years for the latter
to grant its tax claim for VAT input credit/refund. 32
In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof
to establish the factual basis of his or her claim for tax credit or refund, 33 however, once the claimant
has submitted all the required documents it is the function of the BIR to assess these documents
with purposeful dispatch. After all, since taxpayers owe honestly to government it is but just that
government render fair service to the taxpayers. 34
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these
erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and
judicious with their duty, it could have granted the refund earlier. We need not remind the BIR that
simple justice requires the speedy refund of wrongly-held taxes. 35Fair dealing and nothing less, is
expected by the taxpayer from the BIR in the latter's discharge of its function. As aptly held in Roxas
v. Court of Tax Appeals: 36

The power of taxation is sometimes called also the power to destroy. Therefore it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill
the "hen that lays the golden egg" And, in order to maintain the general public's trust
and confidence in the Government this power must be used justly and not
treacherously.
Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a
settled rule that in the performance of governmental function, the State is not bound by the neglect
of its agents and officers. Nowhere is this more true than in the field of taxation. 37 Again, while we
understand Philex's predicament, it must be stressed that the same is not a valid reason for the nonpayment of its tax liabilities.
To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or
employees, especially BIR examiners who, in investigating tax claims are seen to drag their feet
Page 135 of 455
TAXATION LAW REVIEW

needlessly. First, if the BIR takes time in acting upon the taxpayer's claim for refund, the latter can
seek judicial remedy before the Court of Tax Appeals in the manner prescribed by law. 38 Second, if
the inaction can be characterized as willful neglect of duty, then recourse under the Civil Code and
the Tax Code can also be availed of.
Art. 27 of the Civil Code provides:
Art. 27. Any person suffering material or moral loss because a public servant or
employee refuses or neglects, without just cause, to perform his official duty may file
an action for damages and other relief against the latter, without prejudice to any
disciplinary action that may be taken.
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:
xxx xxx xxx
(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the
performance of duty or wilfully neglecting to perform, any other duties enjoyed by
law.
Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the
performance of official duties. 39 In no uncertain terms must we stress that every public employee or
servant must strive to render service to the people with utmost diligence and efficiency. Insolence
and delay have no place in government service. The BIR, being the government collecting arm, must
and should do no less. It simply cannot be apathetic and laggard in rendering service to the taxpayer
if it wishes to remain true to its mission of hastening the country's development. We take judicial
notice of the taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to
prove its detractors wrong.
In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the
same cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take the law
into his own hands" should have guided Philex's action.
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.
NORTH CAMARINES LUMBER CO., INC vs. COLLECTOR OF INTERNAL REVENUE, G.R. No. L-12353
September 30, 1960
Page 136 of 455
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This is an appeal from the resolution of the Court of Tax Appeals dismissing the petition for
review filed by the petitioner for lack of jurisdiction to try it on the merits, the same having been filed
beyond the 30-day period fixed in Section 11 of Republic Act No. 1125.
The petitioner, North Camarines Lumber Co., Inc., is a domestic corporation engaged in the
lumber business. On June 19, 1951 and July 31, 1951, it sold a total of 2,164,863 board feet of logs to
the General Lumber Co., Inc., with the agreement that the latter would assume responsibility for the
payment of the sales tax thereon in the amount of P7,768.51. After being consulted on the matter,
the respondent Collector of Internal Revenue, in his letters dated June 18, 1951 and August 6, 1951,
advised the petitioner that he was interposing no objection to the arrangement, provided the
General Lumber Co., Inc., would file the corresponding bonds to cover the sales tax liabilities.
The General Lumber Co., Inc., complied with the condition. In view, however, of its failure and
that of the surety to pay the tax liabilities, the respondent Collector, in his letter dated August 30,
1955, required the petitioner to pay the total amount of P9,598.72 as sales tax and incidental
penalties in the sale of logs to the General Lumber Co., Inc. Although the date of receipt by
petitioner of this letter does not appeal in the records, it may be presumed to be September 9, 1955,
when the petitioner addressed a letter to the respondent Collector, which was received on
September 12, 1955, wherein the petitioner acknowledged receipt of the letter of demand and at the
same time requested for the reconsideration of the assessment. This was denied by the respondent
Collector in his letter of December 8, 1955, received by the petitioner on January 5, 1956. The
respondent Collector having denied the second request for reconsideration in his letter dated
January 30, 1956, which the petitioner received on February 16, 1956, the latter, on March 13, 1956,
filed a petition for review with the Court of Tax Appeals. The Court, after a preliminary hearing on
respondent Collector's motion to dismiss, ruled that, as the petition was filed beyond the 30-day
period prescribed by Section 11 of Republic Act No. 1125, it has no jurisdiction to try the same.
Accordingly, the case was dismissed.
In contending that the Court of Tax Appeals erred, the petitioner points out that Section 7, and
not Section 11, of Republic Act No. 1125 confers and determines the jurisdiction of the respondent
court, and that Section 11 refers merely to the prescriptive period for filing appeals.
While the petitioner is correct as to the attribute of Section 7, it should be remembered that,
for the respondent court to have jurisdiction over any case, the party seeking redress must first
invoke its exercise in the manner and within the time prescribed by the law. Thus Section 7, which
enumerates the specific cases falling within the jurisdiction of the Court of Tax Appeals must be read
together with Section 11, which fixes the time for invoking said jurisdiction.
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There is no question that petitioner's case is covered by Section 7 and, therefore, comes within
the jurisdiction of the respondent court. But we said jurisdiction invoked by the petitioner within the
period prescribed by Section 11?
The respondent court ruled that the time consumed by the petitioner in perfecting its appeal
after deducting the time during which the period for appeal was suspended by a pending request for
reconsideration is as follows:
From September 9, 1955, presumed date of receipt of decision, to September 3
12, 1955, the filing of request for reconsideration ................................................................
days
From January 5, 1956, presumed date of receipt of denial of reconsideration, to

January
9,
1956,
the
filing
of
the
second
request
for
reconsideration 4
................................................................
days
From February 16, 1956, receipt of denial of second request for reconsideration, 26
to March 13, 1956, the filing of petition for review ................................................................
days
Total ................................................................
33
days
As the petitioner had consumed thirty-three days, its appeal was clearly filed out of time. It is
argued, however, that in computing the 30-day period fixed in Section 11 of Republic Act No. 1125,
the letter of the respondent Collector dated January 30, 1956, denying the second request for
reconsideration, should be considered as the final decision contemplated in Section 7, and not the
letter of demand dated August 30, 1955.
This contention is untenable. We cannot countenance that theory that would make the
commencement of the statutory 30-day period solely dependent on the will of the taxpayer and
place the latter in a position to put off indefinitely and at his convenience the finality of a tax
assessment. Such an absurd procedure would be detrimental to the interest of the Government, for
"taxes are the lifeblood of the government, and their prompt and certain availability an imperious
need." (Bull vs. U.S. 295, U.S. 247).
WHEREFORE, the resolution appealed from is affirmed, with costs.
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme
Ledesma vs. J. ANTONIO ARANETA, as the Collector of Internal Revenue, G.R. No. L-7859 December
22, 1955
This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the
taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
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Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to
the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the
Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market";
wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from
the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to
prepare it for the eventuality of the loss of its preferential position in the United States market and
the imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture
of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on
owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others
for a consideration, on lease or otherwise
a tax equivalent to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed value of such land.
According to section 6 of the law
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out
only for any or all of the following purposes or to attain any or all of the following objectives,
as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of
the preferntial position of the Philippine sugar in the United States market, and ultimately to
insure its continued existence notwithstanding the loss of that market and the consequent
necessity of meeting competition in the free markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the component
elements thereof the mill, the landowner, the planter of the sugar cane, and the laborers
in the factory and in the field so that all might continue profitably to engage therein;
Third, to limit the production of sugar to areas more economically suited to the production
thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their living and
working conditions: Provided, That the President of the Philippines may, until the adjourment
of the next regular session of the National Assembly, make the necessary disbursements
from the fund herein created (1) for the establishment and operation of sugar experiment
station or stations and the undertaking of researchers (a) to increase the recoveries of the
centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and
Page 139 of 455
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propagate higher yielding varieties of sugar cane more adaptable to different district
conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the
buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the
possibility of utilizing the other by-products of the industry, (f) to determine what crop or
crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other
problems the solution of which would help rehabilitate and stabilize the industry, and (2) for
the improvement of living and working conditions in sugar mills and sugar plantations,
authorizing him to organize the necessary agency or agencies to take charge of the
expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated,
and, likewise, authorizing the disbursement from the fund herein created of the necessary
amount or amounts needed for salaries, wages, travelling expenses, equipment, and other
sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the
estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that
such tax is unconstitutional and void, being levied for the aid and support of the sugar industry
exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally
levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the
case directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In
other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of
our nation, sugar occupying a leading position among its export products; that it gives employment
to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of
the important sources of foreign exchange needed by our government, and is thus pivotal in the
plans of a regime committed to a policy of currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general welfare. Hence it was competent for the
legislature to find that the general welfare demanded that the sugar industry should be stabilized in
turn; and in the wide field of its police power, the lawmaking body could provide that the distribution
of benefits therefrom be readjusted among its components to enable it to resist the added strain of
the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs.
State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida
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The protection of a large industry constituting one of the great sources of the state's wealth
and therefore directly or indirectly affecting the welfare of so great a portion of the
population of the State is affected to such an extent by public interests as to be within the
police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter
of public concern, it follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must be
allowed fully play, subject only to the test of reasonableness; and it is not contended that the means
provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen
why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may
be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S.
412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4
L. Ed. 579).
That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any rate, 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" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L.
Ed. 1245, citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is
that very enterprise that is being protected. It may be that other industries are also in need of similar
protection; that the legislature is not required by the Constitution to adhere to a policy of "all or
none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law
presumably hits the evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied;" and that "the legislative authority, exerted within its
proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel
Corp. 301 U. S. 1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of
tax money to experimental stations to seek increase of efficiency in sugar production, utilization of
by-products and solution of allied problems, as well as to the improvements of living and working
conditions in sugar mills or plantations, without any part of such money being channeled directly to
private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs.
Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).
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The decision appealed from is affirmed, with costs against appellant. So ordered.
BENJAMIN P. GOMEZ vs. ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO
R. VALENCIA, in his capacity as Secretary of Public Works and Communications, and DOMINGO
GOPEZ, in his capacity as Acting Postmaster of San Fernando, Pampanga, G.R. No. L-23645 October
29, 1968
This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by Republic Act
2631,2 which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order
for the period from August nineteen to September thirty every year the printing and issue of
semi-postal stamps of different denominations with face value showing the regular postage
charge plus the additional amount of five centavos for the said purpose, and during the said
period, no mail matter shall be accepted in the mails unless it bears such semi-postal
stamps: Provided, That no such additional charge of five centavos shall be imposed on
newspapers. The additional proceeds realized from the sale of the semi-postal stamps shall
constitute a special fund and be deposited with the National Treasury to be expended by the
Philippine Tuberculosis Society in carrying out its noble work to prevent and eradicate
tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4)
administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10
(July 15, 1960). All these administrative orders were issued with the approval of the respondent
Secretary of Public Works and Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from August 19 to
September 30, 1957, for lack of time. However, two denominations of such stamps, one at "5
+ 5" centavos and another at "10 + 5" centavos, will soon be released for use by the public
on their mails to be posted during the same period starting with the year 1958.
xxx
xxx
xxx
During the period from August 19 to September 30 each year starting in 1958, no mail
matter of whatever class, and whether domestic or foreign, posted at any Philippine Post
Office and addressed for delivery in this country or abroad, shall be accepted for mailing
unless it bears at least one such semi-postal stamp showing the additional value of five
centavos intended for the Philippine Tuberculosis Society.
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In the case of second-class mails and mails prepaid by means of mail permits or impressions
of postage meters, each piece of such mail shall bear at least one such semi-postal stamp if
posted during the period above stated starting with the year 1958, in addition to being
charged the usual postage prescribed by existing regulations. In the case of business reply
envelopes and cards mailed during said period, such stamp should be collected from the
addressees at the time of delivery. Mails entitled to franking privilege like those from the
office of the President, members of Congress, and other offices to which such privilege has
been granted, shall each also bear one such semi-postal stamp if posted during the said
period.
Mails posted during the said period starting in 1958, which are found in street or post-office
mail boxes without the required semi-postal stamp, shall be returned to the sender, if known,
with a notation calling for the affixing of such stamp. If the sender is unknown, the mail
matter shall be treated as nonmailable and forwarded to the Dead Letter Office for proper
disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking privilege
which are not exempted from the payment of the five centavos intended for the Philippine
Tuberculosis Society, such extra charge may be collected in cash, for which official receipt
(General Form No. 13, A) shall be issued, instead of affixing the semi-postal stamp in the
manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of
five centavos for the Philippine Tuberculosis Society shall be collected on each separatelyaddressed piece of second-class mail matter, and the total sum thus collected shall be
entered in the same official receipt to be issued for the postage at the second-class rate. In
making such entry, the total number of pieces of second-class mail posted shall be stated,
thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered
separate from the postage in both of the official receipt and the Record of Collections.
2. First-class and third-class mail permits. Mails to be posted without postage affixed
under permits issued by this Bureau shall each be charged the usual postage, in addition to
the five-centavo extra charge intended for said society. The total extra charge thus received
shall be entered in the same official receipt to be issued for the postage collected, as in
subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter under
metered mail permit issued by this Bureau, the extra charge of five centavos for said society
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shall be collected in cash and an official receipt issued for the total sum thus received, in the
manner indicated in subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and
envelopes to holders of business reply permits, the five-centavo charge intended for said
society shall be collected in cash on each reply card or envelope delivered, in addition to the
required postage which may also be paid in cash. An official receipt shall be issued for the
total postage and total extra charge received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other persons
entitled to the franking privilege under existing laws may pay in cash such extra charge
intended for said society, instead of affixing the semi-postal stamps to their mails, provided
that such mails are presented at the post-office window, where the five-centavo extra charge
for said society shall be collected on each piece of such mail matter. In such case, an official
receipt shall be issued for the total sum thus collected, in the manner stated in subparagraph
1.
Mail under permits, metered mails and franked mails not presented at the post-office
window shall be affixed with the necessary semi-postal stamps. If found in mail boxes
without such stamps, they shall be treated in the same way as herein provided for other
mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and
Instrumentalities Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as
amended, exempts "copies of periodical publications received for mailing under any class of mail
matter, including newspapers and magazines admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post
office in San Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014
Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp required by the statute, it
was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of First
Instance of Pampanga, to test the constitutionality of the statute, as well as the implementing
administrative orders issued, contending that it violates the equal protection clause of the
Constitution as well as the rule of uniformity and equality of taxation. The lower court declared the
statute and the orders unconstitutional; hence this appeal by the respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
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Before reaching the merits, we deem it necessary to dispose of the respondents' contention that
declaratory relief is unavailing because this suit was filed after the petitioner had committed a breach
of the statute. While conceding that the mailing by the petitioner of a letter without the additional
anti-TB stamp was a violation of Republic Act 1635, as amended, the trial court nevertheless refused
to dismiss the action on the ground that under section 6 of Rule 64 of the Rules of Court, "If before
the final termination of the case a breach or violation of ... a statute ... should take place, the action
may thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought "before breach or
violation" of the statute has been committed. Rule 64, section 1 so provides. Section 6 of the same
rule, which allows the court to treat an action for declaratory relief as an ordinary action, applies only
if the breach or violation occurs after the filing of the action but before the termination thereof.3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing of
this action, then indeed the remedy of declaratory relief cannot be availed of, much less can the suit
be converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did not
constitute a breach of the statute because the statute appears to be addressed only to postal
authorities. The statute, it is true, in terms provides that "no mail matter shall be accepted in the
mails unless it bears such semi-postal stamps." It does not follow, however, that only postal
authorities can be guilty of violating it by accepting mails without the payment of the anti-TB stamp.
It is obvious that they can be guilty of violating the statute only if there are people who use the mails
without paying for the additional anti-TB stamp. Just as in bribery the mere offer constitutes a breach
of the law, so in the matter of the anti-TB stamp the mere attempt to use the mails without the
stamp constitutes a violation of the statute. It is not required that the mail be accepted by postal
authorities. That requirement is relevant only for the purpose of fixing the liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit
was filed not only with respect to the letter which he mailed on September 15, 1963, but also with
regard to any other mail that he might send in the future. Thus, in his complaint, the petitioner
prayed that due course be given to "other mails without the semi-postal stamps which he may
deliver for mailing ... if any, during the period covered by Republic Act 1635, as amended, as well as
other mails hereafter to be sent by or to other mailers which bear the required postage, without
collection of additional charge of five centavos prescribed by the same Republic Act." As one whose
mail was returned, the petitioner is certainly interested in a ruling on the validity of the statute
requiring the use of additional stamps.
II.
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We now consider the constitutional objections raised against the statute and the implementing
orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution. More
specifically the claim is made that it constitutes mail users into a class for the purpose of the tax
while leaving untaxed the rest of the population and that even among postal patrons the statute
discriminatorily grants exemption to newspapers while Administrative Order 9 of the respondent
Postmaster General grants a similar exemption to offices performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax,
laid upon the exercise of a privilege, namely, the privilege of using the mails. As such the objections
levelled against it must be viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions.4 This power has aptly been described as "of wide range and
flexibility."5 Indeed, it is said that in the field of taxation, more than in other areas, the legislature
possesses the greatest freedom in classification.6 The reason for this is that traditionally, classification
has been a device for fitting tax programs to local needs and usages in order to achieve an equitable
distribution of the tax burden.7
That legislative classifications must be reasonable is of course undenied. But what the petitioner
asserts is that statutory classification of mail users must bear some reasonable relationship to the
end sought to be attained, and that absent such relationship the selection of mail users is
constitutionally
impermissible.
This
is
altogether
different
proposition.
As
explained
in Commonwealth v. Life Assurance Co.:
While the principle that there must be a reasonable relationship between classification made
by the legislation and its purpose is undoubtedly true in some contexts, it has no application
to a measure whose sole purpose is to raise revenue ... So long as the classification imposed
is based upon some standard capable of reasonable comprehension, be that standard based
upon ability to produce revenue or some other legitimate distinction, equal protection of the
law has been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S.
Ct. at 441; Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578,
580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the clearest
demonstration that it sanctions invidious discrimination, which is all that the Constitution forbids.
The remedy for unwise legislation must be sought in the legislature. Now, the classification of mail
users is not without any reason. It is based on ability to pay, let alone the enjoyment of a privilege,
and on administrative convinience. In the allocation of the tax burden, Congress must have
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concluded that the contribution to the anti-TB fund can be assured by those whose who can afford
the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it is now a
settled principle of law that "consideration of practical administrative convenience and cost in the
administration of tax laws afford adequate ground for imposing a tax on a well recognized and
defined class."9 In the case of the anti-TB stamps, undoubtedly, the single most important and
influential consideration that led the legislature to select mail users as subjects of the tax is the
relative ease and convenienceof collecting the tax through the post offices. The small amount of five
centavos does not justify the great expense and inconvenience of collecting through the regular
means of collection. On the other hand, by placing the duty of collection on postal authorities the tax
was made almost self-enforcing, with as little cost and as little inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a class. Mail
users were already a class by themselves even before the enactment of the statue and all that the
legislature did was merely to select their class. Legislation is essentially empiric and Republic Act
1635, as amended, no more than reflects a distinction that exists in fact. As Mr. Justice Frankfurter
said, "to recognize differences that exist in fact is living law; to disregard [them] and concentrate on
some abstract identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption must
likewise be conceded as a necessary corollary. Tax exemptions are too common in the law; they have
never been thought of as raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted from the
levy the law and administrative officials have sanctioned an invidious discrimination offensive to the
Constitution. The application of the lower courts theory would require all mail users to be taxed, a
conclusion that is hardly tenable in the light of differences in status of mail users. The Constitution
does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the tax in
order to foster what it conceives to be a beneficent enterprise.11 This is the case of newspapers
which, under the amendment introduced by Republic Act 2631, are exempt from the payment of the
additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's sovereign
immunity from taxation. The State cannot be taxed without its consent and such consent, being in
derogation of its sovereignty, is to be strictly construed.12 Administrative Order 9 of the respondent
Postmaster General, which lists the various offices and instrumentalities of the Government exempt
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from the payment of the anti-TB stamp, is but a restatement of this well-known principle of
constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the
exclusion of other diseases which, it is said, are equally a menace to public health. But it is never a
requirement of equal protection that all evils of the same genus be eradicated or none at all.13 As this
Court has had occasion to say, "if the law presumably hits the evil where it is most felt, it is not to be
overthrown because there are other instances to which it might have been applied."14
2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for a
public purpose as no special benefits accrue to mail users as taxpayers, and second, because it
violates the rule of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner
means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that the
only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of
the privileges of living in an organized society, established and safeguarded by the devotion of taxes
to public purposes. Any other view would preclude the levying of taxes except as they are used to
compensate for the burden on those who pay them and would involve the abandonment of the
most fundamental principle of government that it exists primarily to provide for the common
good.15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather
than a graduated tax. A tax need not be measured by the weight of the mail or the extent of the
service rendered. We have said that considerations of administrative convenience and cost afford an
adequate ground for classification. The same considerations may induce the legislature to impose a
flat tax which in effect is a charge for the transaction, operating equally on all persons within the
class regardless of the amount involved.16 As Mr. Justice Holmes said in sustaining the validity of a
stamp act which imposed a flat rate of two cents on every $100 face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The
inequality of the tax, so far as actual values are concerned, is manifest. But, here again
equality in this sense has to yield to practical considerations and usage. There must be a
fixed and indisputable mode of ascertaining a stamp tax. In another sense, moreover, there is
equality. When the taxes on two sales are equal, the same number of shares is sold in each
case; that is to say, the same privilege is used to the same extent. Valuation is not the only
thing to be considered. As was pointed out by the court of appeals, the familiar stamp tax of
2 cents on checks, irrespective of income or earning capacity, and many others, illustrate the
necessity and practice of sometimes substituting count for weight ...17
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According to the trial court, the money raised from the sales of the anti-TB stamps is spent for the
benefit of the Philippine Tuberculosis Society, a private organization, without appropriation by law.
But as the Solicitor General points out, the Society is not really the beneficiary but only the agency
through which the State acts in carrying out what is essentially a public function. The money is
treated as a special fund and as such need not be appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the respondents
had to issue administrative orders far beyond their powers. Indeed, this is one of the grounds on
which the lower court invalidated Republic Act 1631, as amended, namely, that it constitutes an
undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain
classes of mail matters (such as mail permits, metered mails, business reply cards, etc.), the fivecentavo charge may be paid in cash instead of the purchase of the anti-TB stamp. It further states
that mails deposited during the period August 19 to September 30 of each year in mail boxes
without the stamp should be returned to the sender, if known, otherwise they should be treated as
nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except through the
sale of anti-TB stamps, but such authority may be implied in so far as it may be necessary to prevent
a failure of the undertaking. The authority given to the Postmaster General to raise funds through
the mails must be liberally construed, consistent with the principle that where the end is required the
appropriate means are given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the
additional charge but also that of the regular postage. In the case of business reply cards, for
instance, it is obvious that to require mailers to affix the anti-TB stamp on their cards would be to
make them pay much more because the cards likewise bear the amount of the regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do not bear the
anti-TB stamp, but a declaration therein that "no mail matter shall be accepted in the mails unless it
bears such semi-postal stamp" is a declaration that such mail matter is nonmailable within the
meaning of section 1952 of the Administrative Code. Administrative Order 7 of the Postmaster
General is but a restatement of the law for the guidance of postal officials and employees. As for
Administrative Order 9, we have already said that in listing the offices and entities of the Government
exempt from the payment of the stamp, the respondent Postmaster General merely observed an
established principle, namely, that the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without
pronouncement as to costs.
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SILVESTER M. PUNSALAN, ET AL. vs. THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL, G.R.
No. L-4817 May 26, 1954
This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical
practitioner, a public accountant, a dental surgeon and a pharmacist, purportedly "in their own
behalf and in behalf of other professionals practising in the City of Manila who may desire to join it."
Object of the suit is the annulment of Ordinance No. 3398 of the City of Manila together with the
provision of the Manila charter authorizing it and the refund of taxes collected under the ordinance
but paid under protest.
The ordinance in question, which was approved by the municipal board of the City of Manila on July
25, 1950, imposes a municipal occupation tax on persons exercising various professions in the city
and penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by
imprisonment of not more than six months, or by both such fine and imprisonment in the discretion
of the court." Among the professions taxed were those to which plaintiffs belong. The ordinance was
enacted pursuant to paragraph (1) of section 18 of the Revised Charter of the City of Manila (as
amended by Republic Act No. 409), which empowers the Municipal Board of said city to impose a
municipal occupation tax, not to exceed P50 per annum, on persons engaged in the various
professions above referred to.
Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same
under protest and then brought the present suit for the purpose already stated. The lower court
upheld the validity of the provision of law authorizing the enactment of the ordinance but declared
the ordinance itself illegal and void on the ground that the penalty there in provided for nonpayment of the tax was not legally authorized. From this decision both parties appealed to this
Court, and the only question they have presented for our determination is whether this ruling is
correct or not, for though the decision is silent on the refund of taxes paid plaintiffs make no
assignment of error on this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that the
imposition of the penalty provided for in the ordinance was without the authority of law. The last
paragraph (kk) of the very section that authorizes the enactment of this tax ordinance (section 18 of
the Manila Charter) in express terms also empowers the Municipal Board "to fix penalties for the
violation of ordinances which shall not exceed to(sic) two hundred pesos fine or six months"
imprisonment, or both such fine and imprisonment, for a single offense." Hence, the pronouncement
below that the ordinance in question is illegal and void because it imposes a penalty not authorized
by law is clearly without basis.
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As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double
taxation.
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the
professions to which they respectively belong have been singled out for the imposition of this
municipal occupation tax; and in any event, the Legislature may, in its discretion, select what
occupations shall be taxed, and in the exercise of that discretion it may tax all, or it may select for
taxation certain classes and leave the others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp. 33933395.) Plaintiffs' complaint is that while the law has authorized the City of Manila to impose the said
tax, it has withheld that authority from other chartered cities, not to mention municipalities. We do
not think it is for the courts to judge what particular cities or municipalities should be empowered to
impose occupation taxes in addition to those imposed by the National Government. That matter is
peculiarly within the domain of the political departments and the courts would do well not to
encroach upon it. Moreover, as the seat of the National Government and with a population and
volume of trade many times that of any other Philippine city or municipality, Manila, no doubt, offers
a more lucrative field for the practice of the professions, so that it is but fair that the professionals in
Manila be made to pay a higher occupation tax than their brethren in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination
within a class in that while professionals with offices in Manila have to pay the tax, outsiders who
have no offices in the city but practice their profession therein are not subject to the tax. Plaintiffs
make a distinction that is not found in the ordinance. The ordinance imposes the tax upon every
person "exercising" or "pursuing" in the City of Manila naturally any one of the occupations
named, but does not say that such person must have his office in Manila. What constitutes exercise
or pursuit of a profession in the city is a matter of judicial determination. The argument against
double taxation may not be invoked where one tax is imposed by the state and the other is imposed
by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the political subdivisions thereof. (51 Am.
Jur., 341.)
In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance
No. 3398 of the City of Manila illegal and void and affirmed in so far as it holds the validity of the
provision of the Manila charter authorizing it. With costs against plaintiffs-appellants.
ENGRACIO FRANCIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ,
respondents.
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Taxation; Obligations; Requisites of Legal Compensation under Arts. 1278 and 1279 of Civil Code;
Case at bar.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. There is no legal basis for the contention. By legal compensation, obligations of
persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished
(Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by
Article 1279, to wit: (1) that each one of the obligors be bound principally and that he be at the
same time a principal creditor of the other; xxx xxx xxx (3) that the two debts be due. xxx xxx xxx.
Taxation; Same; Internal Revenue Taxes cannot be subject of setoff or compensation.This principal
contention of the petitioner has no merit. We have consistently ruled that 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. The collection of a tax cannot await the results of a lawsuit against the
government. In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that
Internal Revenue Taxes can not be the subject of set-off or compensation. We stated that: 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. x x x (80 C.J.S., 73-74). The general rule based on grounds of
public policy is well-settled that no set-off is 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 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
taxpayer is not required. x x x
Same; Same; Same; Auction Sale; Purchaser has the burden of proof to show that all prescribed
requisites for tax sale were complied with.We agree with the petitioners claim that Ho Fernandez,
the purchaser at the auction sale, has the burden of proof to show that there was compliance with all
the prescribed requisites for a tax sale. The case of Valencia v. Jimenez (11 Phil. 492) laid down the
doctrine that: xxx xxx xxx x x x [D]ue process of law to be followed in tax proceedings must be
established by proof and the general rule is that the purchaser of a tax title is bound to take upon
himself the burden of showing the regularity of all proceedings leading up to the sale. (Italics
supplied). There is no presumption of the regularity of any administrative action which results in
depriving a taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437; Denoga v.
Insular Government, 19 Phil. 261). This is actually an exception to the rule that administrative
proceedings are presumed to be regular. But even if the burden of proof lies with the purchaser to
show that all legal prerequisites have been complied with, the petitioner cannot, however, deny that
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he did receive the notice for the auction sale. The records sustain the lower courts finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified
of the auction sale. Surprisingly, however, he admitted in his testimony that he received the letter
dated November 21, 1977 (Exhibit I) as shown by his signature (Exhibit I-A) thereof. He claimed
further that he was not present on December 5, 1977 the date of the auction sale because he went to
Iligan City. As long as there was substantial compliance with the requirements of the notice, the
validity of the auction sale can not be assailed. x x x.
Same; Same; Same; Same; General Rule that gross inadequacy of price is not material.Petitioners
third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is
not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation,
36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Court of
Appeals (109 SCRA 388) we held that alleged gross inadequacy of price is not material when the law
gives the owner the right to redeem as when a sale is made at public auction, upon the theory that
the lesser the price, the easier it is for the owner to effect redemption. In Velasquez v. Coronel, (5
SCRA 985), this Court held: x x x [R]espondent treasurer now claims that the prices for which the
lands were sold are unconscionable considering the wide divergence between their assessed values
and the amounts for which they had been actually sold. However, while in ordinary sales for reasons
of equity a transaction may be invalidated on the ground of inadequacy of price, or when such
inadequacy shocks ones conscience as to justify the courts to interfere, such does not follow when
the law gives to the owner the right to redeem, as when a sale is made at public auction, upon the
theory that the lesser the price the easier it is for the owner to effect the redemption. And so it was
aptly said: When there is the right to redeem, inadequacy of price should not be material, because
the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the
loss he claims to have suffered by reason of the price obtained at the auction sale. [Francia vs.
Intermediate Appellate Court, 162 SCRA 753(1988)]
GUTIERREZ, JR., J.:
The petitioner invokes legal and equitable grounds to reverse the questioned decision of the
Intermediate Appellate Court, to set aside the auction sale of his property which took place on
December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public
auction to Ho Fernandez and ordered titled in the latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a two-story house built upon it
situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area
of about 328 square meters, is described and covered by Transfer Certificate of Title No. 4739
(37795) of the Registry of Deeds of Pasay City.
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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 representing the estimated amount equivalent
to the assessed value of the aforesaid portion.
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 by the City Treasurer of Pasay City pursuant to Section
73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax
delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that time helping his
uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for
Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739
(37795) and the issuance in his name of a new certificate of title. Upon verification through his
lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the
City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated
at the back of TCT No. 4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his
complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the
amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a new Transfer
Certificate of Title in favor of the defendant Ho Fernandez over the
parcel of land including the improvements thereon, subject to
whatever encumbrances appearing at the back of TCT No. 4739
(37795) and ordering the same TCT No. 4739 (37795) cancelled.
(b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00
as attorney's fees. (p. 30, Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors of law:
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I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT
HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS
SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN
NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION
SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX
DELINQUENCY OF P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND
GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY
RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE
AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW,
AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that
his property was sold at public auction without notice to him and that the price paid for the property
was shockingly inadequate, amounting to fraud and deprivation without due process of law.
A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his
petition upon himself. While we commiserate with him at the loss of his property, the law and the
facts militate against the grant of his petition. We are constrained to dismiss it.
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.
There is no legal basis for the contention. By legal compensation, obligations of persons, who in their
own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil
Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to
wit:
(1) that each one of the obligors be bound principally and that he be at the same
time a principal creditor of the other;
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xxx xxx xxx

(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently ruled that 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. The collection of a tax cannot await the results of a lawsuit
against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue
Taxes can not be the subject of set-off or compensation. We stated that:
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. ... (80 C.J.S., 7374). "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 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. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he
has a claim against the governmental body not included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "...
internal revenue taxes can not be the subject of compensation: Reason: 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."
There are other factors which compel us to rule against the petitioner. The tax was due to the city
government while the expropriation was effected by the national government. Moreover, the amount
of P4,116.00 paid by the national government for the 125 square meter portion of his lot was
deposited with the Philippine National Bank long before the sale at public auction of his remaining
property. Notice of the deposit dated September 28, 1977 was received by the petitioner on
September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00
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deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw
P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public
auction.
Petitioner had one year within which to redeem his property although, as well be shown later, he
claimed that he pocketed the notice of the auction sale without reading it.
Petitioner contends that "the auction sale in question was made without complying with the
mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was
presented that the procedure outlined by law on sales of property for tax delinquency was followed.
... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore rests
upon him to show that plaintiff was duly and properly notified ... .(Petition for Review, Rollo p. 18;
emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the
burden of proof to show that there was compliance with all the prescribed requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be established by
proof and thegeneral rule is that the purchaser of a tax title is bound to take upon
himself the burden of showing the regularity of all proceedings leading up to the
sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which results in depriving a
taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular
Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings
are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been
complied with, the petitioner can not, however, deny that he did receive the notice for the auction
sale. The records sustain the lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not
properly notified of the auction sale. Surprisingly, however, he admitted in his
testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown
by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on
December 5, 1977 the date of the auction sale because he went to Iligan City. As long
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as there was substantial compliance with the requirements of the notice, the validity
of the auction sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-examination, to wit:
Q. My question to you is this letter marked as Exhibit I for Ho
Fernandez notified you that the property in question shall be sold at
public auction to the highest bidder on December 5, 1977 pursuant
to Sec. 74 of PD 464. Will you tell the Court whether you received the
original of this letter?
A. I just signed it because I was not able to read the same. It was just
sent by mail carrier.
Q. So you admit that you received the original of Exhibit I and you
signed upon receipt thereof but you did not read the contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he
ignored such notice. By his very own admission that he received the notice, his now coming to court
assailing the validity of the auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy
of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance
Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de
Gordon v. Court of Appeals(109 SCRA 388) we held that "alleged gross inadequacy of price is not
material when the law gives the owner the right to redeem as when a sale is made at public auction,
upon the theory that the lesser the price, the easier it is for the owner to effect redemption."
In Velasquez v. Coronel (5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which the lands were sold are
unconscionable considering the wide divergence between their assessed values and
the amounts for which they had been actually sold. However, while in ordinary sales
for reasons of equity a transaction may be invalidated on the ground of inadequacy
of price, or when such inadequacy shocks one's conscience as to justify the courts to
interfere, such does not follow when the law gives to the owner the right to redeem,
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as when a sale is made at public auction, upon the theory that the lesser the price the
easier it is for the owner to effect the redemption. And so it was aptly said: "When
there is the right to redeem, inadequacy of price should not be material, because the
judgment debtor may reacquire the property or also sell his right to redeem and thus
recover the loss he claims to have suffered by reason of the price obtained at the
auction sale."
The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et
al. (188 Wash. 162, 61 P. 2d, 1290):

If mere inadequacy of price is held to be a valid objection to a sale for taxes, the
collection of taxes in this manner would be greatly embarrassed, if not rendered
altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is stated
as follows: "where land is sold for taxes, the inadequacy of the price given is not a
valid objection to the sale." This rule arises from necessity, for, if a fair price for the
land were essential to the sale, it would be useless to offer the property. Indeed, it is
notorious that the prices habitually paid by purchasers at tax sales are grossly out of
proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P.
367, 369).
In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P.
555):
Like most cases of this character there is here a certain element of hardship from
which we would be glad to relieve, but do so would unsettle long-established rules
and lead to uncertainty and difficulty in the collection of taxes which are the life
blood of the state. We are convinced that the present rules are just, and that they
bring hardship only to those who have invited it by their own neglect.
We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in
value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the
expropriation of adjoining areas, real estate values have gone up in the area. However, the price
quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the
foregoing reasons which answer the petitioner's claims lead us to deny the petition.
And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no
strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years
from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale without
reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the
expropriation payment deposited with the Philippine National Bank an amount sufficient to pay for
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the back taxes. The petitioner did not pay attention to another notice sent by the City Treasurer on
November 3, 1978, during the period of redemption, regarding his tax delinquency. There is
furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez.
The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly
asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the
respondent court is affirmed.
MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner vs. HON. LORENZO C.
GARLITOS, in his capacity as Judge of the Court of f First Instance of Leyte, and SIMEONA K. PRICE,
as Administratrix of the Intestate Estate of the late Walter Scott Price, respondents.
Taxation; Inheritance tax; Procedure in enforcement against estate of deceased person; Claim must
be filed before probate court.The ordinary procedure by which to settle claims or indebtedness
against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim
before the probate court sa that said court may order the administrator to pay the amount hereof
(Aldamiz vs. Judge of the Court of First Instance of Mindoro, L-2360, Dec. 29, 1949).
Same; Same; Same; Same; Legal basis.The legal basis for such a procedure is the fact that in the
testate or intestate proceedings to settle the estate of a deceased person, the properties belonging
to the estate are under the jurisdiction of the court and such jurisdiction continues until said
properties have been distributed among the heirs entitled thereto. During the pendency of the
proceedings all the estate is in custodia Iegis and the proper procedure is not to allow the sheriff. in
case of a court judgment, to seize the properties but to ask the court for an order to require the
administrator to pay the amount due from the estate and required to be paid.
Same; Same; Compensation between taxes and claims of intestate recognized and appropriated for
by law.The fact that the court having jurisdiction of the estate had found that the claim of the
estate against the Government has been appropriated for the purpose by a corresponding law (Rep.
Act No. 2700) shows that both the claim of the Government for inheritance taxes and the claim of
the intestate for services rendered have already become overdue and demandable as well as fully
liquidated. Compensation, therefore, takes place by operation of law, in accordance with the
provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the
concurrent amount. [Domingo vs. Garlitos, 8 SCRA 443(1963)]
LABRADOR, J.:
This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of
Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an
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order in this Court directing the respondent court below to execute the judgment in favor of the
Government against the estate of Walter Scott Price for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30,
1960, this Court declared as final and executory the order for the payment by the estate of the estate
and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First
Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate of the
Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a
petition dated June 21, 1961, to the court below for the execution of the judgment. The petition was,
however, denied by the court which held that the execution is not justifiable as the Government is
indebted to the estate under administration in the amount of P262,200. The orders of the court
below dated August 20, 1960 and September 28, 1960, respectively, are as follows:
Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price,
Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo Castrillo
of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary Public
Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary De Leon dated
December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo
dated August 2, 1958, directing the latter to pay to Mrs. Price the sum ofP368,140.00, and an
extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the
payment to the Leyte Cadastral Survey, Inc., represented by the administratrix Simeona K.
Price, as directed in the above note of the President. Considering these facts, the Court
orders that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of
Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order
of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the
amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in this estate,
the balance to be paid by the Government to her without further delay. (Order of August 20,
1960)
The Court has nothing further to add to its order dated August 20, 1960 and it orders that
the payment of the claim of the Collector of Internal Revenue be deferred until the
Government shall have paid its accounts to the administratrix herein amounting to
P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a debtor,
to its accounts to its citizens-creditors before it can insist in the prompt payment of the
latter's account to it, specially taking into consideration that the amount due to the
Government draws interests while the credit due to the present state does not accrue any
interest. (Order of September 28, 1960)
The petition to set aside the above orders of the court below and for the execution of the claim of
the Government against the estate must be denied for lack of merit. The ordinary procedure by
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which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax,
is for the claimant to present a claim before the probate court so that said court may order the
administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs.
Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:
. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the
payment of debts and expenses of administration. The proper procedure is for the court to
order the sale of personal estate or the sale or mortgage of real property of the deceased
and all debts or expenses of administrator and with the written notice to all the heirs
legatees and devisees residing in the Philippines, according to Rule 89, section 3, and Rule
90, section 2. And when sale or mortgage of real estate is to be made, the regulations
contained in Rule 90, section 7, should be complied with.
Execution may issue only where the devisees, legatees or heirs have entered into possession
of their respective portions in the estate prior to settlement and payment of the debts and
expenses of administration and it is later ascertained that there are such debts and expenses
to be paid, in which case "the court having jurisdiction of the estate may, by order for that
purpose, after hearing, settle the amount of their several liabilities, and order how much and
in what manner each person shall contribute, and may issue execution if circumstances
require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.) And this is not
the instant case.
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle
the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of
the court and such jurisdiction continues until said properties have been distributed among the heirs
entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the
proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but
to ask the court for an order to require the administrator to pay the amount due from the estate and
required to be paid.
Another ground for denying the petition of the provincial fiscal is the fact that the court having
jurisdiction of the estate had found that the claim of the estate against the Government has been
recognized and an amount of P262,200 has already been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the
Government for inheritance taxes and the claim of the intestate for services rendered have already
become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by
operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and
both debts are extinguished to the concurrent amount, thus:
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ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes
effect by operation of law, and extinguished both debts to the concurrent amount,
eventhough the creditors and debtors are not aware of the compensation.
It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against
the
estate
of
the
deceased
Walter
Scott
Price.
Furthermore,
the
petition
for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy.
The petition is, therefore, dismissed, without costs.
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES vs. VIDEOGRAM
REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY MAYOR and
CITY TREASURER OF MANILA, G.R. No. L-75697 June 18, 1987
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on
behalf of other videogram operators adversely affected. It assails the constitutionality of Presidential
Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to
regulate and supervise the videogram industry (hereinafter briefly referred to as the BOARD). The
Decree was promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days after
completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential
Decree No. 1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each processed video-tape
cassette, ready for playback, regardless of length, an annual tax of five pesos;
Provided, That locally manufactured or imported blank video tapes shall be subject to
sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers,
Importers and Distributors Association of the Philippines, and Philippine Motion Pictures Producers
Association, hereinafter collectively referred to as the Intervenors, were permitted by the Court to
intervene in the case, over petitioner's opposition, upon the allegations that intervention was
necessary for the complete protection of their rights and that their "survival and very existence is
threatened by the unregulated proliferation of film piracy." The Intervenors were thereafter allowed
to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including, among
others, videotapes, discs, cassettes or any technical improvement or variation thereof, have
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greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp
decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the
collection of sales, contractor's specific, amusement and other taxes, thereby resulting in
substantial losses estimated at P450 Million annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum
from rentals, sales and disposition of videograms, and such earnings have not been
subjected to tax, thereby depriving the Government of approximately P180 Million in taxes
each year;
3. WHEREAS, the unregulated activities of videogram establishments have also affected the
viability of the movie industry, particularly the more than 1,200 movie houses and theaters
throughout the country, and occasioned industry-wide displacement and unemployment due
to the shutdown of numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the
Government to create an environment conducive to growth and development of all business
industries, including the movie industry which has an accumulated investment of about P3
Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not only
alleviate the dire financial condition of the movie industry upon which more than 75,000
families and 500,000 workers depend for their livelihood, but also provide an additional
source of revenue for the Government, and at the same time rationalize the heretofore
uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features
constitutes a clear and present danger to the moral and spiritual well-being of the youth, and
impairs the mandate of the Constitution for the State to support the rearing of the youth for
civic efficiency and the development of moral character and promote their physical,
intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb
these blatant malpractices which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the
people and betraying the national economic recovery program, bold emergency measures
must be adopted with dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
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1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers
conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be
expressed in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to
include the general purpose which a statute seeks to achieve. It is not necessary that the title express
each and every end that the statute wishes to accomplish. The requirement is satisfied if all the parts
of the statute are related, and are germane to the subject matter expressed in the title, or as long as
they are not inconsistent with or foreign to the general subject and title. 2 An act having a single
general subject, indicated in the title, may contain any number of provisions, no matter how diverse
they may be, so long as they are not inconsistent with or foreign to the general subject, and may be
considered in furtherance of such subject by providing for the method and means of carrying out the
general object." 3 The rule also is that the constitutional requirement as to the title of a bill should
not be so narrowly construed as to cripple or impede the power of legislation. 4 It should be given
practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a
rider is without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any
provision of law to the contrary, the province shall collect a tax of thirty percent (30%)
of the purchase price or rental rate, as the case may be, for every sale, lease or
disposition of a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall
accrue to the province, and the other fifty percent (50%) shall acrrue to the
municipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the
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tax shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the
accomplishment of, the general object of the DECREE, which is the regulation of the video industry
through the Videogram Regulatory Board as expressed in its title. The tax provision is not
inconsistent with, nor foreign to that general subject and title. As a tool for regulation 6 it is simply
one of the regulatory and control mechanisms scattered throughout the DECREE. The express
purpose of the DECREE to include taxation of the video industry in order to regulate and rationalize
the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra.
Those preambles explain the motives of the lawmaker in presenting the measure. The title of the
DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough to
include the purposes expressed in its Preamble and reasonably covers all its provisions. It is
unnecessary to express all those objectives in the title or that the latter be an index to the body of
the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or even definitely deters the activities
taxed. 8 The power to impose taxes is one so unlimited in force and so searching in extent, that the
courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in
the discretion of the authority which exercises it. 9 In imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by
the realization that earnings of videogram establishments of around P600 million per annum have
not been subjected to tax, thereby depriving the Government of an additional source of revenue. It is
an end-user tax, imposed on retailers for every videogram they make available for public viewing. It
is similar to the 30% amusement tax imposed or borne by the movie industry which the theaterowners pay to the government, but which is passed on to the entire cost of the admission ticket, thus
shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on
all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was also
an objective of the DECREE to protect the movie industry, the tax remains a valid imposition.
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The public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another. 11
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 "inequities which result from a singling out of
one particular class for taxation or exemption infringe no constitutional
limitation". 12 Taxation has been made the implement of the state's police power. 13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by
the former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in
the judgment of the President ... , there exists a grave emergency or a threat or imminence thereof,
or whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to
act adequately on any matter for any reason that in his judgment requires immediate action, he may,
in order to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which
shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause
sufficiently summarizes the justification in that grave emergencies corroding the moral values of the
people and betraying the national economic recovery program necessitated bold emergency
measures to be adopted with dispatch. Whatever the reasons "in the judgment" of the then
President, considering that the issue of the validity of the exercise of legislative power under the said
Amendment still pends resolution in several other cases, we reserve resolution of the question raised
at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative
power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct
assistance of other agencies and units of the government and deputize, for a fixed and limited
period, the heads or personnel of such agencies and units to perform enforcement functions for the
Board" is not a delegation of the power to legislate but merely a conferment of authority or
discretion as to its execution, enforcement, and implementation. "The true distinction is between the
delegation of power to make the law, which necessarily involves a discretion as to what it shall be,
and conferring authority or discretion as to its execution to be exercised under and in pursuance of
the law. The first cannot be done; to the latter, no valid objection can be made." 14 Besides, in the
very language of the decree, the authority of the BOARD to solicit such assistance is for a "fixed and
limited period" with the deputized agencies concerned being "subject to the direction and control of
the BOARD." That the grant of such authority might be the source of graft and corruption would not
stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will
not be without adequate remedy in law.
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5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or
different testimony than the law required at the time of the commission of the offense." It is
petitioner's position that Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of forty-five (45)
days after the effectivity of this Decree within which to register with and secure a permit from
the BOARD to engage in the videogram business and to register with the BOARD all their
inventories of videograms, including videotapes, discs, cassettes or other technical
improvements or variations thereof, before they could be sold, leased, or otherwise disposed
of. Thereafter any videogram found in the possession of any person engaged in the
videogram business without the required proof of registration by the BOARD, shall be prima
facie evidence of violation of the Decree, whether the possession of such videogram be for
private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof of
registration of any videogram cannot be presented and thus partakes of the nature of an ex post
facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et
al. 15
... it is now well settled that "there is no constitutional objection to the passage of a law
providing that the presumption of innocence may be overcome by a contrary presumption
founded upon the experience of human conduct, and enacting what evidence shall be
sufficient to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856
[1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS,
639-641). And the "legislature may enact that when certain facts have been proved that they
shall be prima facie evidence of the existence of the guilt of the accused and shift the burden
of proof provided there be a rational connection between the facts proved and the ultimate
facts presumed so that the inference of the one from proof of the others is not unreasonable
and arbitrary because of lack of connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational connection between
the fact proved, which is non-registration, and the ultimate fact presumed which is violation of the
DECREE, besides the fact that the prima facie presumption of violation of the DECREE attaches only
after a forty-five-day period counted from its effectivity and is, therefore, neither retrospective in
character.
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6. We do not share petitioner's fears that the video industry is being over-regulated and being eased
out of existence as if it were a nuisance. Being a relatively new industry, the need for its regulation
was apparent. While the underlying objective of the DECREE is to protect the moribund movie
industry, there is no question that public welfare is at bottom of its enactment, considering "the
unfair competition posed by rampant film piracy; the erosion of the moral fiber of the viewing public
brought about by the availability of unclassified and unreviewed video tapes containing
pornographic films and films with brutally violent sequences; and losses in government revenues due
to the drop in theatrical attendance, not to mention the fact that the activities of video
establishments are virtually untaxed since mere payment of Mayor's permit and municipal license
fees are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video
industry. On the contrary, video establishments are seen to have proliferated in many places
notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the
DECREE. These considerations, however, are primarily and exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the action taken, may
be the basis for declaring a statute invalid. This is as it ought to be. The principle of
separation of powers has in the main wisely allocated the respective authority of each
department and confined its jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to the discretion of a
coordinate branch, the judiciary would substitute its own. If there be adherence to
the rule of law, as there ought to be, the last offender should be courts of justice, to
which rightly litigants submit their controversy precisely to maintain unimpaired the
supremacy of legal norms and prescriptions. The attack on the validity of the
challenged provision likewise insofar as there may be objections, even if valid and
cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a challenged
statute. We find no clear violation of the Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
G.R. No. L-24756
October 31, 1968
CITY OF BAGUIO, plaintiff-appellee,

vs.
FORTUNATO DE LEON, defendant-appellant.
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In this appeal, a lower court decision upholding the validity of an ordinance1 of the City of Baguio
imposing a license fee on any person, firm, entity or corporation doing business in the City of Baguio
is assailed by defendant-appellant Fortunato de Leon. He was held liable as a real estate dealer with
a property therein worth more than P10,000, but not in excess of P50,000, and therefore obligated to
pay under such ordinance the P50 annual fee. That is the principal question. In addition, there has
been a firm and unyielding insistence by defendant-appellant of the lack of jurisdiction of the City
Court of Baguio, where the suit originated, a complaint having been filed against him by the City
Attorney of Baguio for his failure to pay the amount of P300 as license fee covering the period from
the first quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor
was defendant-appellant agreeable to such a suit being instituted by the City Treasurer without the
consent of the Mayor, which for him was indispensable. The lower court was of a different mind.
In its decision of December 19, 1964, it declared the above ordinance as amended, valid and
subsisting, and held defendant-appellant liable for the fees therein prescribed as a real estate dealer.
Hence, this appeal. Assume the validity of such ordinance, and there would be no question about the
liability of defendant-appellant for the above license fee, it being shown in the partial stipulation of
facts, that he was "engaged in the rental of his property in Baguio" deriving income therefrom during
the period covered by the first quarter of 1958 to the fourth quarter of 1962.
The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending
the city charter of Baguio2 empowering it to fix the license fee and regulate "businesses, trades and
occupations as may be established or practiced in the City."
Unless it can be shown then that such a grant of authority is not broad enough to justify the
enactment of the ordinance now assailed, the decision appealed from must be affirmed. The task
confronting defendant-appellant, therefore, was far from easy. Why he failed is understandable,
considering that even a cursory reading of the above amendment readily discloses that the
enactment of the ordinance in question finds support in the power thus conferred.
Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City of
Baguio,3 the effect of the amendatory section insofar as it would expand the previous power vested
by the city charter was clarified in these terms: "Appellants apparently have in mind section 2553,
paragraph (c) of the Revised Administrative Code, which empowers the City of Baguio merely to
impose a license fee for the purpose of rating the business that may be established in the city. The
power as thus conferred is indeed limited, as it does not include the power to levy a tax. But on July
15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding to its
power to license the power to tax and to regulate. And it is precisely having in view this amendment
that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the
amendment above adverted to empowers the city council not only to impose a license fee but also
to levy a tax for purposes of revenue, more so when in amending section 2553 (b), the phrase 'as
provided by law' has been removed by section 2 of Republic Act No. 329. The city council of Baguio,
therefore, has now the power to tax, to license and to regulate provided that the subjects affected be
one of those included in the charter. In this sense, the ordinance under consideration cannot be
considered ultra vires whether its purpose be to levy a tax or impose a license fee. The terminology
used is of no consequence."
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It would be an undue and unwarranted emasculation of the above power thus granted if defendantappellant were to be sustained in his contention that no such statutory authority for the enactment
of the challenged ordinance could be discerned from the language used in the amendatory act. That
is about all that needs to be said in upholding the lower court, considering that the City of Baguio
was not devoid of authority in enacting this particular ordinance. As mentioned at the outset,
however, defendant-appellant likewise alleged procedural missteps and asserted that the challenged
ordinance suffered from certain constitutional infirmities. To such points raised by him, we shall now
turn.
1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in
the suit for the collection of the real estate dealer's fee from him in the amount of P300. He
contended before the lower court, and it is his contention now, that while the amount of P300
sought was within the jurisdiction of the City Court of Baguio where this action originated, since the
principal issue was the legality and constitutionality of the challenged ordinance, it is not such City
Court but the Court of First Instance that has original jurisdiction.
There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently, on
September 7, 1968 to be exact, we rejected a contention similar in character in Nemenzo v.
Sabillano.4 The plaintiff in that case filed a claim for the payment of his salary before the Justice of
the Peace Court of Pagadian, Zamboanga del Sur. The question of jurisdiction was raised; the
defendant Mayor asserted that what was in issue was the enforcement of the decision of the
Commission of Civil Service; the Justice of the Peace Court was thus without jurisdiction to try the
case. The above plea was curtly dismissed by Us, as what was involved was "an ordinary money
claim" and therefore "within the original jurisdiction of the Justice of the Peace Court where it was
filed, considering the amount involved." Such is likewise the situation here.
Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this license fee
corresponding to the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of
the amount involved. The thought that the municipal court lacked jurisdiction apparently was not
even in the minds of the parties and did not receive any consideration by this Court.
Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is
raised, it is the Court of First Instance that should have original jurisdiction on the matter. It does not
admit of doubt, however, that what confers jurisdiction is the amount set forth in the complaint.
Here, the sum sought to be recovered was clearly within the jurisdiction of the City Court of Baguio.
Nor could it be plausibly maintained that the validity of such ordinance being open to question as a
defense against its enforcement from one adversely affected, the matter should be elevated to the
Court of First Instance. For the City Court could rely on the presumption of the validity of such
ordinance,6 and the mere fact, however, that in the answer to such a complaint a constitutional
question was raised did not suffice to oust the City Court of its jurisdiction. The suit remains one for
collection, the lack of validity being only a defense to such an attempt at recovery. Since the City
Court is possessed of judicial power and it is likewise axiomatic that the judicial power embraces the
ascertainment of facts and the application of the law, the Constitution as the highest law superseding
any statute or ordinance in conflict therewith, it cannot be said that a City Court is bereft of
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competence to proceed on the matter. In the exercise of such delicate power, however, the
admonition of Cooley on inferior tribunals is well worth remembering. Thus: "It must be evident to
any one that the power to declare a legislative enactment void is one which the judge, conscious of
the fallibility of the human judgment, will shrink from exercising in any case where he can
conscientiously and with due regard to duty and official oath decline the responsibility."7 While it
remains undoubted that such a power to pass on the validity of an ordinance alleged to infringe
certain constitutional rights of a litigant exists, still it should be exercised with due care and
circumspection, considering not only the presumption of validity but also the relatively modest rank
of a city court in the judicial hierarchy.
2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample
statutory authority for the enactment thereof. Nonetheless, its validity on constitutional grounds is
challenged because of the allegation that it imposed double taxation, which is repugnant to the due
process clause, and that it violated the requirement of uniformity. We do not view the matter thus.
As to why double taxation is not violative of due process, Justice Holmes made clear in this language:
"The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the
due process clause] no more forbids double taxation than it does doubling the amount of a tax,
short of confiscation or proceedings unconstitutional on other grounds." 8With that decision
rendered at a time when American sovereignty in the Philippines was recognized, it possesses more
than just a persuasive effect. To some, it delivered the coup de grace to the bogey of double taxation
as a constitutional bar to the exercise of the taxing power. It would seem though that in the United
States, as with us, its ghost as noted by an eminent critic, still stalks the juridical state. In a 1947
decision, however,9 we quoted with approval this excerpt from a leading American
decision:10 "Where, as here, Congress has clearly expressed its intention, the statute must be
sustained even though double taxation results."
At any rate, it has been expressly affirmed by us that such an "argument against double taxation may
not be invoked where one tax is imposed by the state and the other is imposed by the city ..., it being
widely recognized that there is nothing inherently obnoxious in the requirement that license fees or
taxes be exacted with respect to the same occupation, calling or activity by both the state and the
political subdivisions thereof."11
The above would clearly indicate how lacking in merit is this argument based on double taxation.
Now, as to the claim that there was a violation of the rule of uniformity established by the
constitution. According to the challenged ordinance, a real estate dealer who leases property worth
P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not over
P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face, therefore, the above
ordinance cannot be assailed as violative of the constitutional requirement of uniformity.
In Philippine Trust Company v. Yatco,12 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."
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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.13 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 Fuente14 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, 15 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 case16 that "inequalities which result from a singling out of one particular class for taxation
or exemption infringe no constitutional limitation."17
It is thus apparent from the above that in much the same way that the plea of double taxation is
unavailing, the allegation that there was a violation of the principle of uniformity is inherently lacking
in persuasiveness. There is no need to pass upon the other allegations to assail the validity of the
above ordinance, it being maintained that the license fees therein imposed "is excessive,
unreasonable and oppressive" and that there is a failure to observe the mandate of equal protection.
A reading of the ordinance will readily disclose their inherent lack of plausibility.
3. That would dispose of all the errors assigned, except the last two, which would predicate a
grievance on the complaint having been started by the City Treasurer rather than the City Mayor of
Baguio. These alleged errors, as was the case with the others assigned, lack merit.
In much the same way that an act of a department head of the national government, performed
within the limits of his authority, is presumptively the act of the President unless reprobated or
disapproved,18 similarly the act of the City Treasurer, whose position is roughly analogous, may be
assumed to carry the seal of approval of the City Mayor unless repudiated or set aside. This should
be the case considering that such city official is called upon to see to it that revenues due the City
are collected. When administrative steps are futile and unavailing, given the stubbornness and
obduracy of a taxpayer, convinced in good faith that no tax was due, judicial remedy may be
resorted to by him. It would be a reflection on the state of the law if such fidelity to duty would be
met by condemnation rather than commendation.
So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes to
it from the functional and pragmatic test. If a city treasurer has to await the nod from the city mayor
before a municipal ordinance is enforced, then opportunity exists for favoritism and undue
discrimination to come into play. Whatever valid reason may exist as to why one taxpayer is to be
accorded a treatment denied another, the suspicion is unavoidable that such a manifestation of
official favor could have been induced by unnamed but not unknown consideration. It would not be
going too far to assert that even defendant-appellant would find no satisfaction in such a sad state
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of affairs. The more desirable legal doctrine therefore, on the assumption that a choice exists, is one
that would do away with such temptation on the part of both taxpayer and public official alike.
WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against
defendant-appellant.
HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as Secretary
to the Mayor; THE MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF MANILA vs. HON.
PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First Instance of Manila, Branch
XXX and the FEDERATION OF MANILA MARKET VENDORS, INC, G.R. No. L-41631 December 17, 1976
The chief question to be decided in this case is what law shall govern the publication of a tax
ordinance enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as
amended), which requires publication of the ordinance before its enactment and after its approval, or
the Local Tax Code (P.D. No. 231), which only demands publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF
STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The
petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil Case
96787 before the Court of First Instance of Manila presided over by respondent Judge, seeking the
declaration of nullity of Ordinance No. 7522 for the reason that (a) the publication requirement
under the Revised Charter of the City of Manila has not been complied with; (b) the Market
Committee was not given any participation in the enactment of the ordinance, as envisioned by
Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated; and
(d) the ordinance would violate Presidential Decree No. 7 of September 30, 1972 prescribing the
collection of fees and charges on livestock and animal products.
Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent
Judge issued an order on March 11, 1975, denying the plea for failure of the respondent Federation
of Manila Market Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax
Code.
After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975,
declaring the nullity of Ordinance No. 7522 of the City of Manila on the primary ground of noncompliance with the requirement of publication under the Revised City Charter. Respondent Judge
ruled:
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There is, therefore, no question that the ordinance in question was not published at
all in two daily newspapers of general circulation in the City of Manila before its
enactment. Neither was it published in the same manner after approval, although it
was posted in the legislative hall and in all city public markets and city public libraries.
There being no compliance with the mandatory requirement of publication before
and after approval, the ordinance in question is invalid and, therefore, null and void.
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a postpublication is required by the Local Tax Code; and (b) private respondent failed to exhaust all
administrative remedies before instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the
City of Manila and the Local Tax Code on the manner of publishing a tax ordinance enacted by the
Municipal Board of Manila. For, while Section 17 of the Revised Charter provides:
Each proposed ordinance shall be published in two daily newspapers of general

circulation in the city, and shall not be discussed or enacted by the Board until after
the third day following such publication. * * * Each approved ordinance * * * shall be
published in two daily newspapers of general circulation in the city, within ten days
after its approval; and shall take effect and be in force on and after the twentieth day
following its publication, if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies of all provincial, city,
municipal and barrioordinances levying or imposing taxes, fees or other charges shall
be published for three consecutive days in a newspaper or publication widely
circulated within the jurisdiction of the local government, or posted in the local
legislative hall or premises and in two other conspicuous places within the territorial
jurisdiction of the local government. In either case, copies of all provincial, city,
municipal and barrio ordinances shall be furnished the treasurers of the respective
component and mother units of a local government for dissemination.
In other words, while the Revised Charter of the City of Manila requires publication before the
enactment of the ordinance and after the approval thereof in two daily newspapers of general
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circulation in the city, the Local Tax Code only prescribes for publication after the approval of
"ordinances levying or imposing taxes, fees or other charges" either in a newspaper or publication
widely circulated within the jurisdiction of the local government or by posting the ordinance in the
local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction
of the local government. Petitioners' compliance with the Local Tax Code rather than with the
Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special act since it relates only
to the City of Manila, whereas the Local Tax Code is a general law because it applies universally to all
local governments. Blackstone defines general law as a universal rule affecting the entire community
and special law as one relating to particular persons or things of a class. 1 And the rule commonly
said is that a prior special law is not ordinarily repealed by a subsequent general law. The fact that
one is special and the other general creates a presumption that the special is to be considered as
remaining an exception of the general, one as a general law of the land, the other as the law of a
particular case. 2 However, the rule readily yields to a situation where the special statute refers to a
subject in general, which the general statute treats in particular. The exactly is the circumstance
obtaining in the case at bar. Section 17 of the Revised Charter of the City of Manila speaks of
"ordinance" in general, i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the
Local Tax Code relates to "ordinances levying or imposing taxes, fees or other charges" in particular.
In regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is doubtless
dominant, but, that dominant force loses its continuity when it approaches the realm of "ordinances
levying or imposing taxes, fees or other charges" in particular. There, the Local Tax Code controls.
Here, as always, a general provision must give way to a particular provision. 3 Special provision
governs. 4 This is especially true where the law containing the particular provision was enacted later
than the one containing the general provision. The City Charter of Manila was promulgated on June
18, 1949 as against the Local Tax Code which was decreed on June 1, 1973. The law-making power
cannot be said to have intended the establishment of conflicting and hostile systems upon the same
subject, or to leave in force provisions of a prior law by which the new will of the legislating power
may be thwarted and overthrown. Such a result would render legislation a useless and Idle
ceremony, and subject the law to the reproach of uncertainty and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for
damages arising from the injuries he suffered when he fell inside an uncovered and unlighted
catchbasin or manhole on P. Burgos Avenue. The City of Manila denied liability on the basis of the
City Charter (R.A. 409) exempting the City of Manila from any liability for damages or injury to
persons or property arising from the failure of the city officers to enforce the provisions of the
charter or any other law or ordinance, or from negligence of the City Mayor, Municipal Board, or
other officers while enforcing or attempting to enforce the provisions of the charter or of any other
law or ordinance. Upon the other hand, Article 2189 of the Civil Code makes cities liable for damages
for the death of, or injury suffered by any persons by reason of the defective condition of roads,
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streets, bridges, public buildings, and other public works under their control or supervision. On
review, the Court held the Civil Code controlling. It is true that, insofar as its territorial application is
concerned, the Revised City Charter is a special law and the subject matter of the two laws, the
Revised City Charter establishes a general rule of liability arising from negligence in general,
regardless of the object thereof, whereas the Civil Code constitutes a particular prescription for
liability due to defective streets in particular. In the same manner, the Revised Charter of the City
prescribes a rule for the publication of "ordinance" in general, while the Local Tax Code establishes a
rule for the publication of "ordinance levying or imposing taxes fees or other charges in particular.
In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a
general or broad one. 7 A charter provision may be impliedly modified or superseded by a later
statute, and where a statute is controlling, it must be read into the charter notwithstanding any
particular charter provision. 8 A subsequent general law similarly applicable to all cities prevails over
any conflicting charter provision, for the reason that a charter must not be inconsistent with the
general laws and public policy of the state. 9 A chartered city is not an independent sovereignty. The
state remains supreme in all matters not purely local. Otherwise stated, a charter must yield to the
constitution and general laws of the state, it is to have read into it that general law which governs the
municipal corporation and which the corporation cannot set aside but to which it must yield. When a
city adopts a charter, it in effect adopts as part of its charter general law of such character. 10
2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as having
been violated by private respondent in bringing a direct suit in court. This is because Section 47 of
the Local Tax Code provides that any question or issue raised against the legality of any tax
ordinance, or portion thereof, shall be referred for opinion to the city fiscal in the case of tax
ordinance of a city. The opinion of the city fiscal is appealable to the Secretary of Justice, whose
decision shall be final and executory unless contested before a competent court within thirty (30)
days. But, the petition below plainly shows that the controversy between the parties is deeply rooted
in a pure question of law: whether it is the Revised Charter of the City of Manila or the Local Tax
Code that should govern the publication of the tax ordinance. In other words, the dispute is sharply
focused on the applicability of the Revised City Charter or the Local Tax Code on the point at issue,
and not on the legality of the imposition of the tax. Exhaustion of administrative remedies before
resort to judicial bodies is not an absolute rule. It admits of exceptions. Where the question litigated
upon is purely a legal one, the rule does not apply. 11 The principle may also be disregarded when it
does not provide a plain, speedy and adequate remedy. It may and should be relaxed when its
application may cause great and irreparable damage. 12
3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because
the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a
revenue-raising function, so that the procedure for publication under the Local Tax Code finds no
application. The pretense bears its own marks of fallacy. Precisely, the raising of revenues is the
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principal object of taxation. Under Section 5, Article XI of the New Constitution, "Each local
government unit shall have the power to create its own sources of revenue and to levy taxes, subject
to such provisions as may be provided by law." 13 And one of those sources of revenue is what the
Local Tax Code points to in particular: "Local governments may collect fees or rentals for the
occupancy or use of public markets and premises * * *." 14 They can provide for and regulate market
stands, stalls and privileges, and, also, the sale, lease or occupancy thereof. They can license, or
permit the use of, lease, sell or otherwise dispose of stands, stalls or marketing privileges. 15
It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated
September 30, 1972, insofar as it affects livestock and animal products, because the said decree
prescribes the collection of other fees and charges thereon "with the exception of ante-mortem and
post-mortem inspection fees, as well as the delivery, stockyard and slaughter fees as may be
authorized by the Secretary of Agriculture and Natural Resources." 16 Clearly, even the exception
clause of the decree itself permits the collection of the proper fees for livestock. And the Local Tax
Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments may collect fees for the
slaughter of animals and the use of corrals * * * "
4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522
supposedly in accordance with Republic Act No. 6039, an amendment to the City Charter of Manila,
providing that "the market committee shall formulate, recommend and adopt, subject to the
ratification of the municipal board, and approval of the mayor , policies and rules or regulation
repealing or maneding existing provisions of the market code" does not infect the ordinance with
any germ of invalidity. 17 The function of the committee is purely recommendatory as the
underscored phrase suggests, its recommendation is without binding effect on the Municipal Board
and the City Mayor. Its prior acquiescence of an intended or proposed city ordinance is not a
condition sine qua non before the Municipal Board could enact such ordinance. The native power of
the Municipal Board to legislate remains undisturbed even in the slightest degree. It can move in its
own initiative and the Market Committee cannot demur. At most, the Market Committee may serve
as a legislative aide of the Municipal Board in the enactment of city ordinances affecting the city
markets or, in plain words, in the gathering of the necessary data, studies and the collection of
consensus for the proposal of ordinances regarding city markets. Much less could it be said that
Republic Act 6039 intended to delegate to the Market Committee the adoption of regulatory
measures for the operation and administration of the city markets.Potestas delegata non delegare
potest.
5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are
diverted to the exclusive private use of the Asiatic Integrated Corporation since the collection of said
fees had been let by the City of Manila to the said corporation in a "Management and Operating
Contract." The assumption is of course saddled on erroneous premise. The fees collected do not go
direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the
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corporation but for the purpose of raising revenues for the city. That is the object it serves. The
entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So long
as the purpose is public, it does not matter whether the agency through which the money is
dispensed is public or private. The right to tax depends upon the ultimate use, purpose and object
for which the fund is raised. It is not dependent on the nature or character of the person or
corporation whose intermediate agency is to be used in applying it. The people may be taxed for a
public purpose, although it be under the direction of an individual or private corporation. 18
Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt
Practices Act because the increased rates of market stall fees as levied by the ordinance will
necessarily inure to the unwarranted benefit and advantage of the corporation. 19 We are concerned
only with the issue whether the ordinance in question is intra vires. Once determined in the
affirmative, the measure may not be invalidated because of consequences that may arise from its
enforcement. 20
ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No. 7522
of the City of Manila, dated June 15, 1975, is hereby held to have been validly enacted. No. costs.
G.R. No. L-10405
December 29, 1960
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-appellant,

vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees.
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued,
without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this
action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An
Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a)
thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and
improvement" of Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen. Lucban Gen.
Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen. Lim)"; that, at the time of the
passage and approval of said Act, the aforementioned feeder roads were "nothing but projected and
planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . .
Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near Shaw
Boulevard, not far away from the intersection between the latter and Highway 54), which projected
feeder roads "do not connect any government property or any important premises to the main
highway"; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder
roads were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time
of the passage and approval of said Act, was a member of the Senate of the Philippines; that on May,
1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering to
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donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the
offer was accepted by the council, subject to the condition "that the donor would submit a plan of
the said roads and agree to change the names of two of them"; that no deed of donation in favor of
the municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote
another letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum
of P85,000.00 appropriated therein for the construction of the projected feeder roads in question;
that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District
Engineer of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch as
the projected feeder roads in question were private property at the time of the passage and approval
of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the construction,
reconstruction, repair, extension and improvement of said projected feeder roads, was illegal and,
therefore, voidab initio"; that said appropriation of P85,000.00 was made by Congress because its
members were made to believe that the projected feeder roads in question were "public roads and
not private streets of a private subdivision"'; that, "in order to give a semblance of legality, when
there is absolutely none, to the aforementioned appropriation", respondents Zulueta executed on
December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of
donation copy of which is annexed to the petition of the four (4) parcels of land constituting
said projected feeder roads, in favor of the Government of the Republic of the Philippines; that said
alleged deed of donation was, on the same date, accepted by the then Executive Secretary; that
being subject to an onerous condition, said donation partook of the nature of a contract; that, such,
said donation violated the provision of our fundamental law prohibiting members of Congress from
being directly or indirectly financially interested in any contract with the Government, and, hence, is
unconstitutional, as well as null and voidab initio, for the construction of the projected feeder roads
in question with public funds would greatly enhance or increase the value of the aforementioned
subdivision of respondent Zulueta, "aside from relieving him from the burden of constructing his
subdivision streets or roads at his own expense"; that the construction of said projected feeder roads
was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the
court, the respondents would continue to execute, comply with, follow and implement the
aforementioned illegal provision of law, "to the irreparable damage, detriment and prejudice not
only to the petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and
void; that the alleged deed of donation of the feeder roads in question be "declared unconstitutional
and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and
Communications, the Director of the Bureau of Public Works and Highways and Jose C. Zulueta from
ordering or allowing the continuance of the above-mentioned feeder roads project, and from
making and securing any new and further releases on the aforementioned item of Republic Act No.
920, and the disbursing officers of the Department of Public Works and Highways from making any
further payments out of said funds provided for in Republic Act No. 920; and that pending final
hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned
parties respondent from making and securing any new and further releases on the aforesaid item of
Republic Act No. 920 and from making any further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity
to sue", and that the petition did "not state a cause of action". In support to this motion, respondent
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Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the
Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said respondent
is " not aware of any law which makes illegal the appropriation of public funds for the improvements
of . . . private property"; and that, the constitutional provision invoked by petitioner is inapplicable to
the donation in question, the same being a pure act of liberality, not a contract. The other
respondents, in turn, maintained that petitioner could not assail the appropriation in question
because "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is
necessarily involved" and petitioner "has not shown that he has a personal and substantial interest"
in said Act "and that its enforcement has caused or will cause him a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated
October 29, 1953, holding that, since public interest is involved in this case, the Provincial Governor
of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite
personalities" to question the constitutionality of the disputed item of Republic Act No. 920; that
"the legislature is without power appropriate public revenues for anything but a public purpose",
that the instructions and improvement of the feeder roads in question, if such roads where private
property, would not be a public purpose; that, being subject to the following condition:
The within donation is hereby made upon the condition that the Government of the Republic
of the Philippines will use the parcels of land hereby donated for street purposes only and for
no other purposes whatsoever; it being expressly understood that should the Government of
the Republic of the Philippines violate the condition hereby imposed upon it, the title to the
land hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C.
ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is "absolutely
forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the
Philippines, declares in existence and void from the very beginning contracts "whose cause, objector
purpose is contrary to law, morals . . . or public policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and
that, accordingly, the appropriation in question "should be upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the aforementioned
motions to dismiss, which as much, are deemed to have admitted hypothetically the allegations of
fact made in the petition of appellant herein. According to said petition, respondent Zulueta is the
owner of several parcels of residential land situated in Pasig, Rizal, and known as the Antonio
Subdivision, certain portions of which had been reserved for the projected feeder roads
aforementioned, which, admittedly, were private property of said respondent when Republic Act No.
920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension and
improvement" of said roads, was passed by Congress, as well as when it was approved by the
President on June 20, 1953. The petition further alleges that the construction of said roads, to be
undertaken with the aforementioned appropriation of P85,000.00, would have the effect of relieving
respondent Zulueta of the burden of constructing his subdivision streets or roads at his own
expenses, 1and would "greatly enhance or increase the value of the subdivision" of said respondent.
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The lower court held that under these circumstances, the appropriation in question was "clearly for a
private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However,
respondent Zulueta contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal because
Congress is the source of all laws . . . Aside from the fact that movant is not aware of any law
which makes illegal the appropriation of public funds for the improvement of what we, in the
meantime, may assume as private property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature of the
Government established under the Constitution of the Republic of the Philippines and the system of
checks and balances underlying our political structure. Moreover, it is refuted by the decisions of this
Court invalidating legislative enactments deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose, the principle
according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. . . . It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of
the interest to be affected nor the degree to which the general advantage of the community,
and thus the public welfare, may be ultimately benefited by their promotion. Incidental to the
public or to the state, which results from the promotion of private interest and the prosperity
of private enterprises or business, does not justify their aid by the use public money. (25
R.L.C. pp. 398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes only,
discussedsupra sec. 14, money raised by taxation can be expended only for public purposes
and not for the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may be
used only for public purpose. The right of the legislature to appropriate funds is correlative
with its right to tax, and, under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to
another purpose, no appropriation of state funds can be made for other than for a public
purpose.
xxx
xxx
xxx
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The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interest, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve the
public. (81 C.J.S. pp. 1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being
patently sound, are a necessary corollary to our democratic system of government, which, as such,
exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the
established jurisprudence in the United States, after whose constitutional system ours has been
patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional law.
This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon
the ground that petitioner may not contest the legality of the donation above referred to because
the same does not affect him directly. This conclusion is, presumably, based upon the following
premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of the
aforementioned appropriation; (2) that the latter may not be annulled without a previous declaration
of unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the Civil
Code is absolute, and admits of no exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or approval,
not upon events occurring, or acts performed, subsequently thereto, unless the latter consists of an
amendment of the organic law, removing, with retrospective operation, the constitutional limitation
infringed by said statute. Referring to the P85,000.00 appropriation for the projected feeder roads in
question, the legality thereof depended upon whether said roads were public or private property
when the bill, which, latter on, became Republic Act 920, was passed by Congress, or, when said bill
was approved by the President and the disbursement of said sum became effective, or on June 20,
1953 (see section 13 of said Act). Inasmuch as the land on which the projected feeder roads were to
be constructed belonged then to respondent Zulueta, the result is that said appropriation sought a
private purpose, and hence, was null and void. 4 The donation to the Government, over five (5)
months after the approval and effectivity of said Act, made, according to the petition, for the
purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not cure
its aforementioned basic defect. Consequently, a judicial nullification of said donation need not
precede the declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions.
For instance, the creditors of a party to an illegal contract may, under the conditions set forth in
Article 1177 of said Code, exercise the rights and actions of the latter, except only those which are
inherent in his person, including therefore, his right to the annulment of said contract, even though
such creditors are not affected by the same, except indirectly, in the manner indicated in said legal
provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a
direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the
instance of taxpayers, laws providing for the disbursement of public funds, 5upon the theory that
"the expenditure of public funds by an officer of the State for the purpose of administering
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an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the
request of a taxpayer. 6Although there are some decisions to the contrary, 7the prevailing view in the
United States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite standing to
attack the constitutionality of a statute, the general rule is that not only persons individually
affected, but alsotaxpayers, have sufficient interest in preventing the illegal expenditure of
moneys raised by taxation and may therefore question the constitutionality of statutes
requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262
U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer
of the U.S. to its Federal Government is different from that of a taxpayer of a municipal corporation
to its government. Indeed, under the composite system of government existing in the U.S., the states
of the Union are integral part of the Federation from an international viewpoint, but, each state
enjoys internally a substantial measure of sovereignty, subject to the limitations imposed by the
Federal Constitution. In fact, the same was made by representatives ofeach state of the Union, not of
the people of the U.S., except insofar as the former represented the people of the respective States,
and the people of each State has, independently of that of the others, ratified said Constitution. In
other words, the Federal Constitution and the Federal statutes have become binding upon the
people of the U.S. in consequence of an act of, and, in this sense, through the respective states of the
Union of which they are citizens. The peculiar nature of the relation between said people and the
Federal Government of the U.S. is reflected in the election of its President, who is chosen
directly, not by the people of the U.S., but by electors chosen by each State, in such manner as the
legislature thereof may direct (Article II, section 2, of the Federal Constitution).
The relation between the people of the Philippines and its taxpayers, on the other hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people and
taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that
existing between the people and taxpayers of each state and the government thereof, except that
the authority of the Republic of the Philippines over the people of the Philippines is more fully
direct than that of the states of the Union, insofar as the simple and unitarytype of our national
government is not subject to limitations analogous to those imposed by the Federal Constitution
upon the states of the Union, and those imposed upon the Federal Government in the interest of the
Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a
legislation appropriating local or state public funds which has been upheld by the Federal
Supreme Court (Crampton vs.Zabriskie, 101 U.S. 601) has greater application in the Philippines
than that adopted with respect to acts of Congress of the United States appropriating federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by
the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of
contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in
Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the
Government was not permitted to question the constitutionality of an appropriation for backpay of
members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and
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Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of
taxpayers impugning the validity of certain appropriations of public funds, and invalidated the same.
Moreover, the reason that impelled this Court to take such position in said two (2) cases the
importance of the issues therein raised is present in the case at bar. Again, like the petitioners in
the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of Rizal,
which he represents officially as its Provincial Governor, is our most populated political
subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, in the
Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify
petitioners action in contesting the appropriation and donation in question; that this action should
not have been dismissed by the lower court; and that the writ of preliminary injunction should have
been maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the
lower court for further proceedings not inconsistent with this decision, with the costs of this instance
against respondent Jose C. Zulueta. It is so ordered.
G.R. No. 134467. November 17, 1999.*
ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION, petitioner, vs. COMMISSIONER
OF INTERNAL REVENUE, respondent.
Actions; Pleadings and Practice; Stipulations of Facts; Admissions; As a rule, a judicial admission is
binding on the declarant, but such rule does not apply when there is a showing that (1) the
admission was made through a palpable mistake, or that (2) no such admission was made.We
agree with the Court of Appeals that, as a rule, a judicial admission, such as that made by petitioner
in the Joint Stipulation of Facts, is binding on the declarant. However, such rule does not apply when
there is a showing that (1) the admission was made through a palpable mistake, or that (2) no
such admission was made.
Same; Same; Same; Same; Litigation is neither a game of technicalities nor a battle of wits and
legalismsit is an abiding search for truth, fairness and justice.In view of the foregoing, we believe
that petitioner should be taxed only for such amount and under such circumstances as are true, fair
and equitable. After all, even the respondent commissioner, as shown in the other provisions of the
joint stipulation, has granted it VAT exemption for the period even prior to the first quarter of 1990;
that is, as early as January 1, 1988. In view of the foregoing, we stress that a litigation is neither a
game of technicalities nor a battle of wits and legalisms. Rather, it is an abiding search for truth,
fairness and justice. We believe, and so hold, that substantial justice is on the side of petitioner on
this issue.
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Taxation; Value-Added Tax; The totality of sales to an exportoriented enterprise whose export sales
exceed 70 percent of its annual production are to be zero-rated, not merely the proportion of such
sales to the actual exports of said enterprises.An examination of Section 4.100.2 of Revenue
Regulation 7-95 in relation to Section 102 (b) of the Tax Code shows that sales to an export-oriented
enterprise whose export sales exceed 70 percent of its annual production are to be zero-rated,
provided the seller complies with other requirements, like registration with the BOI and the EPZA.
The said Regulation does not even hint, much less expressly mention, that only a percentage of the
sales would be zero-rated. The internal revenue commissioner cannot, by administrative fiat, amend
the law by making compliance therewith more burdensome.
Same; Same; A VAT invoice can be used only for the sale of goods and services that are subject to
VAT.It is clear that a VAT invoice can be used only for the sale of goods and services that are
subject to VAT. The corresponding taxes thereon shall be allowed as input tax credits for those
subject to VAT. Section 108 expressly provides the invoicing and accounting entries required from
VAT-registered persons. On the other hand, Section 111 of the Tax Code empowers the
commissioner to suspend the business operations of VAT-registered persons for the specific
violations listed therein.
Same; Same; Section 21 of Revenue Regulation 5-87 is not invalid, as it simply prescribes the penalty
for failure to comply with the accounting and invoicing requirements laid down in Section 108 of the
Tax Code, a penalty similar to that found in Sections 111 and 263.A careful perusal of the violations
specifically listed down in Sections 111 and 263 of the Tax Code shows that they do not encompass
all possible types of violations of Section 108. Certainly, there are other ways of noncompliance with
the requirements the latter has laid down, and these too must have their corresponding
consequences. Section 21 of Revenue Regulation 5-87 is not invalid, as it simply prescribes the
penalty for failure to comply with the accounting and invoicing requirements laid down in Section
108, a penalty similar to that found in Sections 111 and 263. In short, Section 108 provides the
guidelines and necessary requirements for VAT invoices; Sections 111 and 263 of the Tax Code
provide penalties for different types of violations of Section 108; and Section 21 of Revenue
Regulation 5-87 specifies the penalty for a specific violation of Section 108.
Same; Same; The computation of the output VAT of the seller should be based on the selling price
appearing on its own VAT invoice, not on the selling price appearing on that of the customer.We
agree with respondents position that the computation of the output VAT of the seller should be
based on the selling price appearing on its own VAT invoice, not on the selling price appearing on
that of the customer. Indeed, it is the duty of the seller to comply with the invoicing and accounting
requirements laid down in, among others, Section 108 of the Tax Code. [Atlas Consolidated Mining &
Development Corporation vs. Commissioner of Internal Revenue, 318 SCRA 386(1999)]
PANGANIBAN, J.:
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A litigation is neither a game of technicalities nor a battle of wits and legalisms; rather, it is an
abiding search for truth, fairness and justice. While stipulations of facts are normally binding on the
declarant or the signatory thereto, a party may nonetheless be allowed to show that an admission
made therein was the result of a "palpable mistake" that can be easily verified from the stipulated
facts themselves and from other incontrovertible pieces of evidence admitted by the other party. A
patently clerical mistake in the stipulation of facts, which would result in falsehood, unfairness and
injustice, cannot be countenanced.

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
challenging in part the February 6, 1998 Decision 1 of the Court of Appeals 2 (CA) in CA-GR SP No.
34152 and its July 2, 1998 Resolution denying reconsideration.
The Court of Tax Appeals in CTA Case No. 4794 was reversed in the herein assailed CA Decision,
which ruled as follows:
a. VAT Ruling No. 008-92, in imposing 10% VAT on sales of copper concentrates to
PASAR, pyrite to PHILPHOS and gold to the Central Bank lacks legal bases, hence, of
no effect.
b. VAT Ruling No. 059-92 (dated April 20, 1992) which applies retroactively to January
1, 1988 VAT Ruling No. 008-92 (dated January 23, 1992) is contrary to law.
c. Refund of input tax for zero-rated sale of goods to Board of Investment (BOI)registered exporters shall be allowed only upon presentation of documents of
liquidation evidencing the actual utilization of the raw materials in the manufacture
of goods at least 70% of which have been actually exported (Revenue Regulations
No. 2-88).
d. Revenue Regulations that automatically disallow VAT refunds on account of failure
to faithfully comply with the documentary requirements enunciated thereunder are
valid.
e. A VAT-registered person shall, subject to the filing of an inventory as prescribed by
regulations, be allowed transitional input tax which shall be credited against output
tax. Be that as it may, current input tax, excluding the presumptive input tax, may be
credited against output tax on miscellaneous taxable sales if the suspended taxes on
purchasers and importations has not been fully paid. Further, direct offsetting of
excess input over taxes against other internal revenue tax liabilities of the zero-rated
taxpayer is not allowed.
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f. Sec. 106(e) of the NIRC prescribing a sixty (60) day period from the date of filing of
the VAT refund/tax credit applications within which the Commissioner shall refund
the input tax is merely directory. Hence, no interest can be due as a result of the
failure of the Commissioner to act on the petitioner's claim within sixty (60) days from
the date of application therefor.
g. Motu proprio application of excess tax credits to other tax liabilities is not allowed.
WHEREFORE, premises considered, the assailed decision and resolution of the Court
of Tax Appeals in C.T.A. Case no. 4794 are hereby REVERSED and SET ASIDE. Let the
records of this case be remanded to the court a quo for a proper computation of the
refundable amount which should be remitted, without interest, to the petitioner
within sixty (60) days from the finality of this decision. No pronouncement as to
costs. 3
Asking that the foregoing disposition be partially set aside, the instant Petition specifically prays for a
new judgment declaring that:
(1) Petitioner was VAT registered beginning January 1, 1988 and continued to be so
for the first quarter of 1990;
(2) In the computation of the amount to be refunded to petitioner, the totality of the
sales to the EPZA-registered enterprise must be taken into account, not merely the
proportion which such sales have to the actual exports of the enterprise.
(3) Section 21 of Revenue Regulations No. 5-87 insofar as it disallows input taxes for
purchases not covered by VAT invoices is invalid and contrary to law. 4
The Facts
The facts are undisputed. They were culled by the Court of Appeals from the joint stipulation of the
parties, which we quote:
The antecedent facts of the case as agreed to by the parties in the Joint Stipulation of
Facts submitted to the Court of Tax Appeals on January 8, 1993, follow:
xxx xxx xxx
2. Petitioner is engaged in the business of mining,
production and sale of various mineral products,
consisting principally of copper concentrates and gold
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and duly registered with the BIR [Bureau of Internal

Revenue] as a VAT [Value Added Tax] enterprise per
its Registration No. 32-A-6-002224. (p. 250, BIR
Records).
3. Respondent [BIR] duly approved petitioner's
application for VAT zero-rating of the following sales:
a. Gold to the Central Bank (CB) [now referred to as
the Bangko Sentral ng Pilipinas;]
b. Copper concentrates to the Philippines Smelting
and Refining Corp. (PASAR); and
c. Pyrite [concentrated] to Philippine Phosphates, Inc.
(Philphos).
The BIR's approval of sales to CB and PASAR was dated April 21, 1988
while zero-rating of sales to PHILPHOS was approved effective June 1,
1988.
4. PASAR and Philphos are both Board of Investments
(BOI) and Export Processing Zone Authority (EPZA)
registered export-oriented enterprises located in an
EPZA zone.
5. On April 20, 1990, petitioner filed a VAT return with
the BIR for the first quarter of 1990 whereby it
declared its sales described in par. 3 hereof,i.e., to the
CB, PASAR and Philphos, as zero-rated sales and
therefore not subject to any output VAT . . ..
6. On or about July 24, 1990, petitioner filed a claim
with respondent for refund/credit of VAT input taxes
on its purchase of goods and services for the first
quarter of 1990 in the total amount of P40,078,267.81
. . ..
7. On or about September 2, 1992, petitioner filed an
Amended Application for tax credit/refund in the
amount of P 35,522,056.58 . . ..
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8. On September 9, 1992, respondent resolved

petitioner's claim for VAT refund/credit by allowing
only P2,518,122.32 as refundable/creditable while
disallowing P33,003,934.26, to wit:
a. Amount claimed P35,522,056.58
LESS: Disallowances
b. No O.R./Invoices/ 1,384,172.48
Proper Documents
c. Invoice without VAT 474,606.87
Registration Number
d. Invoice with Sold 31,499.04
to "Cash"
e. Invoice without 326,374.23
Authority to Print
f. VAT No. stamped/ 441,195.54
typewritten/handwritten
printed in 1988-1989
g. Others 71,088.09
h. Erroneous computation 85,382.58
i 2,814,318.83
j. ALLOWANCE INPUT
P32,707,737.75
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TAX
OTHER DEDUCTIONS:
k. Output tax due on 972,535.67
miscellaneous taxable sales
l. *Output tax due on sale 16,301,277.11
of gold to the Central Bank
(179,314,048.17 x 1/11)
m. **Input tax attributable to sales
to PASAR (submitted BOI
certification did not qualify as
required under RMO 22-92)
(465,095,536.14
1,226,381,659.74 x
32,707,737.75) 12,404,150.65
n. ***Input tax attributable to
sales to PHILPHOS (No BOI
certificate from the BOI)
(18,809,519.07/
1,226,381,659.74 x 501,652.00
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32,707,737.75)
o. Penalty for issuance of 10,000.00 30,189,615.43
invoices without authority
to use loose leaf sales invoices
ALLOWANCE INPUT TAX P2,518,122.32
RECOMMENDED FOR
ISSUANCE OF TAX CREDIT
CERTIFICATE
9. A supplemental report of investigation was submitted by
the BIR examiners on October 15, 1992 recommending the
increase in allowable input tax credit from P 2,518,122.32 to
P12,101,569.11 or an increment of P9,583,446.79 due to
petitioner's submission of BOI certifications on the sales to
PASAR which brought down the deduction of P12,404,150.65
to P2,518,122.32.
The parties further stipulated that the issues to be resolved are:
a.
the
validity
of
VAT
Ruling
No.
008-92
in
connection
with
i. the applicability of 10% VAT rating with regard to
sales of copper concentrates to PASAR and pyrite to
PHILPHOS; and
ii. the application of 10% VAT on sales of gold to CB.
b. the validity of VAT Ruling No. 59-92 dated April 20, 1992 which
applies retroactively VAT Ruling No. 008-92 dated January 23, 1992;
c. the applicability of Revenue Regulation 2-88 in that it requires the
purchaser to export more than 70% of its total sales for the supplier,
such as petitioner to be 100% zero-rated;
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d. the validity of the disallowance of input taxes in the amount of

P2,814,318.83 on the ground that the petitioner has not complied
with Article 108(a) of the NIRC;
e. the validity of BIR Regulations that automatically disallow VAT
refund for failure to present the required documents although the
purchases can be substantiated by other documents;
f. the propriety of deducting the "output tax on miscellaneous taxable
sales" from the current input tax instead of against petitioner's
presumptive input tax (PIT) which, as per BIR findings, are sufficient to
cover the amount assessed;
g. the mandatory nature of Section 106 (e) of the NIRC prescribing a
specific period of sixty (60) days within which to process and grant
applications for input VAT refund and the corresponding right given
to claimants to apply VAT credits to other tax liabilities as allowed
under Section 104(b) of the NIRC as well as interest for the delay in
the grant of petitioner's claims for VAT refund/credit.
On November 8, 1993, the [Court of Tax Appeals] rendered a decision . . .. The
petitioner moved for reconsideration of the decision, which mo[tion] the respondent
court denied. 5
Ruling of the Court of Appeals

Ruling that the parties were bound by the above-quoted Joint Stipulation of Facts which it was
powerless to modify, the Court of Appeals held: "[I]t is beyond cavil that the petitioner is registered
with the BIR as a VAT enterprise effective August 15, 1990." 6 It upheld VAT Ruling No. 008-92
regarding the schedule of taxes to be imposed on VAT-registered entities, explaining that the "zeropercent rating" of BOI-registered enterprises shall be set in proportion to the amount of its actual
exports; and that EPZA and BOI registrations were by themselves not enough for zero-rating to
apply.
Finally, the CA ruled as mandatory the information which Revenue Regulation 5-87 required to be
stated in VAT invoices and receipts, as such information had already been prescribed by Sections 108
(a) and 238 of the Tax Code and violations thereof were penalized under Sections 111 and 263 of the
same Code.
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On August 24, 1998, the present Petition was filed. 7 As the respondent commissioner did not appeal
the CA Decision and Resolution, the Court shall take up in this review only the issues raised by Atlas
Consolidated Mining and Development Corporation.
Issues
Petitioner submits, for the consideration of this Court, the following issues:
I
Whether or not the court a quo erred in upholding the finding of the Court of Tax
Appeals that petitioner is not VAT-registered for the 1st quarter of 1990 despite clear
evidence showing the date of effectivity of petitioner's VAT registration to be January
1, 1988.
II
Whether or not the court a quo erred in not holding that the totality of sales to
EPZA-registered enterprises should be zero-rated, not merely the proportion which
such sales have to the actual exports of the enterprise.
III
[Whether or not] the court a quo erred in not declaring as invalid Section 21 of
Revenue Regulations No. 5-87, insofar as it went beyond the law by disallowing input
VAT for purchases not covered by VAT invoices. 8
The Court's Ruling

The Petition is partly meritorious.
First Issue: VAT Registration

Petitioner contends that its sales to Philippine Phosphate, Inc. (Philphos) and Philippine Smelting and
Refining Corporation (PASAR) should be zero-rated for the first quarter of 1990, and not only as of
"August 15, 1990" as held by the CA, which allegedly ignored "clear evidence" that petitioner's VAT
registration had been effected earlier, on January 1, 1988.
Respondent commissioner counters that by virtue of the Joint Stipulation of Facts, petitioner is
bound by its admission therein that it was registered as a VAT enterprise effective only from August
15, 1990, well beyond the first quarter of 1990, the period for which it is applying for tax credit.
Page 194 of 455
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We agree with the Court of Appeals that, as a rule, a judicial admission, such as that made by
petitioner in the Joint Stipulation of Facts, is binding on the declarant. However, such rule does not
apply when there is a showing that (1) the admission was made through a "palpable mistake," or that
(2) "no such admission was made." Indeed, Section 4 of Rule 129 of the Rules of Court states:
Sec. 4. Judicial Admissions. An admission, verbal or written, made by a party in the
course of the proceedings in the same case, does not require proof. The admission
may be contradicted only by showing that it was made through palpable mistake or
that no such admission was made.
In the present case, we are convinced that a "palpable mistake" was committed. True, petitioner was
VAT-registered under Registration No. 32-A-6-00224, as indicated in Item 2 of the Stipulation:
2. Petitioner is engaged in the business of mining, production and sale of various mineral products,
consisting principally of copper concentrates and gold duly registered with the BIR as a VAT
enterprise per its Registration No. 32-A-6-002224 (p. 250, BIR Records). 9
Moreover, the Registration Certificate, which in the said stipulation is alluded to as appearing on
page 250 of the BIR Records, bears the number 32-0-004622 and became effective August 15, 1990.
But the actual VAT Registration Certificate, which petitioner mentioned in the stipulation, is
numbered 32-A-6-002224 and became effective on January 1, 1988, thereby showing that petitioner
had been VAT-registered even prior to the first quarter of 1990. Clearly, there exists a discrepancy,
since the VAT registration number stated in the joint stipulation is NOT the one mentioned in the
actual Certificate attached to the BIR Records.
The foregoing simply indicates that petitioner made a "palpable mistake" either in referring to the
wrong BIR record, which was evident, or in attaching the wrong VAT Registration Certificate. The
Court of Appeals should have corrected the unintended clerical oversight. In any event, the indelible
fact is: the petitioner was VAT-registered as of January 1, 1988.
Similarly, in Philippine American General Insurance Company v. IAC, 10 this Court accepted the
explanation and the subsequent proof of petitioner that the latter had made a mistake in stating the
date when the Order denying its Motion for Reconsideration was actually received. Thus, the Court
ruled that the appeal to the IAC had been filed on time. It explained:
In assailing the decision of the respondent Intermediate Appellate Court, petitioner
maintains that it was error for respondent court to refuse to consider petitioner's
evidence that the accrual date of receipt by it of the order denying the motion for
reconsideration of the lower court's decision was November 15, 1982, not November
12, 1982, as mistakenly stated in the Notice of Appeal. Invoking Section 2 of Rule 129
of the Rules of Court, petitioner contends that a party is allowed to contradict an
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admission in its pleading if it is shown that the same was made through palpable
mistake.
We find merit in the petition. Apart from the showing that notice of the trial court's
order denying petitioner's motion for reconsideration was actually received by
petitioner on November 15, 1982, the fact that the order was sent to the wrong
address was apparently not considered by both the respondent appellate court and
the trial court. . .
That herein petitioner's explanation of the discrepancy was made only after the CTA had
promulgated its Decision is understandable. It was only when that promulgation was made that
petitioner became aware of the clerical error in the Joint Stipulation of Facts. Hence, it explained in
its Motion for Reconsideration therein that it had already been VAT-registered as early as the first
quarter of 1988 under VAT Registration No. 32-A-6-002224. Petitioner attached to said Motion a
copy of the Registration Certificate corresponding to the above number, showing January 1, 1988 as
its registration date.
We note that petitioner also had another registration number, 32-0-004622, because sometime
during the third quarter of 1990, it moved its principal place of business to a different revenue
district. Its second registration as a VAT enterprise on August 15, 1990 was made in compliance with
Section 3 of Revenue Memo Circular No. 6-88, which required it to re-register after it moved its
principal place of business to another revenue district. The said Circular reads as follows:
Sec. 3. Time, Place and Manner of Registration. Persons who are required to
register under Section 2 of these regulations shall file an application for Non-VAT
registration within 10 days from the commencement of the business with the
Revenue District Officer, or any other authorized officer of the Bureau of Internal
Revenue indicating the name of style of the business, place of residence, place where
the business is conducted, and such other information as may be required by the
Commissioner in the form prescribed therefor.
Persons transferring their place of business to another Revenue District shall likewise
file their application for registration within 10 days from the date of transfer. 11
The above regulation implements Section 107 (a) of the Tax Code, which provides that registration
shall be in the revenue district where the main office is located. The said provision states:
Sec. 107. Registration of value-added taxpayers.
(a) In general. Any person subject to a value-added tax under Sections 100 and
102 of this Code shall register with the appropriate Revenue District Officer and pay
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an annual registration fee in the amount of One thousand pesos (P1,000.00) for every
separate or distinct establishment or place of business and every year thereafter on
or before the last day of January. Any person just commencing a business subject to
the value-added tax must pay the fee before engaging therein.
A person who maintains a head or main office and branches in different places shall
register with the Revenue District Office, collection agent, or authorized Treasurer of
the municipality where each place of business or branch is situated. 12
Petitioner presented the two different Registration Certificates corresponding to the two registration
numbers assigned to it. The Registration Certificate numbered 32-A-6-002224 listed petitioner's
address as 8776 Paseo de Roxas, Makati, and its date of effectivity as January 1, 1988. The
Registration Certificate numbered 32-0-004622 showed petitioner's address (head office) to be at the
15th Floor of the Pacific Star Building in Gil Puyat Street corner Makati Avenue, Makati, and its date
of effectivity as August 15, 1990.
In view of the foregoing, we believe that petitioner should be taxed only for such amount and under
such circumstances as are true, fair and equitable. After all, even the respondent commissioner, as
shown in the other provisions of the joint stipulation, has granted it VAT exemption for the period
even prior to the first quarter of 1990; that is, as early as January 1, 1988. In view of the foregoing, we
stress that a litigation is neither a game of technicalities nor a battle of wits and legalisms. Rather, it
is an abiding search for truth, fairness and justice. We believe, and so hold, that substantial justice is
on the side of petitioner on this issue.
Second Issue: VAT Exemption of Sales

to Export-Oriented Enterprises
Regarding the second issue, petitioner criticizes the respondent commissioner, as its sales to PASAR
and Philphos both registered with the BOI (Board of Investments) and EPZA (Export Processing
Zone Authority) as export-oriented entities were zero-rated only in proportion to the actual
exports made by the two, and not to the entirety of petitioner's sales to them.
Respondent, on the other hand, maintains that before zero-rating can be applied, petitioner must
first show that the entities to which the raw materials have been sold are export-oriented, and that
their export sales exceed 70 percent of their total annual production. Should these conditions be
met, zero-rating would apply, but only in proportion to the exports actually made.
The Joint Stipulation of Facts expressly states that petitioner's sales of raw materials have been
approved for zero-rating. Verily, the commissioner has already conceded that PASAR and Philphos
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qualify as export-oriented enterprises whose export sales exceed 70 percent of their total annual
production, and that petitioner's sales to them thus qualify for zero-rating.
Finding that the respondent commissioner had indeed already approved the zero-rating of
petitioner's past sales to PASAR and Philphos, the CA ruled:
Indeed, the BIR has already recognized and admitted that said transactions are zerorated (paragraph 3, pages 1-2 of the Joint Stipulation of Facts; page 40-41 of the CTA
Records). Said stance is demonstrated in the following acts of the BIR:
a. the grant of petitioner's applications for zero-rating of sales to PASAR AND
PHILPHOS (Annexes "A" and "B", Joint Stipulation of Facts; pages 56-57 of the CTA
Record);
b. Revenue Regulation No. 2-88, wherein it recognized sales to BOI-registered
enterprises which export over 70% of its sales as zero-rated, subject to certain
conditions (Annex "H", Joint Stipulation of Facts; pages 70-71 of the CTA Record);
c. VAT Ruling No. 271-88 (dated June 24, 1988), wherein it was recognized that sales
to PHILPHOS are zero-rated (Annex "I", Joint Stipulation of Facts; p. 72 of the CTA
Record);
d. Letter dated April 18, 1988, whereby it recognized that sales of copper
concentrates to PASAR are zero-rated (Annex "J", Joint Stipulation of Facts; page 73
of the CTA Record); and
e. VAT Ruling No. 008-92, which states that the sale of raw materials to BOIregistered enterprises can qualify for zero-rating (Annex "N", Joint Stipulation of
Facts; pages 79-82 of the CTA Record).13
Finally, an examination of Section 4.100.2 of Revenue Regulation 7-95 14 in relation to Section 102 (b)
of the Tax Code shows that sales to an export-oriented enterprise whose export sales exceed 70
percent of its annual production are to be zero-rated, provided the seller complies with other
requirements, like registration with the BOI and the EPZA. The said Regulation does not even hint,
much less expressly mention, that only a percentage of the sales would be zero-rated. The internal
revenue commissioner cannot, by administrative fiat, amend the law by making compliance
therewith more burdensome.
Third Issue:
Validity of Section 21 of Revenue Regulation 5-87
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Petitioner contends that Section 21 of Revenue Regulation 5-87 is invalid, because it effectively
legislates something not provided for in Section 108 of the Tax Code, which provides as follows:
Sec. 108. Invoicing and accounting requirements for VAT-registered persons.
(a) Invoicing requirements. A VAT-registered person shall, for every sale, issue an
invoice or receipt. In addition to the information required under Section 238, the
following information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's
identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller
with the indication that such amount includes the value-added tax.
(b) Accounting requirements. Notwithstanding the provisions of Section 233, all
persons subject to the value-added tax under Sections 100 and 102 shall, in addition
to the regular accounting records required, maintain a subsidiary sales journal and
subsidiary purchase journal on which the daily sales and purchases are recorded. The
subsidiary journals shall contain such information as may be required by the
Secretary of Finance. 15
On the other hand, Section 21 of Revenue Regulation 5-87 states:
Sec. 21. Invoicing Requirements. (a) Invoice and/or receipts. All VAT-registered
persons who sell goods or services shall, for every sale, issue an invoice or receipt.
The invoice should contain the information prescribed in Section 108(a) and 238.
Only VAT-registered persons can print the VAT registration number in their invoice
and receipt. Any invoice bearing the VAT registration number of the seller shall be
considered as "VAT Invoice." Value-Added Tax, whether indicated as a separate item
or not in the "VAT Invoice" shall be allowed as input tax credits to those liable to the
value-added tax. All purchases covered by invoices other than "VAT Invoice" shall not
be entitled to input taxes. 16
Petitioner insists that while Section 108 of the Tax Code lists the information necessary for VAT
Invoices, it is silent on the withholding of input tax credits for purchases that are not subjects to VAT.
We disagree. It is clear that a VAT invoice can be used only for the sale of goods and services that
are subject to VAT. The corresponding taxes thereon shall be allowed as input tax credits for those
subject to VAT. Section 108 expressly provides the invoicing and accounting entries required from
VAT-registered persons. On the other hand, Section 111 of the Tax Code empowers the
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commissioner to suspend the business operations of VAT-registered persons for the specific
violations listed therein. We quote below the latter provision:
Sec. 111. Power of the Commissioner to suspend the business operations of a
taxpayer. The Commissioner or his authorized representative is hereby

empowered to suspend the business operations and temporarily close the business
establishment of any person for any of the following violations:
(a) In the case of a VAT-registered person.
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 110;
(3) Understatement of taxable sales or receipts by 30% or more of his correct taxable
sales or receipts for the taxable quarter.
(b) Failure of any person to register as required under Section 107. The temporary
closure of the establishment shall be for the duration of not less than five (5) days
and shall be lifted only upon compliance with whatever requirements [are] prescribed
by the Commissioner in the closure order.
Corollary thereto, punishment for other types of violations similar to but other than those listed in
Section 111 are provided for in Section 263 of the Tax Code, which reads:
Sec. 263. Failure or refusal to issue receipts or sales or commercial invoices, violations
related to the printing of such receipts or invoices and other violations.

(a) Any person who, being required under Section 238 to issue receipts or sales or
commercial invoices, fails or refuses to issue such receipts or invoices, issues receipts
or invoices that do not truly reflect and/or contain all the information required to be
shown therein, or uses multiple or double receipts or invoices, shall, upon conviction
for each act or omission, be fined not less than one thousand pesos but not more
than fifty thousand pesos and suffer imprisonment of not less than two years but not
more than four years.
(b) Any person who commits any of the acts enumerated hereunder shall be
penalized in the same manner and to the same extent as provided for in this Section:
1. Prints receipts or sales or commercial invoices without authority from the Bureau of
Internal Revenue;
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2. Prints double or multiple sets of invoices or receipts;

3. Prints unnumbered receipts or sales or commercial invoices, not bearing the name,
business style, taxpayer identification number, and business address of the person or
entity; or
4. Fails to submit the quarterly report required in Section 239.
A careful perusal of the violations specifically listed down in Sections 111 and 263 of the Tax Code
shows that they do not encompass all possible types of violations of Section 108. Certainly, there are
other ways of noncompliance with the requirements the latter has laid down, and these too must
have their corresponding consequences. Section 21 of Revenue Regulation 5-87 is not invalid, as it
simply prescribes the penalty for failure to comply with the accounting and invoicing requirements
laid down in Section 108, a penalty similar to that found in Sections 111 and 263. In short, Section
108 provides the guidelines and necessary requirements for VAT invoices; Sections 111 and 263 of
the Tax Code provide penalties for different types of violations of Section 108; and Section 21 of
Revenue Regulation 5-87 specifies the penalty for a specific violation of Section 108.
Furthermore, we agree with respondent's position that the computation of the output VAT of the
seller should be based on the selling price appearing on its own VAT invoice, not on the selling price
appearing on that of the customer. Indeed, it is the duty of the seller to comply with the invoicing
and accounting requirements laid down in, among others, Section 108 of the Tax Code.
However, this Court's ruling on the validity of Section 21 of Revenue Regulation 5-87 must be taken
in conjunction with its pronouncement regarding the zero-rating given to the sales which petitioner
made to Philphos and PASAR. As explained above, such sales are subject to zero-rating, as that
rating was definitely approved by the respondent commissioner. His approval indubitably signified
that petitioner had already complied with the requirements, invoicing or otherwise, necessary for the
zero-rating of petitioner's sales of raw materials to Philphos and PASAR.
WHEREFORE, the Petition is hereby partially GRANTED and the assailed Decision is MODIFIED as
follows: (1) petitioner is deemed VAT-registered for the first quarter of 1990 and beyond; and (2) it is
the totality of petitioner's sales to Philphos and PASAR that must be taken into account, not merely
the proportion of such sales to the actual exports of the said enterprises. Other than the above
modifications, the challenged Decision is AFFIRMED.
No. L-18125. May 31, 1963.
BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA, petitioner, vs. COURT OF TAX APPEALS
and THE NATIONAL WATERWORKS AND SEWERAGE AUTHORITY (NAWASA), respondents.
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National Waterworks and Sewerage Authority; Exemption of assets from taxation; Exemption never
ruled by Supreme Court in previous cases.The Supreme Court never ruled in the case of City of
Cebu vs. NAWASA, L-12892, decided on April 30, 1960, that the assets of the water system of the City
of Cebu which the NAWASA had sought to take over, were subject to taxation. In that case, the
doctrine laid down in the case of City of Baguio vs. NAWASA, L-12032, decided on August 31, 1959,
that municipal corporations held 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, was merely reiterated.
Same; Same; No distinction in the law exempting government from taxation, between property held
in governmental capacity and those held in proprietary character.In exempting from taxation
"property owned by the Republic of the Philippines, any province, city, municipality or municipal
district x x x", section 3(c) 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. The noun "property" and the verb "owned" used in said section strongly
suggests that the object of exemption is considered more from from the viewpoint of dominion that
from that of domain.
Same; Same: Payment by government of real estate tax not included in Republic Act No. 104
Section 1 of Republic Act No. 104 only refers to the payment by corporations, agencies, or
instrumentalities owned or controlled by the government, of duties, taxes, fees and other charges
upon "transaction, business industry, sale, or income," and does not include taxes on property like
real estate tax. [Board of Assessment Appeals, Laguna, vs. Court of Tax Appeals, 8 SCRA 225(1963)]
CONCEPCION, J.:
This is a petition for review of a decision of the Court of Tax Appeals reversing a resolution or
decision of the Board of Assessment Appeals for the Province of Laguna.
The question involved in this case is whether the water pipes, reservoir, intake and buildings used by
herein respondent, National Waterworks and Sewerage Authority hereinafter referred to as
NAWASA in the operation of its waterworks system in the municipalities of Cabuyao, Sta. Rosa
and Bian, province of Laguna, are subject to real estate tax.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of facts.
The parties have submitted in the Court of Tax Appeals a stipulation of facts. The pertinent parts
thereof are to the effect:
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1. That the petitioner National Waterworks and Sewerage Authority (NWSA) 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:.
2. That, pursuant to the provisions of Republic Act No. 1383, petitioner NWSA took over all
the property of the former Metropolitan Water District and all the existing local governmentowned waterworks and sewerage systems all over the Philippines, including the Cabuyao-Sta.
Rosa-Bian Waterworks System owned by the Province of Laguna (Section 8, Republic Act
No. 1283);
3. That the functions and activities of petitioner NWSA, as enumerated in Republic Act No.
1383, more particularly Section 2 thereof, are the same and identical with the functions of the
defunct Metropolitan Water District, particularly Section 2, Act 2832, is amended;
4. That petitioner National Waterworks and Sewerage Authority (NWSA) 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;
5. That at the time that the Cabuyao-Sta. Rosa-Bian Waterworks System was taken over by
petitioner NWSA in 1956, the former was self-supporting and revenue-producing, but that all
its surplus income are not declared as profits as this surplus are or may be invested for the
expansion thereof;
6. That in the year 1956 the Provincial Assessor of Laguna assessed, for purposes of real
estate taxes, the property comprising the Cabuyao-Sta. Rosa-Bian Waterworks System and
described in Tax Declaration No. 5987 (Exh. "A-l") which, as stated in Paragraph 2 hereof,
herein petitioner NWSA had taken over;
7. That against the above-mentioned assessment made by the Provincial Assessor of Laguna,
petitioner NWSA protested, claiming that the property described under Tax Declaration No.
5987 (Exh. "A-l") are exempted from the payment of real estate taxes in view of the nature
and kind of said property and functions and activities of petitioner, as provided in Republic
Act No. 1383;.
8. That the said protest of petitioner NWSA was overruled on appeal before the herein
respondent Board of Assessment Appeals, hence the present petition for review filed by
petitioner;
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xxx
xxx
xxx"
After appropriate proceedings, the Court of Tax Appeals rendered the aforementioned decision
reversing the action taken by petitioner Board, which, accordingly, has brought the case to us for
review, under the provisions of Republic Act No. 1125, 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 Republic 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, according to petitioner appellant.
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. . . .
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 the above provision. This notwithstanding, petitioner Board maintains
that respondent NAWASA is not entitled to the benefits of the exemption established in said section
3(a), inasmuch as, in the case of the City of Cebu vs. NAWASA, G. R. No. L-12892, decided on April
30, 1960, we ruled that the assets of the water system of the City of Cebu, which the NAWASA had
sought to take over, pursuant to the provisions of Republic Act No. 1383 as it did in the case at
bar, with respect to the Cabuyao-Sta. Rosa-Bian Waterworks System 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, G. R. No. L12032, decided on August 31, 1959, 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.
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Upon the other hand, 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 (Cooley on Taxation, Sec. 621, 4th Edition.) 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. (The Law on Local
Taxation, by Justiniano Y. Castillo, p. 13.)
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.
This provision 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.
WHEREFORE, the decision appealed from is hereby affirmed, without special pronouncement as to
costs. It is so ordered.
No. L-22814. August 28, 1968.
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant, vs. CITY OF BUTUAN,
MEMBERS OF THE MUNICIPAL BOARD, THE ClTY MAYOR and THE ClTY TREASURER, all of the CITY
OF BUTUAN, defendants-appellees.
Constitutional law; Double taxation, in general, is not forbidden by our fundamental law; Delegation
of legislative powers to local governments.Independently of whether or not a tax imposed
pursuant to section 2 of Republic Act No. 2264, when considered in relation to the sales tax
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prescribed by Acts of Congress, amounts to double taxation, on which we do not express any
opiniondouble taxation, in general, is not forbidden by our fundamental law. We have not
adopted, as part thereof, the injunction against double taxation found in the Constitution of the
United States and of some States of the Union (De Villata v. Stanley, 32 Phil. 541; City of Manila v.
Inter-Island Gas Service, 99 Phil. 847, 854; Syjuco v. Municipality of Paranaque, L-11265, Nov. 27,
1959; City of Bacolod v. Gruet, L-18290, Jan. 31, 1963). Then, again, the general principle against
delegation of legislative powers, in consequence of the theory of separation of powers (U.S. v. Bull,
15 Phil. 7, 27; Kilbourn v. Thompson, 103 U.S. 168, 26 L. ed. 377) is subject to one well-established
exception, namely: legislative powers may be delegated to local governmentsto which said theory
does not apply (State v. City of Mankato, 136 N.W. 264; People v. Provinces, 34 Cal. 520;
Stoutenburgh v. Hennick, 129 U.S. 141, 32 L. ed. 637)in respect of matters of local concern.
Same; Tax of "fO.lO per case of 24 bottles" of soft drinks or carbonated drinks is not oppressive or
confiscatory.The tax of "P0.10 per case of 24 bottles" of soft drinks or carbonated drinksin the
production and sale of which the Pepsi-Cola BottlinR Company is engagedor less than F0.0042 per
bottle, is manifestly too small to be excessive, oppressive, or confiscatory.
Same; Conditions for a valid classification of the objects of taxation; Municipal Ordinance No. 122 of
the City of Butuan is null and void; Case at bar.In the present case the tax prescribed in section 3 of
Ordinance No. 110 of the City of Butuan, as originally approved, was imposed upon dealers
"engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that the intent was then to
levy of tax upon the sale of said merchandise. As amended by Ordinance No. 122, the tax is,
however, imposed oriLy upon "any agent and/or consignee of any person, association, partnership,
company or corporation engaged in selling x x x soft drinks or carbonated drinks."
As a consequence, merchants engaged in the sale of soft drinks or carbonated drinks, are not subject
to the tax, unless they are agents and/or consignees of another dealer, who, in the very nature of
things, must be one engaged in business outside the City. Besides, the tax would not be applicable
to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or shipped to
him every month. When we consider, also, that the tax "shall be based and computed from the cargo
manifest or bill of lading x x x showing the number of cases"not soldbut "received" by the
taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated drinks
brought into the City from outside thereof becomes apparent. Viewed from this angle, the tax
partakes of the nature of an import duty, which is beyond defendant's authority to impose by
express provision of law (Sec. 2[1], Rep. Act 2264; Panaligan v. City of Tacloban, L-9319, Sept. 27,
1957, 102 Phil. 1162; East Asiatic Co. v. City of Davao, L-16253, Aug. 21, 1962).
Even, however, if the burden in question were regarded as a tax on the sale of said beverages, it
would still be invalid, as discriminatory, and hence, violative of the uniformity required by the
Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants,
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regardless of the volume of their sales, and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the City of Butuan, would be exempt from
the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not require
identity or equality under all circumstances, or negate the authority to classify the objects of taxation.
The classification made in the exercise of this authority, to be valid, must, however, be reasonable
and this requirement is not deemed satisfied unless: (1) it is based upon substantial distinctions
which make the real differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions
substantially identical to those of the present; and (4) the classification applies equally to all those
who belong to the same class.
These conditions are not f fully met by the ordinance in question. Indeed, if its purpose were merely
to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales
thereof by dealers other than agents or consignees of producers or merchants established outside
the City of Butuan should be exempt from the tax. [Pepsi-Cola Bottling Co. of the Phil., Inc. vs. City of
Butuan, 24 SCRA 789(1968)]
CONCEPCION, C.J.:
Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing
plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and
principal place of business in Quezon City. The defendants are the City of Butuan, its City Mayor, the
members of its municipal board and its City Treasurer. Plaintiff seeks to recover the sums paid by
it to the City of Butuan hereinafter referred to as the City and collected by the latter, pursuant to
its Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122, both series of 1960,
which plaintiff assails as null and void, and to prevent the enforcement thereof. Both parties
submitted the case for decision in the lower court upon a stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the
"Pepsi-Cola" soft drinks for sale to customers in the City of Butuan and all the municipalities
in the Province of Agusan. These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and
shipped to the Butuan City warehouse of plaintiff for distribution and sale in the City of
Butuan and all municipalities of Agusan. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was
subsequently amended by Ordinance No. 122 and effective November 28, 1960. A copy of
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Ordinance No. 110, Series of 1960 and Ordinance No. 122 are incorporated herein as Exhibits
"A" and "B", respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of
P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount of
P4,926.63 from August 16 to December 31, 1960 and the amount of P9,250.40 from January
1 to July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of
P14,177.03 paid under protest and those that if may later on pay until the termination of this
case on the ground that Ordinance No. 110 as amended of the City of Butuan is illegal, that
the tax imposed is excessive and that it is unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has
prepared a form to be accomplished by the plaintiff for the computation of the tax. A copy of
the form is enclosed herewith as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to
July 30, 1961 of its warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1"
to "D-5". In this Profit and Loss Statement, the defendants claim that the plaintiff is not
entitled to a depreciation of P3,052.63 but only P1,202.55 in which case the profit of plaintiff
will be increased from P1,254.44 to P3,104.52. The plaintiff differs only on the claim of
depreciation which the company claims to be P3,052.62. This is in accordance with the
findings of the representative of the undersigned City Attorney who verified the records of
the plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was
increased to P1.92 which price is uniform throughout the Philippines. Said increase was made
due to the increase in the production cost of its manufacture.
8. That the parties reserve the right to submit arguments on the constitutionality and
illegality of Ordinance No. 110, as amended of the City of Butuan in their respective
memoranda.
xxx
xxx
xxx
Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the
purview thereof. Section 2 provides for the payment by "any agent and/or consignee" of any dealer
"engaged in selling liquors, imported or local, in the City," of taxes at specified rates. Section 3
prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and carbonated beverages therein
named, and "all other soft drinks or carbonated drinks." Section 3-A, defines the meaning of the term
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"consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be paid
at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based and computed
from the cargo manifest or bill of lading or any other record showing the number of cases of soft
drinks, liquors or all other soft drinks or carbonated drinks received within the month." Sections 6, 7
and 8 specify the surcharge to be added for failure to pay the taxes within the period prescribed and
the penalties imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2 and
3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading or cargo
manifest or record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes
the ordinance applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold
within" the City. Section 10 of the ordinance provides that the revenue derived therefrom "shall be
alloted as follows: 40% for Roads and Bridges Fund; 40% for the General Fund and 20% for the
School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature
of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4)
it is highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority
of which it was enacted, is an unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed independently of whether
or not the tax in question, when considered in relation to the sales tax prescribed by Acts of
Congress, amounts to double taxation, on which we need not and do not express any opinion double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as part
thereof, the injunction against double taxation found in the Constitution of the United States and of
some States of the Union.1 Then, again, the general principle against delegation of legislative powers,
in consequence of the theory of separation of powers2 is subject to one well-established exception,
namely: legislative powers may be delegated to local governments to which said theory does not
apply3 in respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or
carbonated drinks in the production and sale of which plaintiff is engaged or less than P0.0042
per bottle, is manifestly too small to be excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this connection, it is
noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as originally approved, was
imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that
the intent was then to levy a tax upon the sale of said merchandise. As amended by Ordinance No.
122, the tax is, however, imposed only upon "any agent and/or consignee of any person, association,
partnership, company or corporation engaged in selling ... soft drinks or carbonated drinks." And,
pursuant to section 3-A, which was inserted by said Ordinance No. 122:
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... Definition of the Term Consignee or Agent. For purposes of this Ordinance, a
consignee of agent shall mean any person, association, partnership, company or corporation
who acts in the place of another by authority from him or one entrusted with the business of
another or to whom is consigned or shipped no less than 1,000 cases of hard liquors or soft
drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject
to the tax,unless they are agents and/or consignees of another dealer, who, in the very nature of
things, must be one engaged in business outside the City. Besides, the tax would not be applicable
to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or shipped to
him every month. When we consider, also, that the tax "shall be based and computed from the cargo
manifest or bill of lading ... showing the number of cases" not sold but "received" by the
taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated drinks
brought into the City from outside thereof becomes apparent. Viewed from this angle, the tax
partakes of the nature of an import duty, which is beyond defendant's authority to impose by
express provision of law.4
Even however, if the burden in question were regarded as a tax on the sale of said beverages, it
would still be invalid, as discriminatory, and hence, violative of the uniformity required by the
Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales, and even if the same exceeded those made by
said agents or consignees of producers or merchants established outside the City of Butuan, would
be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not require
identity or equality under all circumstances, or negate the authority to classify the objects of
taxation.5 The classification made in the exercise of this authority, to be valid, must, however, be
reasonable6 and this requirement is not deemed satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions
substantially identical to those of the present; and (4) the classification applies equally all those who
belong to the same class.7
These conditions are not fully met by the ordinance in question.8 Indeed, if its purpose were merely
to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales
thereof by sealers other than agents or consignees of producers or merchants established outside
the City of Butuan should be exempt from the tax.
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WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered
annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan
to refund to plaintiff herein the amounts collected from and paid under protest by the latter, with
interest thereon at the legal rate from the date of the promulgation of this decision, in addition to
the costs, and defendants herein are, accordingly, restrained and prohibited permanently from
enforcing said Ordinance, as amended. It is so ordered.
No. L-31156. February 27, 1976.*
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant, vs. MUNICIPALITY
OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendants-appellees.
Taxation; Delegation of Powers; Power of taxation may be delegated to local governments on

matters of local concern.The power of taxation x x x may be delegated to local governments in
respect of matters of local concern. This is sanctioned by immoral practice. By necessary implication,
the legislative power to create political corporations for purposes of local self-government carries
with it the power to confer on such local governmental agencies the power to tax. x x x The plenary
nature of the taxing power thus delegated, contrary to plaintiff-appellants pretense, would not
suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State
is not limited to the exact meassure of that which is exercised by itself. When it is said that the taxing
power may be delegated to municipalities and the like, it is meant taxes there may be delegated
such measure of power to impose and collect taxes as the legislature may deem expedient. Thus,
municipalities may be permitted to tax subjects which for reasons of public policy the State has not
deemed wise to tax for more general purposes.
Same; Due process; Taking of property without due process of law may not be passed over under the
guise of taxing power, except when the latter is exercised lawfully.This is not to say though that the
constitutional injunction against deprivation of property without due process of law may be passed
over under the guise of the taxing power, except when the taking of the property is in the lawful
exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of
taxation is observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice
and opportunity for hearing are provided.
Same; Same; Delegation of powers; Delegation of taxing power to local governments may not be
assailed on the ground of double taxation.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
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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.
Taxation; A municipal ordinance which imposes a tax of P0.01 for every gallon of soft drinks
produced in the municipality does not partake of a percentage tax.The imposition of a tax of one
centavo (P0.01) on each gallon (128 flued ounces, U.S.) of volume capacity on all soft drinks
produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage
tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold
or not) and not on the sales. The volume capacity of the taxpayers production of soft drinks is
considered solely for purposes of determining the tax rate on the products, but there is no set ratio
between the volume of sales and the amount of the tax.
Same; A municipal tax on soft drinks is not a specific tax.Nor can the tax levied be treated as a
specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits, wines, x x x
cigars and cigarettes, matches, x x x bunker fuel oil, diesel fuel oil, cinematographic films, playing
cards, saccharine, opium and other habit-forming drugs. Soft drinks is not one of those specified.
Same; A municipal tax of P0.01 on each gallon of soft drinks produced is not unfair or oppressive.
The tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all soft
drinks, produced or manufactured, or an equivalent of 1 centavos per case, cannot be considered
unjust and unfair. An increase in the tax alone would not support the claim that the tax is oppressive,
unjust and confiscatory. Municipal corporations are allowed much discretion in determining the rates
of imposable taxes. This is in line with the constitutional policy of according the widest possible
autonomy to local governments in matters of local taxation, an aspect that is given expression in the
Local Tax Code (PD No. 231, July 1, 1973). Unless the amount is so excessive as to be prohibitive,
courts will go slow in writing off an ordinance as unreasonable.
Same; Licenses; Municipalities are empowered to impose not only municipal license but just and
uniform taxes for public purposes.The municipal license tax of P1,000.00 per corking machine with
five but not more than ten crowners x x x imposed on manufacturers, producers, importers and
dealers of soft drinks and/or mineral waters x x x appears not to affect the resolution of the validity
of Ordinance No. 27. Municipalities are empowered to impose, not only municipal license taxes upon
persons engaged in any business or occupation but also to levy for public purposes, just and uniform
taxes. The ordinance in question (Ordinance No. 27) comes within the second power of a
municipality. [Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte, 69
SCRA 460(1976)]
MARTIN, J.:
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This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294,
which was certified to Us by the Court of Appeals on October 6, 1969, as involving only pure
questions of law, challenging the power of taxation delegated to municipalities under the Local
Autonomy Act (Republic Act No. 2264, as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, 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.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state
that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the
production tax rates imposed therein are practically the same, and second, that on January 17, 1963,
the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the
Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the
provisions of said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies
and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo
for every bottle of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm,
company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly
report, of the total number of bottles produced and corked during the month. 3
On the other hand, 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." 4 For the purpose of computing the taxes due, the person, fun company, partnership,
corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report
of the total number of gallons produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the
complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring
Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay the taxes due under
the oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals,
which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as
amended.
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There are three capital questions raised in this appeal:

1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory
and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter
of right to every independent government, without being expressly conferred by the people. 6 It is a
power that is purely legislative and which the central legislative body cannot delegate either to the
executive or judicial department of the government without infringing upon the theory of separation
of powers. The exception, however, lies in the case of municipal corporations, to which, said theory
does not apply. Legislative powers may be delegated to local governments in respect of matters of
local concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the legislative
power to create political corporations for purposes of local self-government carries with it the power
to confer on such local governmental agencies the power to tax. 9 Under the New Constitution, local
governments are granted the autonomous authority to create their own sources of revenue and to
levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to create
its sources of revenue and to levy taxes, subject to such limitations as may be provided by law."
Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere
of the legislative power to enact and vest in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense,
would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the
authority, the State is not limited 6 the exact measure of that which is exercised by itself. When it is
said that the taxing power may be delegated to municipalities and the like, it is meant that there may
be delegated such measure of power to impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy
the State has not deemed wise to tax for more general purposes. 10 This is not to say though that the
constitutional injunction against deprivation of property without due process of law may be passed
over under the guise of the taxing power, except when the taking of the property is in the lawful
exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of
taxation is observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice
and opportunity for hearing are provided. 11 Due process is usually violated where the tax imposed is
for a private as distinguished from a public purpose; a tax is imposed on property outside the State,
i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in assessing and collecting
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taxes. But, a tax does not violate the due process clause, as applied to a particular taxpayer, although
the purpose of the tax will result in an injury rather than a benefit to such taxpayer. Due process does
not require that the property subject to the tax or the amount of tax to be raised should be
determined by judicial inquiry, and a notice and hearing as to the amount of the tax and the manner
in which it shall be apportioned are generally not necessary to due process of law. 12
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.
13
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. 14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the
benefit of the same governmental entity 15 or by the same jurisdiction for the same purpose, 16 but
not in a case where one tax is imposed by the State and the other by the city or municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because
these two ordinances cover the same subject matter and impose practically the same tax rate. The
thesis proceeds from its assumption that both ordinances are valid and legally enforceable. This is
not so. As earlier quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or
collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for
.every bottle corked, irrespective of the volume contents of the bottle used. When it was discovered
that the producer or manufacturer could increase the volume contents of the bottle and still pay the
same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28,
1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27,
it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of
the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a
plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without
words to that effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only
seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact
that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiffappellant of the provisions of said Ordinance No. 27, series of 1962. The aforementioned admission
shows that only Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even
the Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are
inconsistent with the provisions of the former."
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That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or
a specific tax. Undoubtedly, the taxing authority conferred on local governments under Section 2,
Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which
are mentioned therein." As long as the text levied under the authority of a city or municipal
ordinance is not within the exceptions and limitations in the law, the same comes within the ambit of
the general rule, pursuant to the rules of exclucion attehus andexceptio firmat regulum in cabisus
non excepti 19 The limitation applies, particularly, to the prohibition against municipalities and
municipal districts to impose "any percentage tax or other taxes in any form based thereon nor
impose taxes on articles subject to specific tax except gasoline, under the provisions of the National
Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which
prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes
a sales tax and is null and void for being outside the power of the municipality to enact.
20
But, the
imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of
the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied
on the produce (whether sold or not) and not on the sales. The volume capacity of the taxpayer's
production of soft drinks is considered solely for purposes of determining the tax rate on the
products, but there is not set ratio between the volume of sales and the amount of the tax. 21
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified
articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and
cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel
oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. 22 Soft
drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks,
produced or manufactured, or an equivalent of 1- centavos per case, 23 cannot be considered
unjust and unfair. 24 an increase in the tax alone would not support the claim that the tax is
oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in
determining the reates of imposable taxes. 25 This is in line with the constutional policy of according
the widest possible autonomy to local governments in matters of local taxation, an aspect that is
given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so
excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27
Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose
of the law to further strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten
crowners or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers,
producers, importers and dealers of soft drinks and/or mineral waters under Ordinance No. 54, series
of 1964, as amended by Ordinance No. 41, series of 1968, of defendant Municipality, 29 appears not
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to affect the resolution of the validity of Ordinance No. 27. Municipalities are empowered to impose,
not only municipal license taxes upon persons engaged in any business or occupation but also to
levy for public purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes
within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the
Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the
Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is
hereby declared of valid and legal effect. Costs against petitioner-appellant.
JOHN H. OSMEA vs. 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, G.R. No. 99886 March
31, 1993
The petitioner seeks the corrective, 1 prohibitive and coercive remedies provided by Rule 65 of the
Rules of Court,2 upon the following posited grounds, viz.: 3
1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now,
the Office of Energy Affairs), created pursuant to 8, paragraph 1, of P.D. No. 1956, as amended,
"said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution; 4
2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order No.
137, for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory
Board;" 5
3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund, 6 because it contravenes 8, paragraph 2 (2) of P. D. 1956, as amended; and
4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of
the pump prices and petroleum products to the levels prevailing prior to the said Order.
It will be recalled that on October 10, 1984, President 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 designed 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 E.O. 1024, 7 and
ordered released from the National Treasury to the Ministry of Energy. The same Executive Order
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also authorized the investment of the fund in government securities, with the earnings from such
placements accruing to the fund.
President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, 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.
Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion; 8 that to abate the worsening deficit, "the Energy Regulatory
Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum
products," and at the rate of recoupment, the OPSF deficit should have been fully covered in a span
of six (6) months, but this notwithstanding, the respondents Oscar Orbos, in his capacity as
Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in
his capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy
Regulatory Board "are poised to accept, process and pay claims not authorized under P.D. 1956." 9
The petition further avers that the creation of the trust fund violates 29(3), Article VI of the
Constitution, reading as follows:
(3) 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.
The petitioner argues that "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." 10 Petitioner further points out that 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." 11
He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI
of the Constitution, viz.:
(2) The Congress may, by law, authorize the President to fix, within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government;
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and, inasmuch as the delegation relates to the exercise of the power of taxation, " the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how to
tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how
much to tax." 12
The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general
fund for the reason that the Constitution so provides, 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 ofad valorem taxes and the increases thereon.
It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power
of the State. The Solicitor General observes that the "argument rests on the assumption that the
OPSF is a form of revenue measure drawing from a special tax to be expended for a special
purpose." 13 The petitioner's perceptions are, in the Court's view, not quite correct.
To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding inValmonte v. Energy Regulatory Board, et al. 14
The foregoing arguments suggest the presence of misconceptions about the nature and
functions of the OPSF. 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." 15 Under P.D. No. 1956, as amended by Executive Order No. 137 dated 27 February
1987, this Trust Account 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;
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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.
xxx xxx xxx
The fact that the world market prices of oil, measured by the spot market in Rotterdam, vary
from day to day is of judicial notice. Freight rates for hauling crude oil and petroleum
products from sources of supply to the Philippines may also vary from time to time. The
exchange rate of the pesovis-a-vis the U.S. dollar and other convertible foreign currencies
also changes from day to day. These fluctuations in world market prices and in tanker rates
and foreign exchange rates would in a completely free market translate into corresponding
adjustments in domestic prices of oil and petroleum products with sympathetic frequency.
But domestic prices which vary from day to day or even only from week to week would result
in a chaotic market with unpredictable effects upon the country's economy in general. The
OPSF was established precisely to protect local consumers from the adverse consequences
that such frequent oil price adjustments may have upon the economy. Thus, the OPSF serves
as a pocket, as it were, into which a portion of the purchase price of oil and petroleum
products paid by consumers as well as some tax revenues are inputted and from which
amounts are drawn from time to time to reimburse oil companies, when appropriate
situations arise, for increases in, as well as underrecovery of, costs of crude importation . The
OPSF is thus a buffer mechanism through which the domestic consumer prices of oil and
petroleum products are stabilized, instead of fluctuating every so often, and oil companies
are allowed to recover those portions of their costs which they would not otherwise recover
given the level of domestic prices existing at any given time. To the extent that some tax
revenues are also put into it, the OPSF is in effect a device through which the domestic prices
of petroleum products are subsidized in part. It appears to the Court that the establishment
and maintenance of the OPSF is well within that pervasive and non-waivable power and
responsibility of the government to secure the physical and economic survival and well-being
of the community, that comprehensive sovereign authority we designate as the police power
of the State. 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.
Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is
not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality
of the sugar stabilization fees and explained their nature and character, viz.:
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The stabilization fees collected are in the nature of a tax, which is within the power of
the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil.
148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied
with a regulatory purpose, to provide a means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State ( Lutz v.
Araneta, supra).
xxx xxx xxx
The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose that of "financing the growth and
development of the sugar industry and all its components, stabilization of the
domestic market including the foreign market." The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co.
263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied for
a special purpose, the revenues collected are to be treated as a special fund, to be, in
the language of the statute, "administered in trust" for the purpose intended. Once
the purpose has been fulfilled or abandoned, the balance if any, is to be transferred
to the general funds of the Government. That is the essence of the trust intended
(SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution, Article
VI, Sec. 23(1). 17
The character of the Stabilization Fund as a special kind of fund is emphasized by the
fact that the funds are deposited in the Philippine National Bank and not in the
Philippine Treasury, moneys from which may be paid out only in pursuance of an
appropriation made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the
1935 Constitution, Article VI, Sec. 23(1). (Emphasis supplied).
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." Indeed, the practice is not without precedent.
With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products
provides a sufficient standard by which the authority must be exercised. In addition to the general
policy of the law to protect the local consumer by stabilizing and subsidizing domestic pump rates,
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8(c) of P.D. 1956 18 expressly authorizes the ERB to impose additional amounts to augment the
resources of the Fund.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit
on how much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that
what is involved here is the power of taxation; but as already discussed, this is not the case. What is
here involved is not so much the power of taxation as police power. Although the provision
authorizing the ERB to impose additional amounts could be construed to refer to the power of
taxation, it cannot be overlooked that the overriding consideration is to enable the delegate to act
with expediency in carrying out the objectives of the law which are embraced by the police power of
the State.
The interplay and constant fluctuation of the various factors involved in the determination of the
price of oil and petroleum products, and the frequently shifting need to either augment or exhaust
the Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed
by the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or
avoid the undesirable consequences of such fluidity. As such, the standard as it is expressed, suffices
to guide the delegate in the exercise of the delegated power, taking account of the circumstances
under which it is to be exercised.
For a valid delegation of power, it is essential that the law delegating the power must be (1)
complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must
fix a standard limits of which are sufficiently determinate or determinable to which the
delegate must conform. 20
. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself
determines matters of principle and lays down fundamental policy. Otherwise, the
charge of complete abdication may be hard to repel. A standard thus defines
legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may be
carried out. Thereafter, the executive or administrative office designated may in
pursuance of the above guidelines promulgate supplemental rules and regulations.
The standard may either be express or implied. If the former, the non-delegation
objection is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act considered as
a whole. 21
It would seem that from the above-quoted ruling, the petition for prohibition should fail.
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The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable
standard which guides the exercise of the power granted to the ERB. By the same token, the proper
exercise of the delegated power may be tested with ease. 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.
"Where the standards set up for the guidance of an administrative officer and the action taken are in
fact recorded in the orders of such officer, so that Congress, the courts and the public are assured
that the orders in the judgment of such officer conform to the legislative standard, there is no failure
in the performance of the legislative functions." 22
This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund
are readily discernible, and they constitute a sufficient standard upon which the delegation of power
may be justified.
In relation to the third question respecting the illegality of the reimbursements to oil companies,
paid out of the Oil Price Stabilization Fund, because allegedly in contravention of 8, paragraph 2 (2)
of P.D. 1956, amended 23 the Court finds for the petitioner.
The petition assails the payment of certain items or accounts in favor of the petroleum companies
(i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.)
because not authorized by law. Petitioner contends that "these claims are not embraced in the
enumeration in 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of
domestic prices of petroleum products,'" 24 and since these items are reimbursements for which the
OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by
P5,277.2 million." 25 It is argued "that under the principle of ejusdem generis . . . the term 'other
factors' (as used in 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result in
the reduction of domestic prices of petroleum products." 26
The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines
of the rule of ejusdem generis would reduce (E.O. 137) to a meaningless provision."
This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed upon
the application of ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:
The rule of ejusdem generis states that "[w]here words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words
are not to be construed in their widest extent, but are held to be as applying only to
persons or things of the same kind or class as those specifically mentioned." 28 A
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reading of subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valorem taxes. Therefore,
subparagraph (iii) cannot be limited by the enumeration in these subparagraphs.
What should be considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly
allows the cost underrecovery only if such were incurred as a result of the reduction
of domestic prices of petroleum products.

The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2
of 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of domestic
prices of petroleum products. Under the same provision, however, the payment of inventory losses is
upheld as valid, being clearly a result of domestic price reduction, when oil companies incur a cost
underrecovery for yet unsold stocks of oil in inventory acquired at a higher price.
Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is
equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and
regulations as held in Caltex 29 and which have been pointed to by the Solicitor General. At any rate,
doubts about the propriety of such reimbursements have been dispelled by the enactment of R.A.
6952, establishing the Petroleum Price Standby Fund, 2 of which specifically authorizes the
reimbursement of "cost underrecovery incurred as a result of fuel oil sales to the National Power
Corporation."
Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been
presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort
to defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the
so-called overpayment refunds. To be sure, the absence of any argument for or against the validity
of the refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis upon which to
nullify the same.
Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered
moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels
below even those prayed for in the petition.
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.
No. L-29646. November 10, 1978.*
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MAYOR ANTONIO J. VILLEGAS, petitioner, vs. HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO
ARCA, respondents.
Local Governments; Taxation; A city ordinance of Manila which imposes a fee of P50.00 to enable
aliens generally to be employed in the City is a revenue measure.The contention that Ordinance
No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory in nature
has no merit. While it is true that the first part which requires that the alien shall secure an
employment permit from the Mayor involves the exercise of discretion and judgment in the
processing and approval or disapproval of applications for employment permits and therefore is
regulatory in character, the second part which requires the payment of P50.00 as employees fee is
not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens
who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise
money under the guise of regulation.
Same; The fee off P50.00 imposed by a city ordinance of Manila on aliens employment is
unreasonable because it failed to consider valid differences in situation among aliens required to pay
it.The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider
valid substantial differences in situation among individual aliens who are required to pay it. Although
the equal protection clause of the Constitution does not forbid classification, it is imperative that the
classification should be based on real and substantial differences having a reasonable relation to the
subject of the particular legislation. The same amount to P50.00 is being collected from every
employed alien, whether he is casual or permanent, part time or full time or whether he is a lowly
employee or a highly paid executive.
Same; A city ordinance which does not lay down any standard to guide the city mayor in the issuance
or denial of an alien employment permit fee is null and void.Ordinance No. 6537 does not lay
down any criterion or standard to guide the Mayor in the exercise of his discretion. It has been held
that where an ordinance of a municipality fails to state any policy or to set up any standard to guide
or limit the mayors action, expresses no purpose to be attained by requiring a permit, enumerates
no conditions for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor
arbitrary and unrestricted power to grant or deny the issuance of building permits, such ordinance is
invalid, being an undefined and unlimited delegation of power to allow or prevent an activity per se
lawful.
Same; Constitutional law; A city ordinance which requires aliens to secure a mayors permit before
they can earn a means of livelihood in the City of Manila is void and unconstitutional.Requiring a
person before he can be employed to get a permit from the City Mayor of Manila who may withhold
or refuse it at will is tantamount to denying him the basic right of the people in the Philippines to
engage in a means of livelihood. While it is true that the Philippines as a State is not obliged to admit
aliens within its territory, once an alien is admitted, he cannot be deprived of life without due process
of law. This guarantee includes the means of livelihood. The shelter of protection under the due
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process and equal protection clause is given to all persons, both aliens and citizens [Villegas vs. Hiu
Chiong Tsai Pao Ho, 86 SCRA 270(1978)]
FERNANDEZ, J.:
This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent Judge
Francisco Arca of the Court of First Instance of Manila, Branch I, in Civil Case No. 72797, the
dispositive portion of winch reads.
Wherefore, judgment is hereby rendered in favor of the petitioner and against the
respondents, declaring Ordinance No. 6 37 of the City of Manila null and void. The
preliminary injunction is made permanent. No pronouncement as to cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.
(SGD.) FRANCISCO ARCA
Judge 1
The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22,
1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. 2
City Ordinance No. 6537 is entitled:
AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE
PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE ENGAGED
IN ANY KIND OF TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA
WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT FROM THE MAYOR OF
MANILA; AND FOR OTHER PURPOSES. 3
Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or
participate in any position or occupation or business enumerated therein, whether permanent,
temporary or casual, without first securing an employment permit from the Mayor of Manila and
paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of
foreign countries, or in the technical assistance programs of both the Philippine Government and any
foreign government, and those working in their respective households, and members of religious
orders or congregations, sect or denomination, who are not paid monetarily or in kind.
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Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six
(6) months or fine of not less than P100.00 but not more than P200.00 or both such fine and
imprisonment, upon conviction.5
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a
petition with the Court of First Instance of Manila, Branch I, denominated as Civil Case No. 72797,
praying for the issuance of the writ of preliminary injunction and restraining order to stop the
enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance No. 6537 null
and void. 6
In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the
ordinance declared null and void:
1) As a revenue measure imposed on aliens employed in the City of Manila,
Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity in
taxation;
2) As a police power measure, it makes no distinction between useful and non-useful
occupations, imposing a fixed P50.00 employment permit, which is out of proportion
to the cost of registration and that it fails to prescribe any standard to guide and/or
limit the action of the Mayor, thus, violating the fundamental principle on illegal
delegation of legislative powers:
3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are
thus, deprived of their rights to life, liberty and property and therefore, violates the
due process and equal protection clauses of the Constitution. 7
On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17,
1968 rendered judgment declaring Ordinance No. 6537 null and void and making permanent the
writ of preliminary injunction. 8
Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the
present petition on March 27, 1969. Petitioner assigned the following as errors allegedly committed
by respondent Judge in the latter's decision of September 17,1968: 9
I
THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN
RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF
UNIFORMITY OF TAXATION.
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II
RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF LAW
IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST UNDUE
DESIGNATION OF LEGISLATIVE POWER.
III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF
LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND
EQUAL PROTECTION CLAUSES OF THE CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the
ground that it violated the rule on uniformity of taxation because the rule on uniformity of taxation
applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a tax or revenue
measure but is an exercise of the police power of the state, it being principally a regulatory measure
in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal
purpose is regulatory in nature has no merit. While it is true that the first part which requires that the
alien shall secure an employment permit from the Mayor involves the exercise of discretion and
judgment in the processing and approval or disapproval of applications for employment permits and
therefore is regulatory in character the second part which requires the payment of P50.00 as
employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting
P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the
ordinance is to raise money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid
substantial differences in situation among individual aliens who are required to pay it. Although the
equal protection clause of the Constitution does not forbid classification, it is imperative that the
classification should be based on real and substantial differences having a reasonable relation to the
subject of the particular legislation. The same amount of P50.00 is being collected from every
employed alien whether he is casual or permanent, part time or full time or whether he is a lowly
employee or a highly paid executive
Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise
of his discretion. It has been held that where an ordinance of a municipality fails to state any policy
or to set up any standard to guide or limit the mayor's action, expresses no purpose to be attained
by requiring a permit, enumerates no conditions for its grant or refusal, and entirely lacks standard,
thus conferring upon the Mayor arbitrary and unrestricted power to grant or deny the issuance of
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building permits, such ordinance is invalid, being an undefined and unlimited delegation of power to
allow or prevent an activity per se lawful. 10
In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a
government agency power to determine the allocation of wheat flour among importers, the Supreme
Court ruled against the interpretation of uncontrolled power as it vested in the administrative officer
an arbitrary discretion to be exercised without a policy, rule, or standard from which it can be
measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse
permits of all classes conferred upon the Mayor of Manila by the Revised Charter of Manila is not
uncontrolled discretion but legal discretion to be exercised within the limits of the law.
Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide
the mayor in the exercise of the power which has been granted to him by the ordinance.
The ordinance in question violates the due process of law and equal protection rule of the
Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of Manila who
may withhold or refuse it at will is tantamount to denying him the basic right of the people in the
Philippines to engage in a means of livelihood. While it is true that the Philippines as a State is not
obliged to admit aliens within its territory, once an alien is admitted, he cannot be deprived of life
without due process of law. This guarantee includes the means of livelihood. The shelter of
protection under the due process and equal protection clause is given to all persons, both aliens and
citizens. 13
The trial court did not commit the errors assigned.
WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.
G.R. No. L-34029
February 26, 1931
THE STANDARD OIL COMPANY OF NEW YORK, plaintiff-appellant,

vs.
JUAN POSADAS, Jr., Collector of Internal Revenue of the Philippine Islands, defendant-appellee.
This test case presents for decision the question of whether sales of merchandise made in the
Philippines to the United States Army and the United States Navy are subject to the sales tax. In the
lower court, the demurrer to the complaint was sustained, and the plaintiff having elected not to
amend its complaint, judgement was rendered upon the subject matter involved in the pleadings,
adjudging that the plaintiff take nothing by the action and defendant recover costs.
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The Standard Oil Company of New York is a foreign corporation duly authorized to do business in
the Philippines. During the period from October 1, 1929, to December 31, 1929, the Standard Oil
Company sold and delivered in the Philippines to the Quartermaster Department of the United
States Army, for the use of the Army, fuel oil and asphalt of the value of P6,832.84. The Collector of
Internal Revenue of the Philippine Government, acting under authority of section 1459 of the
Administrative Code and Act No. 3243 of the Philippine Legislature as ratified by the Congress of the
United States, demanded a tax of one and one-half per cent upon the value of the merchandise,
amounting to P102.49. During the identical period of time above-mentioned, the Standard Oil
Company likewise made delivery in the Philippines to the United States Navy, under a contract
executed in New York, United States, for the use of the Navy, of fuel oil of the value of P172,059.36,
which was paid in New York, and which contract provided that all internal revenue taxes and charges
under the laws of the Philippine Islands were to be assumed and paid by the United States Navy. The
Collector of Internal Revenue required payment of the sales tax upon the value of the fuel oil, in the
amount of P2,580.89. the Standard Oil Company paid the taxes assessed under protest and is now
suing to recover the corresponding refunds.
This court has recently decided the case entitled, Thirty First Infantry Post Exchange and First
Lieutenant David L. Hardee, Thirty-First Infantry, United States Army, plaintiffs, vs. Juan Posadas, Jr.,
Collector of Internal Revenue, Philippine Islands, defendant ([1930], 54 Phil., 866). There it was held
that a tax may be levied by the Government of the Philippine Islands on sales made by merchants to
Post Exchanges of the United States Army in the Philippines. It was ruled that the Acts of the
Philippine Legislature imposing the sales tax, which have been confirmed by Acts of Congress, form a
part of the Philippine Organic Law. That same principle would again apply to the facts before us.
However, it was indicated that the waiver must be clear and that every well-grounded doubt should
be resolved in favor of the exemption, citing Austin vs. Aldermen of Boston ([1869], 7 Wall., 694).
That principle would likewise govern here.
In the course of the decision in the Post Exchange case, the United States Army was mentioned, and
properly so, as an instrumentality of the United States Government. Regarding the correctness of this
proposition, there could, of course, be no real dispute. The United States Army and the United States
Navy derive their powers from the Constitution of the United States. The Congress of the United
States has created two agencies, or more correctly stated, three agencies to serve the United States
in the Philippine Islands. Two of these agencies are the United States Army and the United States
Navy, and the third is the Government of the Philippine Islands. The military establishment and the
civil government stand side by side but independent of each other in the Philippines. The tax
collected from the plaintiff by one of these agencies, the Philippine Government, is in reality a tax on
the United States Army and the United States Navy in other words, on the United States
Government for the consumer pays the tax as part of the purchase price. (Tan Te vs. Bell [1914], 27
Phil., 354; U. S. vs. Smith [1919], 39 Phil., 533.).
It would further appear perfectly clear that the principle which prohibits a State from taxing the
instrumentalities of the Federal Government applies with equal force to the Philippine Islands. At
least, that was our holding in the Post Exchange case. Nevertheless the Attorney-General persists in
assuming a difference in tax powers between the relations of the Philippine Government to the
National Government and of a State Government to the National Government. We are frank to say
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that we are unable to see eye to eye with the Attorney-General. It would be absurd to think that a
derivative sovereignty like the Government of the Philippine Islands, could tax the instrumentalities
of the very Government which brought it into existence. If a sovereign State of the American Union
cannot abridge or restrict the activities of the United States Government, much less can a creature of
that Government, as the Philippine Government is, do so. (Note the well-considered opinion of
Attorney-General Wickersham of June 8, 1912, appearing in 29 Opinions, Attorneys-General, United
States, 442.)
The case before us is readily distinguishable on the facts from the Post Exchange case. The theory of
the Post Exchange case was that a tax on sales, which ultimately passed on to the consumers,
individuals in the Army, was not a tax on the United States Government or with the operations of the
United States Army to such an extent or in such a manner as to render the tax illegal. There is no
such condition in this case. The goods which were claimed to be subject to tax are for the use of the
United States itself in its own operations in the Philippines.
The case at bar is more nearly analogous to the case of Panhandle Oil Co. vs. Knox ([1928], 277 U. S.,
218), than was the Post Exchange case. The Panhandle Oil case and the case at bar differ in that in
the Panhandle Oil case, the United States Supreme Court dealt with a State law that had never been
ratified by Congress, whereas there is now to be applied an Act of the Philippine Legislature which
had been ratified by Congress. On the other hand, the Panhandle Oil case at bar are similar in that
both concern privilege taxes the amount of which is measured by the amount of the sale; in that in
both cases the sales were made to instrumentalities of the Federal Government; and in that in both
cases, the party to suit was the merchant and not the United States Government or an agency within
the United States Army like a Post Exchange. Inasmuch, however, as the distinction between a State
law and an Act of a territorial legislature is no distinction at all, and inasmuch as the ratification by
Congress failed to grant any express waiver of the exemption in favor of the United States
Government, it would require more than ordinary ingenuity to avoid the consequences of the
decision of the United States Supreme Court in the Panhandle Oil Case.
Not long since, the District of Columbia endeavored to recover taxes on gasoline imported into the
District of Columbia by the American Oil Company, under a contract with the Secretary of the
Treasury, for use by the executive departments and governmental agencies. In both the Supreme
Court of the District of Columbia and the Court of Appeals, the seller was held not liable for the tax.
In the opinion of the appellate court, it was said: "While for convenience, the tax is levied upon the
importer, it is apparent that the tax is really to be paid by the consumer. . . . To sustain the contention
of appellant, it must clearly appear that the United States intended to tax itself. See Dollar Savings
Bank vs. United States, 19 Wall., 227; 22 L. ed., 80." (District of Columbia vs. American Oil Co. [1930],
39 Fed. 2nd., 510.).
The Asiatic Petroleum Company began suit in the Court of Claims against the United States for the
recovery of more than $100,000 due on the purchase price of fuel oil sold by the company for the
use of the Navy. The defendant admitted the claim but interposed a counterclaim for the same
amount, alleged to be due and owing to the Philippine Government as customs duties on oil under
this contract. In the Philippines the Tariff Act in force was the Act of Congress of August 5, 1909,
which was silent on the question. It was the holding of the Court of Claims that this Act of Congress
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did not require the United States to pay duty on oil owned by it and imported into the Philippine
Islands for use in the Military or Naval Establishments. The court said: "The purpose of the statute
providing for customs duties on importations into the Philippine Islands was to provide revenue for
the use of the Philippine Government, for the protection, and partial support of which the United
States held itself responsible. It is inconceivable that Congress in the enactment of the said statute
should have intended that the United States would be required to pay duty on its own oil imported
into the Philippine Islands, for its own use, in supplying its Navy vessels used in the protection of the
Philippine Government, as well as for the maintenance of its own Military and Naval Establishments
in the national defense." (Asiatic Petroleum Co. vs. U. S. [1928],65 Ct. of Cl. Rep., 100.).
We sustain the first, second, third, and fifth errors assigned, going to the proposition that the lower
court erred in not deciding that sales made in the Philippines to the United States Army and the
United States Navy are made to instrumentalities of the United States Government, and, therefore,
are not subject to tax by the Philippine Government. This holding makes unnecessary any reference
to the fourth error assigned, relating to the additional question having to do with the contract with
the United States Navy, and to the point that this question was not mentioned in the protest filed
with the Bureau of Internal Revenue and so may not be raised on appeal. It is sufficient to state that,
in our opinion, the assessment and collection by the Philippine Government of the tax on sales of
merchandise made in the Philippines to the United States Army and the United States Navy is illegal.
Judgment reversed, and the record ordered returned to the court of origin for further proceedings,
without express finding as to costs in either instance.
G.R. No. L-18125
May 31, 1963
BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA, petitioner,

vs.
COURT OF TAX APPEALS and THE NATIONAL WATERWORKS AND SEWERAGE AUTHORITY
(NAWASA),respondents.
This is a petition for review of a decision of the Court of Tax Appeals reversing a resolution or
decision of the Board of Assessment Appeals for the Province of Laguna.
The question involved in this case is whether the water pipes, reservoir, intake and buildings used by
herein respondent, National Waterworks and Sewerage Authority hereinafter referred to as
NAWASA in the operation of its waterworks system in the municipalities of Cabuyao, Sta. Rosa
and Bian, province of Laguna, are subject to real estate tax.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of facts.
The parties have submitted in the Court of Tax Appeals a stipulation of facts. The pertinent parts
thereof are to the effect:
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1. That the petitioner National Waterworks and Sewerage Authority (NWSA) 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:.
2. That, pursuant to the provisions of Republic Act No. 1383, petitioner NWSA took over all
the property of the former Metropolitan Water District and all the existing local governmentowned waterworks and sewerage systems all over the Philippines, including the Cabuyao-Sta.
Rosa-Bian Waterworks System owned by the Province of Laguna (Section 8, Republic Act
No. 1283);
3. That the functions and activities of petitioner NWSA, as enumerated in Republic Act No.
1383, more particularly Section 2 thereof, are the same and identical with the functions of the
defunct Metropolitan Water District, particularly Section 2, Act 2832, is amended;
4. That petitioner National Waterworks and Sewerage Authority (NWSA) 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;
5. That at the time that the Cabuyao-Sta. Rosa-Bian Waterworks System was taken over by
petitioner NWSA in 1956, the former was self-supporting and revenue-producing, but that all
its surplus income are not declared as profits as this surplus are or may be invested for the
expansion thereof;
6. That in the year 1956 the Provincial Assessor of Laguna assessed, for purposes of real
estate taxes, the property comprising the Cabuyao-Sta. Rosa-Bian Waterworks System and
described in Tax Declaration No. 5987 (Exh. "A-l") which, as stated in Paragraph 2 hereof,
herein petitioner NWSA had taken over;
7. That against the above-mentioned assessment made by the Provincial Assessor of Laguna,
petitioner NWSA protested, claiming that the property described under Tax Declaration No.
5987 (Exh. "A-l") are exempted from the payment of real estate taxes in view of the nature
and kind of said property and functions and activities of petitioner, as provided in Republic
Act No. 1383;.
8. That the said protest of petitioner NWSA was overruled on appeal before the herein
respondent Board of Assessment Appeals, hence the present petition for review filed by
petitioner;
xxx
xxx
xxx"
After appropriate proceedings, the Court of Tax Appeals rendered the aforementioned decision
reversing the action taken by petitioner Board, which, accordingly, has brought the case to us for
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review, under the provisions of Republic Act No. 1125, 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 Republic 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, according to petitioner appellant.
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. . . .
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 the above provision. This notwithstanding, petitioner Board maintains
that respondent NAWASA is not entitled to the benefits of the exemption established in said section
3(a), inasmuch as, in the case of the City of Cebu vs. NAWASA, G. R. No. L-12892, decided on April
30, 1960, we ruled that the assets of the water system of the City of Cebu, which the NAWASA had
sought to take over, pursuant to the provisions of Republic Act No. 1383 as it did in the case at
bar, with respect to the Cabuyao-Sta. Rosa-Bian Waterworks System 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, G. R. No. L12032, decided on August 31, 1959, 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.
Upon the other hand, 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
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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 (Cooley on Taxation, Sec. 621, 4th Edition.) 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. (The Law on Local
Taxation, by Justiniano Y. Castillo, p. 13.)
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.
This provision 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.
WHEREFORE, the decision appealed from is hereby affirmed, without special pronouncement as to
costs. It is so ordered.
G.R. No. 51593 November 5, 1992
NATIONAL DEVELOPMENT COMPANY, plaintiff-appellee,
vs.
CEBU CITY and AUGUSTO PACIS as Treasurer of Cebu City, defendant-appellants.
Is a public land reserved by the President for warehousing purposes in favor of a government-owned
or controlled corporation, 1 as well as the warehouse subsequently erected thereon, exempt from
real property tax?
Petitioner National Development Company (NDC), a government-owned or controlled corporation
(GOCC) existing by virtue of C.A. 182 2 and E.O. 399, 3 is authorized to engage in commercial,
industrial, mining, agricultural and other enterprises necessary or contributory to economic
development or important to public interest. It also operates, in furtherance of its objectives,
subsidiary corporations one of which is the now defucnt National Warehousing Corporation (NWC). 4
On August 10, 1939, the President issued Proclamation No. 430 5 reserving Block no. 4, Reclamation
Area No. 4, of Cebu City, consisting of 4,599 square meters, for warehousing purposes under the
administration of NWC. 6Subsequently, in 1940, a warehouse with a floor area of 1,940 square meters
more or less, was constructed thereon. 7
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On October 4, 1947, E.O. 93 dissolved NWC 8 with NDC taking over its assets and functions. 9
Commencing 1948, Cebu City (CEBU) assessed and collected from NDC real estate taxes on the land
and the warehouse thereon. 10 By the first quarter of 1970, a total of P100,316.31 was paid by
NDC 11 of which only P3,895.06 was under protest. 12
On 20 March 1970, NDC wrote the City Assessor demanding full refund of the real estate taxes paid
to CEBU claiming that the land and the warehouse standing thereon belonged to the Republic and
therefore exempt from taxation. 13 CEBU did not acquiesce in the demand, hence, the present suit
filed 25 October 1972 in the Court of First Instance of Manila.
On 29 May 1973, the Court of First Instance of Manila, Branch XXII, promulgated a decision 14 the
dispositive portion of which reads
WHEREFORE, judgment is hereby rendered sentencing the City of Cebu, thru the
Treasurer of said City, to refund to the plaintiff, National Development Company, the
real estate taxes paid by it for the parcel of land covered by Presidential Proclamation
No. 430 of August 10, 1939, and the warehouse erected thereon from and after
October 25, 1966, with interests thereon at the legal rate from the date of the filing of
the complaint and the costs of the suit.
The defendants appealed to the Court of Appeals which however certified the case to Us as one
involving pure questions of law, pursuant to Sec. 17, R.A. 296.
In this appeal, CEBU assigns five (5) errors 15 imputed to the trial court which may be synopsized into
whether NDC is exempted from payment of the real estate taxes on the land reserved by the
President for warehousing purposes as well as the warehouse constructed thereon, and in the
affirmative, whether NDC may recover in refund unprotested real estate taxes it paid from 1948 to
1970.
On the first question, CEBU insists on taxability of the subject properties, claiming that no law grants
NDC exemption from real estate taxes, and that NDC, as recipient of the land reserved by the
President pursuant to Sec. 83 of the Public Land Act, 16 is liable for payment or ordinary (real estate)
taxes under Sec. 115 therefore. CEBU contends that the properties have ceased to be tax exempt
under the Assessment Law. 17 when the government disposed of them in favor of NDC, and even
assuming that title to the land remains with the government (ownership being the basis for real
estate taxability under the Assessment Law), the Supreme Court rulings establish increasing rather
than "ownership" as basis for real estate tax liability.
On the other hand, NDC maintains the Sec. 3 of the Assessment Law, which exempts properties
owned by the Republic from real estate tax, includes subject properties in the exemption. It invokes
the ruling in Board of Assessment Appeals vs. CTA & NWSA 18 which held that properties of NWSA, a
GOCC, were exempt from real estate tax because Sec. 3 of the Assessment Law applied to all
government properties whether held in governmental or proprietary capacity. NDC rejects the
applicability of Sec. 115 of the Public Land Act to the subject land, claiming that provision
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contemplates dispositions of public land with eventual transfer of title. In addition, NDC believes that
it is neither a grantee of a public land nor an applicant within the purview of the same provision.
As already adverted to, one of the principal issues before Us is the interpretation of a provision of
the Assessment Law, the precursor of the then Real Property Tax Code and the Local Government
Code, where "ownership" of the property and not "use" is the test of tax liability. 19
Section, 3 par. (a), of the Assessment Law, on which NDC claims real estate tax exemption, provides
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 at municipal district . . .
The same opinion of NDC was passed upon in National Development Co. v. Province of Nueva
Ecija 20 where We held that its properties were not comprehended in Sec. 3, par (a), of the
Assessment Law. In part, We stated:
1. Commonwealth Act No. 182 which created NDC contains no provision exempting
it from the payment of real estate tax on properties it may acquire . . . There is
justification in the contention of plaintiff-appellee that . . . [I]t is undeniable that to
any municipality the principal source of revenue with which it would defray its
operation will came from real property taxes. If the National Development Company
would be exempt from paying real property taxes over these properties, the town of
Gabaldon will bee deprived of much needed revenues with which it will maintain
itself and finance the compelling needs of its inhabitants (p. 6, Brief of PlaintiffAppellee).
2. Defendant-appellant NDC does not come under classification of municipal or
public corporation in the sense that it may sue and be sued in the same manner as
any other private corporations, and in this sense, it is an entity different from the
government, defendant corporation may be sued without its consent, and is subject
to taxation. In the case NDC vs. Jose Yulo Tobias, 7 SCRA 692, it was held that . . .
plaintiff is neither the Government of the Republic nor a branch or subdivision
thereof, but a government owned and controlled corporation which cannot be said
to exercise a sovereign function (Association Cooperativa de Credito Agricola de
Miagao vs. Monteclaro, 74 Phil. 281). it is a business corporation, and as such, its
causes of action are subject to the statute of limitations. . . . That plaintiff herein does
not exercise sovereign powers and, hence, cannot invoke the exemptions thereof
but is an agency for the performance of purely corporate, proprietary or business
functions, is apparent from its Organic Act (Commonwealth Act 182, as amended by
Commonwealth Act 311) pursuant to Section 3 of which it "shall be subject to the
provisions of the Corporation Law insofar as they are not inconsistent" with the
provisions of said Commonwealth Act, "and shall have the general powers mentioned
in said" Corporation Law, and, hence, "may engage in commercial, industrial, mining,
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agricultural, and other enterprises which may be necessary or contributory to the

economic development of the country, or important in the public interest," as well as
"acquire, hold, mortgage and alienate personal and real property in the Philippines or
elsewhere; . . . make contracts of any kind and description", and "perform any and all
acts which a corporation or natural persons is authorized to perform under the laws
now existing or which may be enacted hereafter."
We find no compelling reason why the foregoing ruling, although referring to lands which would
eventually be transferred to private individuals, should not apply equally to this case.
NDC cites Board of Assessment Appeals, Province of Laguna v. Court of Tax Appeal and National
Waterworks and Sewerage Authority (NWSA). In that case, We held that properties of NWSA, a
GOCC, were exempt from real estate tax because Sec. 3, par (c), of R.A. 470 did not distinguish
between those possessed by the government in sovereign/governmental/political capacity and those
in private/proprietary/patrimonial character.
The conflict between NDC v. Nueva Ecija, supra, and BAA v. CTA and NWSA, supra, is more superficial
than real. The NDC decision speaks of properties owned by NDC, while the BAA ruling concerns
properties belonging to the Republic. The latter case appears to be exceptional because the parties
therein stipulated
1. That the petitioner 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(Emphasis supplied).
There, the Court observed: "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 letter of the above provision."
In the case at bar, no similar statement appears in the stipulation of facts, hence, ownership of
subject properties should first be established. For, while it may be stated that the Republic owns
NDC, it does not necessary follow that properties owned by NDC, are also owned by Republic in
the same way that stockholders are not ipso facto owners of the properties of their corporation.
The Republic, like any individual, may form a corporation with personality and existence distinct from
its own. The separate personality allows a GOCC to hold and possess properties in its own name and,
thus, permit greater independence and flexibility in its operations. It may, therefore, be stated that
tax exemption of property owned by the Republic of the Philippines "refers to properties owned by
the Government and by its agencies which do not have separate and distinct personalities
(unincorporated entities). We find the separate opinion of Justice Bautista-Angelo in Gonzales
v. Hechanova, et al., 21 appropriate and enlightening
. . . The Government of the Republic of the Philippines under the Revised
Administrative Code refers to that entity through which the functions of government
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are exercised, including the various arms through which political authority is made
effective whether they be provincial, municipal or other form of local government,
whereas a government instrumentality refers to corporations owned or controlled by
the government to promote certain aspects of the economic life of our people. A
government agency therefore, must necessarily after refer to the government itself to
the Republic, as distinguished from any government instrumentality which has a
personality distinct and separate from it (Section 2).
The foregoing discussion does not mean that because NDC, like most GOCC's engages in
commercial enterprises all properties of the government and its unincorporated agencies possessed
in propriety character are taxable. Similarly, in the case at bar, NDC proceeded on the premise that
the BAA ruling declared all properties owed by GOCC's as properties in the name of the Republic,
hence, exempt under Sec. 3 of the Assessment Law. 22
To come within the ambit of the exemption provided in Art. 3, par. (a), of the Assessment Law, it is
important to establish that the property is owned by the government or its unincorporated agency,
and once government ownership is determined, the nature of the use of the property, whether for
proprietary or sovereign purposes, becomes immaterial. What appears to have been ceded to NWC
(later transferred to NDC), in the case before Us, is merely the administration of the property while
the government retains ownership of what has been declared reserved for warehousing purposes
under Proclamation No. 430.
Incidentally, the parties never raised the issued the issue of ownership from the court a quo to this
Court.
A reserved land is defined as a "[p]ublic land that has been withheld or kept back from sale or
disposition." 23 The land remains "absolute property of the government." 24 The government "does
not part with its title by reserving them (lands), but simply gives notice to all the world that it desires
them for a certain purpose." 25 Absolute disposition of land is not implied from reservation; 26 it
merely means "a withdrawal of a specified portion of the public domain from disposal under the land
laws and the appropriation thereof, for the time being, to some particular use or purpose of the
general government." 27 As its title remains with the Republic, the reserved land is clearly recovered
by the tax exemption provision.
CEBU nevertheless contends that the reservation of the property in favor of NWC or NDC is a form of
disposition of public land which, subjects the recipient (NDC ) to real estate taxation under Sec. 115
of the Public Land Act. as amended by R.A. 436, 28 which estate:
Sec 115. All lands granted by virtue of this Act, including homesteads upon which
final proof has not been made or approved shall, even though and while the title
remains in the State, be subject to the ordinary taxes, which shall be paid by the
grantee or the applicant, beginning with the year next following the one in which the
homestead application has been filed, or the concession has been approved, or the
contract has been signed, as the case may be, on the basis of the value fixed in such
filing, approval or signing of the application, concession or contract.
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The essential question then is whether lands reserved pursuant to Sec. 83 are comprehended in Sec.
115 and, therefore, taxable.
Section 115 of the Public Land Act should be treated as an exception to Art. 3, par. (a), of the
Assessment Law. While ordinary public lands are tax exempt because title thereto belongs to the
Republic, Sec. 115 subjects them to real estate tax even before ownership thereto is transferred in
the name of the beneficiaries. Sec. 115 comprehends three (3) modes of disposition of Lands under
the Public Land Act, to wit: homestead, concession, and contract.
Liability to real property taxes under Sec. 115 is predicated on (a) filing of homestead application,
(b) approval of concession and, (c) signing of contract. Significantly, without these words, the date of
the accrual of the real estate tax would be indeterminate. Since NDC is not a homesteader and no
"contract" (bilateral agreement) was signed, it would appear, then, that reservation under Sec. 83,
being a unilateral act of the President, falls under "concession".
"Concession" as a technical term under the Public Land Act is synonymous with "alienation" and
"disposition", and is defined in Sec. 10 as "any of the methods authorized by this Act for the
acquisition, lease, use, or benefit of the lands of the public domain other than timber or mineral
lands." Logically, where Sec. 115 contemplates authorized methods for acquisition, lease, use, or
benefit under the Act, the taxability of the land would depend on whether reservation under Sec. 83
is one such method of acquisition, etc. Tersely put, is reservation synonymous with alienation? Or,
are the two terms antithetical and mutually exclusive? Indeed, reservation connotes retention, while
concession (alienation) signifies cession.
Section 8 and 88 of the Public Land Act provide that reserved lands are excluded from that may be
subject of disposition, to wit
Sec. 8. Only those lands shall be declared open to disposition or concession which
have been officially delimited and classified and, when practicable, surveyed,
and which have not been reservedfor public or quasi-public uses, nor appropriated
by the Government, nor in any manner become private property , nor those on which
a private right authorized and recognized by this Act or any valid law may be
claimed, or which, having been reserved or appropriated, have ceased to be so.
Sec. 88. The tract or tracts of land reserved under the provisions of section eightythree shall be non-alienable and shall not be subject to occupation, entry, sale, lease,
or other disposition until again declared alienable under the provisions of this Act or
by proclamation of the President (Emphasis supplied)
As We view it, the effect of reservation under Sec. 83 is to segregate a piece of public land and
transform it into non-alienable or non-disposable under the Public Land Act. Section 115, on the
other hand, applies to disposable public lands. Clearly, therefore, Sec. 115 does not apply to lands
reserved under Sec. 83. Consequently, the subject reserved public land remains tax exempt.
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However, as regards the warehouse constructed on a public reservation, a different rule should apply
because "[t]he exemption of public property from taxation does not extend to improvements on the
public lands made by pre-emptioners, homesteaders and other claimants, or occupants, at their own
expense, and these are taxable by the state . . ." 29 Consequently, the warehouse constructed on the
reserved land by NWC (now under administration by NDC), indeed, should properly be assessed real
estate tax as such improvement does not appear to belong to the Republic.
Since the reservation is exempt from realty tax, the erroneous tax payments collected by CEBU
should be refunded to NDC. This is in consonance with Sec. 40, par. (a) of the former Real Property
Tax Code which exempted from taxation real property owned by the Republic of the Philippines or
any of its political subdivisions, as well as any GOCC so exempt by its charter. 30
As regards the requirement of paying under protest before judicial recourse, CEBU argues that in any
case NDC is not entitled to refund because Sec. 75 of R.A. 3857, the Revised Charter of the City of
Cebu, 31 requires paymentunder protest before resorting to judicial action for tax refund; that it could
not have acted on the first demand letter of NDC of 20 May 1970 because it was sent to the City
Assessor and not to the City Treasurer; that, consequently, there having been no appropriate prior
demand, resort to judicial remedy is premature; and, that even on the premise that there was proper
demand, NDC has yet to exhaust administrative remedies by way of appeal to the Department of
Finance and/or Auditor General before taking judicial action.
NDC does not agree. It disputes the applicability of the payment-under-protest requirement is Sec.
75 of the Revised Cebu City Charter because the issue is not the validity of tax assessment but
recovery of erroneous payments under Arts. 2154 and 2155 of the Civil Code. 32 It cites the case
of East Asiatic Co., Ltd. v. City of Davao 33which held that where the tax is unauthorized, "it is not a
tax assessed under the charter of the appellant City of Davao and for that reason no protest is
necessary for a claim or demand for its refund." In Ramie Textiles, Inc. vs. Mathay, Sr.,34 We held
. . . Protest is not a requirement in order that a taxpayer who paid under a mistaken
belief that it is required by law, may claim for a refund. Section 54 35 of
Commonwealth Act No. 470 does not apply to petitioner which could conceivably
not have been expected to protest a payment it honestly believed to be due. The
same refers only to the case where the taxpayer, despite his knowledge of the
erroneous or illegal assessment, still pays and fails to make the proper protest, for in
such case, he should manifest an unwillingness to pay, and failing so, the taxpayer is
deemed to have waved his right to claim a refund.
In the case at bar, petitioner, therefore, cannot be said to have waived his right. He
had no knowledge of the fact that it was exempted from payment of the realty tax
under Commonwealth Act No. 470. Payment was made through error or mistake, in
the honest belief that petitioner was liable, and therefore could not have been made
under protest, but with complete voluntariness. In any case, a taxpayer should not be
held to suffer loss by his good intention to comply with what he believes is his legal
obligation, where such obligation does not really exist . . . The fact that petitioner
paid thru error or mistake, and the government accepted the payment, gave rise to
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the application of the principle of solutio indebiti under Article 2154 of the New Civil
Code, which provides that "if something is received when there is no right to demand
it, and it was unduly delivered through mistake, the obligation to return it arises."
There is, therefore, created a tie or juridical relation in the nature of solutio
indebiti, expressly classified as quasi-contract under Section 2, Chapter I of Title XVII
of the New Civil code.
The quasi-contract of solutio indebiti is one of the concrete manifestations of the
ancient principle that no one shall enrich himself unjustly at the expense of another . .
. Hence, it would seem unedifying for the government, that knowing it has no right at
all to collect or to receive money for alleged taxes paid by mistake, it would be
reluctant to return the same . . . Petitioner is not unsatisfied in the assessment of its
property. Assessment having been made, it paid the real estate taxes without
knowing that it is exempt.
As regards the claim for refund of tax payments spanning more than twenty (20) years, We also said
in Ramie Textiles that
Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio
indebiti, the claim for refund must be commenced within six (6) years from date of
payment pursuant to Article 1145 (2) of the New Civil Code 36 . . .
We sustain the appellate court to the extent that its decision covers improperly collected taxes on
the reserved land under Proclamation No. 430, thus
The defense of prescription invoked by the defendant which counsel for the plaintiff,
however, did not answer in its memorandum, is partly well-taken. Actions for refund
of taxes illegally collected must be commenced within six (6) years from the date of
collection. . . . .
The stipulation of facts and the pleadings filed by the parties do not contain data
specifying when and how much were paid by the year, of the taxes sought to be
refunded. Accordingly, the Court has no other alternative but to order the refund of
an undetermined amount based, however, on the date of payment counted six (6)
years backward from October 25, 1972, when the complaint in this case was filed. 37
As regards exhaustion of administrative remedies, We agree with the trial court that the case
constitutes an exception to the rule, as it involves purely question of law. 38 Specifically, on the
requirement of appeal to the Secretary of Finance, We further held in the same Ramie Textiles that
"[E]qually not applicable is Section 17 of Commonwealth Act No. 470 39 cited by respondent in
relation to the right of a, property owner to contest the validity of assessment . . ."
Respondent CEBU likewise invites Our attention to the availability of appeal to the Government
Auditing Office although no authority is cited to Us. We do not find any either to sustain the
procedure.
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WHEREFORE, finding that National Development Company (NDC) is exempt from real estate tax on
the reserved land but liable for the warehouse erected thereon, the decision appealed from is
accordingly MODIFIED. Consequently, let this case be remanded to the court of origin, now the
Regional Trial Court of Manila, to determine the proper liability of NDC, particularly on its warehouse,
and effect the corresponding refund, payment or set-off, as the case may be, conformably with this
decision. No costs.
No. L-21841. October 28, 1966.
ESSO STANDARD EASTERN, INC., petitioner-appellant, vs. ACTING COMMISSIONER OF CUSTOMS,
respondent-appellee.
Statutory construction; Taxation; Tax exemption is not favored.Section 6, of Republic Act 1394
provides that, to be tax exempt, equipment and spare parts should be "for the use of industries":
Where the imported pump parts are not used in petitioner's industry of processing gasoline or
manufacturing lubricating oil, grease and tin containers, but by lessees of gasoline stations, said
pump parts are not exempted from tax. Exemption from taxation is not favored. Exemptions in tax
statutes are never presumed. Exceptions from taxation are. construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. Thus, the tax exemption for manufacturing
asbestos roofing does not extend to the installation thereof (Collector of Internal Revenue vs. Eternit
Corporation, 57 O.G. 1043). [Esso Standard Eastern, Inc. vs. Acting Commissioner of Customs, 18
SCRA 488(1966)]
SANCHEZ, J.:
Claim for the refund of P722.84 paid in 1956 as special import tax on pump parts imported by
petitioner. Petitioner's ground: The imported articles "consist of equipment and spare parts for its
own exclusive use and therefore were exempt from special import tax", by the terms of Section 6,
Republic Act 1394.1 The Collector of Customs of Manila rejected the claim. Respondent Acting
Commissioner of Customs, on appeal, affirmed the rejection. Petitioner's case suffered the same fate
in the Court of Tax Appeals.2 We are asked to review the Court on Tax Appeals' judgment.
The interrelated errors assigned in petitioner's brief funnel down to one controlling legal issue: Are
the imported pump parts exempt from the payment of special import tax?
By Section 1 of Republic Act 1394, a special import tax is imposed "on all goods, articles or products
imported or brought into the Philippines" during the period from 1956 up to and including 1965 in
accordance with the schedule of rates therein provided. Exempt from this tax, by express mandate of
Section 6 of the same law,inter alia, are "machinery, equipment, accessories, and spare parts, for the
use of industries, miners, mining enterprises, planters and farmers".
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Petitioner is engaged in the industry of processing gasoline, and manufacturing lubricating oil,
grease and tin containers. Petitioner owns gasoline stations with pumps, which are leased to and
operated by gasoline dealers. It sells gasoline to these dealers. The pump parts imported by
petitioner in 1956 were intended, installed and actually used by gasoline dealers in pumping gasoline
from under around tanks into customers' motor vehicles. These pump parts, in other words, are used
in the sale at retail of gasoline not by petitioner but by lessees of gasoline stations. In this factual
environment, it is quite evident that the pump parts are not used in petitioner'sindustry of
processing gasoline, or manufacturing lubricating oil, grease and tin containers.
The drive of petitioner's argument is that marketing of its gasoline product "is corollary to or
incidental to its industrial operations."3 But this contention runs smack against the familiar rules that
exemption from taxation is not favored,4 and that exemptions in tax statutes are never
presumed.5 Which are but statements in adherence to the ancient rule that exemptions from taxation
are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority.6 Tested by this precept, we cannot indulge in expansive construction and write into the law
an exemption not therein set forth. Rather, we go by the reasonable assumption that where the State
has granted in express terms certain exemptions, those are the exemptions to be considered, and no
more. Since the law states that, to be tax exempt, equipment and spare parts should be "for the use
of industries", the coverage herein should not be enlarged to include equipment and spare parts for
use in dispensing gasoline at retail. In comparable factual backdrop, this Court has held that tax
exemption in connection with the manufacture of asbestos roof does not extend to the installation
thereof.7
Upon the facts and the law, we vote to affirm the decision of the Court of Tax Appeals under review.
Costs against petitioner. So ordered.
G.R. No. 166494
June 29, 2007
CARLOS SUPERDRUG CORP., doing business under the name and style "Carlos Superdrug," ELSIE M.
CANO, doing business under the name and style "Advance Drug," Dr. SIMPLICIO L. YAP, JR., doing
business under the name and style "City Pharmacy," MELVIN S. DELA SERNA, doing business under
the name and style "Botica dela Serna," and LEYTE SERV-WELL CORP., doing business under the
name and style "Leyte Serv-Well Drugstore," petitioners,
vs.
DEPARTMENT OF SOCIAL WELFARE and DEVELOPMENT (DSWD), DEPARTMENT OF HEALTH (DOH),
DEPARTMENT OF FINANCE (DOF), DEPARTMENT OF JUSTICE (DOJ), and DEPARTMENT OF INTERIOR
and LOCAL GOVERNMENT (DILG), respondents.
This is a petition1 for Prohibition with Prayer for Preliminary Injunction assailing the constitutionality
of Section 4(a) of Republic Act (R.A.) No. 9257,2 otherwise known as the "Expanded Senior Citizens
Act of 2003."
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Petitioners are domestic corporations and proprietors operating drugstores in the Philippines.
Public respondents, on the other hand, include the Department of Social Welfare and Development
(DSWD), the Department of Health (DOH), the Department of Finance (DOF), the Department of
Justice (DOJ), and the Department of Interior and Local Government (DILG) which have been
specifically tasked to monitor the drugstores compliance with the law; promulgate the implementing
rules and regulations for the effective implementation of the law; and prosecute and revoke the
licenses of erring drugstore establishments.
The antecedents are as follows:
On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432,3 was signed into law by President
Gloria Macapagal-Arroyo and it became effective on March 21, 2004. Section 4(a) of the Act states:
SEC. 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of
services in hotels and similar lodging establishments, restaurants and recreation centers, and
purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens,
including funeral and burial services for the death of senior citizens;
...
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based
on the net cost of the goods sold or services rendered: Provided, That the cost of the discount shall
be allowed as deduction from gross income for the same taxable year that the discount is
granted. Provided, further, That the total amount of the claimed tax deduction net of value added tax
if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to
proper documentation and to the provisions of the National Internal Revenue Code, as amended.4
On May 28, 2004, the DSWD approved and adopted the Implementing Rules and Regulations of R.A.
No. 9257, Rule VI, Article 8 of which states:
Article 8. Tax Deduction of Establishments. The establishment may claim the discounts granted
under Rule V, Section 4 Discounts for Establishments;5 Section 9, Medical and Dental Services in
Private Facilities[,]6 and Sections 107 and 118 Air, Sea and Land Transportation as tax deduction
based on the net cost of the goods sold or services rendered. Provided, That the cost of the discount
shall be allowed as deduction from gross income for the same taxable year that the discount is
granted; Provided, further, That the total amount of the claimed tax deduction net of value added tax
if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to
proper documentation and to the provisions of the National Internal Revenue Code, as amended;
Provided, finally, that the implementation of the tax deduction shall be subject to the Revenue
Regulations to be issued by the Bureau of Internal Revenue (BIR) and approved by the Department
of Finance (DOF).9
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On July 10, 2004, in reference to the query of the Drug Stores Association of the Philippines (DSAP)
concerning the meaning of a tax deduction under the Expanded Senior Citizens Act, the DOF,
through Director IV Ma. Lourdes B. Recente, clarified as follows:
1) The difference between the Tax Credit (under the Old Senior Citizens Act) and Tax Deduction
(under the Expanded Senior Citizens Act).
1.1. The provision of Section 4 of R.A. No. 7432 (the old Senior Citizens Act) grants twenty percent
(20%) discount from all establishments relative to the utilization of transportation services, hotels and
similar lodging establishment, restaurants and recreation centers and purchase of medicines
anywhere in the country, the costs of which may be claimed by the private establishments concerned
as tax credit.
Effectively, a tax credit is a peso-for-peso deduction from a taxpayers 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.
It must be noted, however, that conceptually, a tax credit scheme under the Philippine tax system,
necessitates that prior payments of taxes have been made and the taxpayer is attempting to recover
this tax payment from his/her income tax due. The tax credit scheme under R.A. No. 7432 is,
therefore, inapplicable since no tax payments have previously occurred.
1.2. The provision under R.A. No. 9257, on the other hand, provides that the establishment
concerned may claim the discounts under Section 4(a), (f), (g) and (h) as tax deduction from gross
income, based on the net cost of goods sold or services rendered.
Under this scheme, the establishment concerned is allowed to deduct from gross income, in
computing for its tax liability, the amount of discounts granted to senior citizens. Effectively, the
government loses in terms of foregone revenues an amount equivalent to the marginal tax rate the
said establishment is liable to pay the government. This will be an amount equivalent to 32% of the
twenty percent (20%) discounts so granted. The establishment shoulders the remaining portion of
the granted discounts.
It may be necessary to note that while the burden on [the] government is slightly diminished in
terms of its percentage share on the discounts granted to senior citizens, the number of potential
establishments that may claim tax deductions, have however, been broadened. Aside from the
establishments that may claim tax credits under the old law, more establishments were added under
the new law such as: establishments providing medical and dental services, diagnostic and laboratory
services, including professional fees of attending doctors in all private hospitals and medical facilities,
operators of domestic air and sea transport services, public railways and skyways and bus transport
services.
A simple illustration might help amplify the points discussed above, as follows:
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Tax Deduction Tax Credit

Gross Sales x x x x x x x x x x x x
Less : Cost of goods sold x x x x x x x x x x
Net Sales x x x x x x x x x x x x
Less: Operating Expenses:
Tax Deduction on Discounts x x x x -Other deductions: x x x x x x x x
Net Taxable Income x x x x x x x x x x
Tax Due x x x x x x
Less: Tax Credit -- ______x x
Net Tax Due -- x x
As shown above, under a tax deduction scheme, the tax deduction on discounts was subtracted from
Net Sales together with other deductions which are considered as operating expenses before the Tax
Due was computed based on the Net Taxable Income. On the other hand, under a tax credit scheme,
the amount of discounts which is the tax credit item, was deducted directly from the tax due
amount.10
Meanwhile, on October 1, 2004, 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"11was issued by the DOH, 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.
On November 12, 2004, the DOH issued Administrative Order No 17712 amending A.O. No. 171.
Under A.O. No. 177, the twenty percent 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."
Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior Citizens Act based on
the following grounds:13
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1) The law is confiscatory because it infringes Art. III, Sec. 9 of the Constitution which provides that
private property shall not be taken for public use without just compensation;
2) It violates the equal protection clause (Art. III, Sec. 1) enshrined in our Constitution which states
that "no person shall be deprived of life, liberty or property without due process of law, nor shall any
person be denied of the equal protection of the laws;" and
3) The 20% discount on medicines violates the constitutional guarantee in Article XIII, Section 11 that
makes "essential goods, health and other social services available to all people at affordable cost."14
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes deprivation of
private property. Compelling drugstore owners and establishments to grant the discount will result in
a loss of profit
and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded medicines; and
2) the law failed to provide a scheme whereby drugstores will be justly compensated for the
discount.
Examining petitioners arguments, it is apparent that what petitioners are ultimately questioning is
the validity of the tax deduction scheme as a reimbursement mechanism for the twenty percent
(20%) discount that they extend to senior citizens.
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 15 to reduce
the income prior to the application of the tax rate to compute the amount of tax which is
due.16 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.
The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of
private property for public use or benefit.17 This constitutes compensable taking for which petitioners
would ordinarily become entitled to a just compensation.
Just compensation is defined as the full and fair equivalent of the property taken from its owner by
the expropriator. The measure is not the takers gain but the owners loss. The word just is used to
intensify the meaning of the word compensation, and to convey the idea that the equivalent to be
rendered for the property to be taken shall be real, substantial, full and ample.18
A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would
not meet the definition of just compensation.19
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Having said that, this raises the question of whether the State, in promoting the health and welfare
of a special group of citizens, can impose upon private establishments the burden of partly
subsidizing a government program.
The Court believes so.
The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to
nation-building, and to grant benefits and privileges to them for their improvement and well-being
as the State considers them an integral part of our society.20
The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself.
Thus, the Act provides:
SEC. 2. Republic Act No. 7432 is hereby amended to read as follows:
SECTION 1. Declaration of Policies and Objectives. Pursuant to Article XV, Section 4 of the
Constitution, it is the duty of the family to take care of its elderly members while the State may
design programs of social security for them. In addition to this, Section 10 in the Declaration of
Principles and State Policies provides: "The State shall provide social justice in all phases of national
development." Further, Article XIII, Section 11, provides: "The State shall adopt an integrated and
comprehensive approach to health development which shall endeavor to make essential goods,
health and other social services available to all the people at affordable cost. There shall be priority
for the needs of the underprivileged sick, elderly, disabled, women and children." Consonant with
these constitutional principles the following are the declared policies of this Act:
...
(f) To recognize the important role of the private sector in the improvement of the welfare of senior
citizens and to actively seek their partnership.21
To implement the above policy, the law grants a twenty percent discount to senior citizens for
medical and dental services, and diagnostic and laboratory fees; admission fees charged by theaters,
concert halls, circuses, carnivals, and other similar places of culture, leisure and amusement; fares for
domestic land, air and sea travel; utilization of services in hotels and similar lodging establishments,
restaurants and recreation centers; and purchases of medicines for the exclusive use or enjoyment of
senior citizens. As a form of reimbursement, the law provides that business establishments extending
the twenty percent discount to senior citizens may claim the discount as a tax deduction.
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. 22 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." 23 It is "[t]he
power vested in the legislature by the constitution to make, ordain, and establish all manner of
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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
For this reason, when the conditions so demand as determined by the legislature, property rights
must bow to the primacy of police power because property rights, though sheltered by due process,
must yield to general welfare.25
Police power as an attribute to promote the common good would be diluted considerably if on the
mere plea of petitioners that they will suffer loss of earnings and capital, the questioned provision is
invalidated. Moreover, in the absence of evidence demonstrating the alleged confiscatory effect of
the provision in question, there is no basis for its nullification in view of the presumption of validity
which every law has in its favor.26
Given these, 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.27
In treating the discount as a tax deduction, petitioners insist that they will incur losses because,
referring to the DOF Opinion, for every P1.00 senior citizen discount that petitioners would
give, P0.68 will be shouldered by them as only P0.32 will be refunded by the government by way of a
tax deduction.
To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive maintenance
drug Norvasc as an example. According to the latter, it acquires Norvasc from the distributors
at P37.57 per tablet, and retails it atP39.60 (or at a margin of 5%). If it grants a 20% discount to
senior citizens or an amount equivalent to P7.92, then it would have to sell Norvasc at P31.68 which
translates to a loss from capital of P5.89 per tablet. Even if the government will allow a tax deduction,
only P2.53 per tablet will be refunded and not the full amount of the discount which is P7.92. In
short, only 32% of the 20% discount will be reimbursed to the drugstores.28
Petitioners computation is flawed. For purposes of reimbursement, the law states that the cost of the
discount shall be deducted from gross income,29 the amount of income derived from all sources
before deducting allowable expenses, which will result in net income. Here, petitioners tried to show
a loss on a per transaction basis, which should not be the case. An income statement, showing an
accounting of petitioners sales, expenses, and net profit (or loss) for a given period could have
accurately reflected the effect of the discount on their income. Absent any financial statement,
petitioners cannot substantiate their claim that they will be operating at a loss should they give the
discount. In addition, the computation was erroneously based on the assumption that their
customers consisted wholly of senior citizens. Lastly, the 32% tax rate is to be imposed on income,
not on the amount of the discount.
Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the prices of
their medicines given the cutthroat nature of the players in the industry. It is a business decision on
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the part of petitioners to peg the mark-up at 5%. Selling the medicines below acquisition cost, as
alleged by petitioners, is merely a result of this decision. Inasmuch as pricing is a property right,
petitioners cannot reproach the law for being oppressive, simply because they cannot afford to raise
their prices for fear of losing their customers to competition.
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.
Moreover, the right to property has a social dimension. While Article XIII of the Constitution provides
the precept for the protection of property, various laws and jurisprudence, particularly on agrarian
reform and the regulation of contracts and public utilities, continuously serve as a reminder that the
right to property can be relinquished upon the command of the State for the promotion of public
good.30
Undeniably, 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.31
WHEREFORE, the petition is DISMISSED for lack of merit.
G.R. No. 119761 August 29, 1996
vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO
CORPORATION,respondents.
The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of
respondent Court of Appeals 1 affirming the 10th August 1994 decision and the 11th October 1994
resolution of the Court of Tax Appeals2 ("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco
Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of Internal Revenue."
The facts, by and large, are not in dispute.
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands
of cigarettes.
On various dates, the Philippine Patent Office issued to the corporation separate certificates of
trademark registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January
1987, of then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon
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Diaz of the Presidential Commission on Good Government, "the initial position of the Commission
was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World
Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the
names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands
from the foreign brand category. Proof was also submitted to the Bureau (of Internal Revenue ['BIR'])
that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local
brand." 3 Ad Valorem taxes were imposed on these brands, 4 at the following rates:
BRAND AD VALOREM TAX RATE
E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90
Hope Luxury M. 100's
Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20% 5
A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on 10 June 1993, by
the legislature and signed into law, on 14 June 1993, by the President of the Philippines. The
new law became effective on 03 July 1993. It amended Section 142(c)(1) of the National
Internal Revenue Code ("NIRC") to read; as follows:
Sec. 142. Cigars and Cigarettes.
xxx xxx xxx
(c) Cigarettes packed by machine. There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below based on the
constructive manufacturer's wholesale price or the actual manufacturer's wholesale
price, whichever is higher:
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(1) On locally manufactured cigarettes which are currently classified and taxed at
fifty-five percent (55%) or the exportation of which is not authorized by contract or
otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five
Pesos (P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that
the minimum tax shall not be less than Three Pesos (P3.00) per pack.
xxx xxx xxx
When the registered manufacturer's wholesale price or the actual manufacturer's
wholesale price whichever is higher of existing brands of cigarettes, including the
amounts intended to cover the taxes, of cigarettes packed in twenties does not
exceed Four Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty
percent (20%). 7 (Emphasis supplied)
About a month after the enactment and two (2) days before the effectivity of RA 7654,
Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text
of which expressed:
REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
July 1, 1993
REVENUE MEMORANDUM CIRCULAR NO. 37-93
SUBJECT: Reclassification of Cigarettes Subject to Excise Tax
TO: All Internal Revenue Officers and Others Concerned.
In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION" cigarettes
which are locally manufactured are appropriately considered as locally manufactured
cigarettes bearing a foreign brand, this Office is compelled to review the previous
rulings on the matter.
Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No. 6956,
provides:
On locally manufactured cigarettes bearing a foreign brand, fifty-five
percent (55%) Provided, That this rate shall apply regardless of
whether or not the right to use or title to the foreign brand was sold
or transferred by its owner to the local manufacturer. Whenever it has
to be determined whether or not a cigarette bears a foreign brand,
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the listing of brands manufactured in foreign countries appearing in

the current World Tobacco Directory shall govern.
Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes
is that the locally manufactured cigarettes bear a foreign brand regardless of whether
or not the right to use or title to the foreign brand was sold or transferred by its
owner to the local manufacturer. The brand must be originally owned by a foreign
manufacturer or producer. If ownership of the cigarette brand is, however, not
definitely determinable, ". . . the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern. . . ."
"HOPE" is listed in the World Tobacco Directory as being manufactured by (a) Japan
Tobacco, Japan and (b) Fortune Tobacco, Philippines. "MORE" is listed in the said
directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-Macdonald Canada; (d) Rettig-Strenberg, Finland; (e) Karellas,
Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco,
Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera, Spain;
(l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. "Champion" is registered in
the said directory as being manufactured by (a) Commonwealth Bangladesh; (b)
Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar,
Sudan; and (f) Tabac Reunies, Switzerland.
Since there is no showing who among the above-listed manufacturers of the
cigarettes bearing the said brands are the real owner/s thereof, then it follows that
the same shall be considered foreign brand for purposes of determining the ad
valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held
in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be
established or there is dearth of evidence as to whether a brand is foreign or not,
resort to the World Tobacco Directory should be made."
In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE" and
"CHAMPION" being manufactured by Fortune Tobacco Corporation are hereby
considered locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
(SGD)
LIWAYWAY
VINZONSCHATO
Commissioner
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr.,
sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in
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particular. On 15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy
of RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune
Tobacco requested for a review, reconsideration and recall of RMC 37-93. The request was
denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune
Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. 8
On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:
WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of
cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune
Tobacco Corporation as locally manufactured cigarettes bearing a foreign brand
subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid and
unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993, the brands
in question were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to
Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore
still classified as other locally manufactured cigarettes and taxed at 45% or 20% as
the case may be.
Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune
Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and
interest, is hereby canceled for lack of legal basis.
Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the
deficiency tax assessment made and issued on petitioner in relation to the
implementation of RMC No. 37-93.
SO ORDERED. 9
In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for
reconsideration.
The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's
10th August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the
appellate court's Special Thirteenth Division affirmed in all respects the assailed decision and
resolution.
In the instant petition, the Solicitor General argues: That
I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF
INTERNAL REVENUE INTERPRETING THE PROVISIONS OF THE TAX
CODE.
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II. BEING AN INTERPRETATIVE RULING OR OPINION, THE

PUBLICATION OF RMC 37-93, FILING OF COPIES THEREOF WITH THE
UP LAW CENTER AND PRIOR HEARING ARE NOT NECESSARY TO ITS
VALIDITY, EFFECTIVITY AND ENFORCEABILITY.
III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR
RMC 37-93 ON JULY 2, 1993.
IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL
LOCALLY MANUFACTURED CIGARETTES SIMILARLY SITUATED AS
"HOPE," "MORE" AND "CHAMPION" CIGARETTES.
V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM
RECLASSIFYING "HOPE," "MORE" AND "CHAMPION" CIGARETTES
BEFORE THE EFFECTIVITY OF R.A. NO. 7654.
VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS
NOT INTO ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO
ITS CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT. 10
In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which
can thus become effective without any prior need for notice and hearing, nor publication,
and that its issuance is not discriminatory since it would apply under similar circumstances to
all locally manufactured cigarettes.
The Court must sustain both the appellate court and the tax court.
Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for
the effective implementation of the provisions of the National Internal Revenue Code. Let it
be made clear that such authority of the Commissioner is not here doubted. Like any other
government agency, however, the CIR may not disregard legal requirements or applicable
principles in the exercise of its quasi-legislative powers.
Let us first distinguish between two kinds of administrative issuances a legislative rule and
aninterpretative rule.
In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance
Secretary, 11 the Court expressed:
. . . a legislative rule is in the nature of subordinate legislation, designed to implement
a primary legislation by providing the details thereof . In the same way that laws must
have the benefit of public hearing, it is generally required that before a legislative
rule is adopted there must be hearing. In this connection, the Administrative Code of
1987 provides:
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Public Participation. If not otherwise required by law, an agency shall, as far as

practicable, publish or circulate notices of proposed rules and afford interested
parties the opportunity to submit their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates
shall have been published in a newspaper of general circulation at least two (2) weeks
before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed.
In addition such rule must be published. On the other hand, interpretative rules are
designed to provide guidelines to the law which the administrative agency is in

charge of enforcing. 12
It should be understandable that when an administrative rule is merely interpretative in

nature, its applicability needs nothing further than its bare issuance for it gives no real
consequence more than what the law itself has already prescribed. When, upon the other
hand, the administrative rule goes beyond merely providing for the means that can facilitate
or render least cumbersome the implementation of the law but substantially adds to or
increases the burden of those governed, it behooves the agency to accord at least to those
directly affected a chance to be heard, and thereafter to be duly informed, before that new
issuance is given the force and effect of law.
A reading of RMC 37-93, particularly considering the circumstances under which it has been
issued, convinces us that the circular cannot be viewed simply as a corrective measure
(revoking in the process the previous holdings of past Commissioners) or merely as
construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly,
been made in order to place "Hope Luxury," "Premium More" and "Champion" within the
classification of locally manufactured cigarettes bearing foreign brands and to thereby have
them covered by RA 7654. Specifically, the new law would have its amendatory provisions
applied to locally manufactured cigarettes which at the time of its effectivity were not so
classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope
Luxury," "Premium More," and "Champion" cigarettes were in the category of locally
manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence,
without RMC 37-93, the enactment of RA 7654, would have had no new tax rate
consequence on private respondent's products. Evidently, in order to place "Hope Luxury,"
"Premium More," and "Champion" cigarettes within the scope of the amendatory law and
subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so
doing, the BIR not simply intrepreted the law; verily, it legislated under its quasilegislative authority. The due observance of the requirements of notice, of hearing, and of
publication should not have been then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:
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RMC NO. 10-86

Effectivity of Internal Revenue Rules and Regulations
It has been observed that one of the problem areas bearing on compliance with
Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to the
tax paying public. Unless there is due notice, due compliance therewith may not be
reasonably expected. And most importantly, their strict enforcement could possibly
suffer from legal infirmity in the light of the constitutional provision on "due process
of law" and the essence of the Civil Code provision concerning effectivity of laws,
whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New
Civil Code).
In order that there shall be a just enforcement of rules and regulations, in conformity
with the basic element of due process, the following procedures are hereby
prescribed for the drafting, issuance and implementation of the said Revenue Tax
Issuances:
(1) This Circular shall apply only to (a) Revenue Regulations; (b)
Revenue Audit Memorandum Orders; and (c) Revenue Memorandum
Circulars and Revenue Memorandum Orders bearing on internal
revenue tax rules and regulations.
(2) Except when the law otherwise expressly provides, the aforesaid
internal revenue tax issuances shall not begin to be operative until
after due notice thereof may be fairly presumed.
Due notice of the said issuances may be fairly presumed only after
the following procedures have been taken;
xxx xxx xxx
(5) Strict compliance
enjoined. 13
with
the
foregoing
procedures
is
Nothing on record could tell us that it was either impossible or impracticable for the BIR to
observe and comply with the above requirements before giving effect to its questioned
circular.
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform
and equitable. Uniformity requires that all subjects or objects of taxation, similarly situated,
are to be treated alike or put on equal footing both in privileges and liabilities. 14 Thus, all
taxable articles or kinds of property of the same class must be taxed at the same rate 15 and
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the tax must operate with the same force and effect in every place where the subject may be
found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and
"Champion" cigarettes and, unless petitioner would be willing to concede to the submission
of private respondent that the circular should, as in fact my esteemed colleague Mr. Justice
Bellosillo so expresses in his separate opinion, be considered adjudicatory in nature and thus
violative of due process following the Ang Tibay 16 doctrine, the measure suffers from lack of
uniformity of taxation. In its decision, the CTA has keenly noted that other cigarettes bearing
foreign brands have not been similarly included within the scope of the circular, such as
1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.
(a) "PALM TREE" is listed as manufactured by office of Monopoly,
Korea (Exhibit "R")
2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY
(a) "GOLDEN KEY" is listed being manufactured by United Tobacco,
Pakistan (Exhibit "S")
(b) "CANNON" is listed as being manufactured by Alpha Tobacco,
Bangladesh (Exhibit "T")
3. Locally manufactured by LA PERLA INDUSTRIES, INC.
(a) "WHITE HORSE" is listed as being manufactured by Rothman's,
Malaysia (Exhibit "U")
(b) "RIGHT" is listed as being manufactured by SVENSKA, Tobaks,
Sweden (Exhibit "V-1")
4. Locally manufactured by MIGHTY CORPORATION
(a) "WHITE HORSE" is listed as being manufactured by Rothman's,
Malaysia (Exhibit "U-1")
5. Locally manufactured by STERLING TOBACCO CORPORATION
(a) "UNION" is listed as being manufactured by Sumatra Tobacco,
Indonesia and Brown and Williamson, USA (Exhibit "U-3")
(b) "WINNER" is listed as being manufactured by Alpha Tobacco,
Bangladesh; Nangyang, Hongkong; Joo Lan, Malaysia; Pakistan
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Tobacco Co., Pakistan; Premier Tobacco, Pakistan and Haggar, Sudan

(Exhibit "U-4"). 17
The court quoted at length from the transcript of the hearing conducted on 10 August 1993
by the Committee on Ways and Means of the House of Representatives; viz:
THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You
don't have specific information on other tobacco manufacturers. Now, there are
other brands which are similarly situated. They are locally manufactured bearing
foreign brands. And may I enumerate to you all these brands, which are also listed in
the World Tobacco Directory . . . Why were these brand not reclassified at 55 if your
want to give a level playing filed to foreign manufacturers?
MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue
Memorandum Circular that was supposed to come after RMC No . 37-93 which have
really named specifically the list of locally manufactured cigarettes bearing a foreign
brand for excise tax purposes and includes all these brands that you mentioned at 55
percent except that at that time, when we had to come up with this, we were forced
to study the brands of Hope, More and Champion because we were given documents
that would indicate the that these brands were actually being claimed or patented in
other countries because we went by Revenue Memorandum Circular 1488 and we
wanted to give some rationality to how it came about but we couldn't find the
rationale there. And we really found based on our own interpretation that the only
test that is given by that existing law would be registration in the World Tobacco
Directory. So we came out with this proposed revenue memorandum circular which
we forwarded to the Secretary of Finance except that at that point in time, we went
by the Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that
on locally manufactured cigarettes which are currently classified and taxed at 55
percent. So we were saying that when this law took effect in July 3 and if we are
going to come up with this revenue circular thereafter, then I think our action would
really be subject to question but we feel that . . . Memorandum Circular Number 3793 would really cover even similarly situated brands. And in fact, it was really because
of the study, the short time that we were given to study the matter that we could not
include all the rest of the other brands that would have been really classified as
foreign brand if we went by the law itself. I am sure that by the reading of the law,
you would without that ruling by Commissioner Tan they would really have been
included in the definition or in the classification of foregoing brands. These brands
that you referred to or just read to us and in fact just for your information, we really
came out with a proposed revenue memorandum circular for those brands.
(Emphasis supplied)
(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).
xxx xxx xxx
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MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is why I
felt that we . . .I wanted to come up with a more extensive coverage and precisely
why I asked that revenue memorandum circular that would cover all those similarly
situated would be prepared but because of the lack of time and I came out with a
study of RA 7654, it would not have been possible to really come up with the
reclassification or the proper classification of all brands that are listed there . .
.(emphasis supplied) (Exhibit "FF-2d," page IX-1)
xxx xxx xxx
HON. DIAZ. But did you not consider that there are similarly situated?
MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue
Memorandum Circular No. 37-93, the other brands came about the would have also
clarified RMC 37-93 by I was saying really because of the fact that I was just recently
appointed and the lack of time, the period that was allotted to us to come up with
the right actions on the matter, we were really caught by the July 3 deadline. But in
fact, We have already prepared a revenue memorandum circular clarifying with the
other . . . does not yet, would have been a list of locally manufactured cigarettes
bearing a foreign brand for excise tax purposes which would include all the other
brands that were mentioned by the Honorable Chairman. (Emphasis supplied)
(Exhibit "FF-2-d," par. IX-4). 18
All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid
and effective administrative issuance.
WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is
AFFIRMED. No costs.
[No. L-1104.
May 31, 1949]
Eastern Theatrical Co., Inc., et al., plaintiffs and appel-lants vs. Victor Alfonso, as City Treasurer of
Manila, The Municipal Board of the City of Manila, and Juan Nolasco, as Mayor of the City of Manila,
de-fendants and appellees.
1.Taxation ; Statutory Construction ; Tax on Business and on Amusement; Provisions of Section 2444
(m) of the Revised Administrative Code, Construed.The whole argument of plaintiffs hinges on the
assumption that the power granted to the City of Manila by section 2444 (ra) of the Revised
Administra-tive Code is limited to the authority to impose a tax on business, with exclusion of the
power to impose a tax on amusement; but, the assumption is based on an arbitrary labeling of the
kind of tax authorized by said section 2444 (m). The distinction as to the power to tax business and
the power to tax. amusement has no ground under the provisions of section 2444 (m) of the Revised
Administrative Code. The tax therein authorized can-not be defined as tax on business and cannot be
Page 261 of 455
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restricted within a smaller scope than what is authorized by the words used, to the extent of
excluding what plaintiffs describe as tax on amusement.
2.Id.; Id.; Id.; Id.The very fact that section 2444(m) of the Revised Administrative Code includes
theaters, cinematographs, public billiard tables, public pool tables, bowling alleys, dance halls, public
dancing halls, cabarets, circuses and other similar places, race tracks, horse races, theatrical
performances, public exhibition, circus and other performances and places of amuse-ments, will
show conclusively that the power to tax amusement is expressly included within the power granted
by section 2444 (m) of the Revised Administrative Code.
3.Id.; Id,; Repeal by Implication; Commonwealth Act No. 466 did not Repeal Section 2444 (m) of the
Revised Administrative Code.In support of the contention that section 2444 (m) of the Revised
Administrative Code was repealed, plaintiffs aver that the Charter of the City of Manila, containing
section 2444 (m) of the Revised Administrative Code, was enacted on. December 8, 1929. On April
25, 1940, the National Assembly enacted Commonwealth Act No. 466, including provisions on
amusement tax, covering the whole field on taxation and provided for more than what the ordinance
in question has provided. As a result, there are two taxing powers seeking to occupy exactly the
same field of legislation, and so the apparent conflict must be resolved with the conclusion that, with
the enactment of Commonwealth Act No. 466, as later amended by Republic Act No. 39, section
2444 (m) of the Revised Administrative Code has been impliedly repealed and the power therein
delegated to the City of Manila withdrawn. Held: That the conflict pointed out is imaginary. Both
provisions of law may stand together and be enforced at the same time without any incom-patibility.
4.Constitutional Law; Equality and Uniformity of Taxation; Validity of Ordinance No. 2958.
Appellants point out to the fact that the ordinance in question does not tax "many more kinds of
amusements" than those therein specified, such as "race tracks, cockpits, cabarets, concert halls,
circuses, and other places of amusement." The argument has absolutely no merit. The fact that
some places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville
companies, theatri-cal shows, and boxing exhibitions and other kinds of amuse-ments or places of
amusement are taxed, is no argument at all against the equality and uniformity of the tax imposition.
Equality and uniformity in taxation means that all taxable arti-cles or kinds of property of the same
class shall be taxed at the same rate. The taxing power has the authority to make reason-able and
natural classifications for purposes of taxation; and the appellants cannot point out what places of
amusement taxed by the ordinance do not constitute a class by themselves and which can be
confused with those not included in the ordinance. [Eastern Theatrical Co. vs. Alfonso, 83 Phil.,
852(1949)]
PERFECTO, J.:
Twelve corporation engaged in motion picture business have initiated these proceeding through a
complaint dated May 5, 1946, to impugn the validity of Ordinance No. 2958 of the City of Manila
Page 262 of 455
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which was enacted by the municipalBoard of said city on April 25 1946 approved by the Mayor on
April 27, 1946 and took effect on May 1, 1946 said ordinance reading as follows:
AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY ADMISSION TICKET
SOLD BY CINEMATOGRAPHS, THEATERS VAUDEVILLE COMPANIES THEATRICAL
SHOWS AND BOXING EXHIBITION AND PROVIDING FOR OTHER PURPOSES.
SEC. 1. In addition to the fees paid by cinematographers, theaters, vaudeville companies,
theatrical shows and boxing exhibitions, as provided for in sections 633 and 778 of
Ordinance No. 1600, known as the Revised Ordinance of the City of Manila, as amended,
there shall be collected from the place of amusement which are specifically mentioned above
the following fees on the price of every admission ticket sold by such enterprises:
a. For every ticket sold the price of which is from P0.25 to P0.05
P0.99
b. For every ticket sold the price of which is from P1 to 0.10

P1.99
c. For every ticket sold the price of which is from P2 to 0.15

P2.99
d. for every ticket sold the price of which is from P3 to 0.20

P4.99
e. or every ticket sold the price of which is from P5 to 0.25

P5.99
f. For every ticket sold the price of which is from P0 to 0.35

P14.99
g. For ticket sold thee price of which is from P15 or more 0.50
SEC. 2 It shall be the duty of every proprietor lessee, promoter, or operatorof such
cinematographs, theater, vaudeville companies, theatrical show and boxing exhibition to
provide himself with tickets which shall be serially numbered, indication therein the name of
amusement place and the fee charge for admission. Before such ticket are sold he same shall
be presented to the office of the city Treasurer for registration. Tickets once issued and
presented at the gate of entrance shall be cut by the gatekeeper into halves, the first half to
be returned to the customer and the other half to be retained by the gate keeper.
It shall also be the duty of said proprietor lessee promoter or operator to deliver to the Office
of the City Treasurer the fees corresponding to the number of ticket old by him within two
days after the performances or exhibition has taken place.
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SEC. 3. The fees herein prescribed shall not be paid where the admission fees or charge are
collection for and in behalf of any charitable education or religion institution or association.
All place of amusement which are operate by U.S. Army and Navy with fund belonging to the
U.S. Government are hereby exempted from fees herein imposed.
SEC. 4. Any person violation any of the provision of this ordinance shall upon conviction
thereof be punished by a fine of not more than P200 or by imprisonment for not more than
six months or by both such fine and imprisonment in the discretion of the court. If the
violation is committed by the club firm or corporation the manager the managing director or
person charged with the management of the business of such club firm or corporation shall
be criminally responsible therefor.
SEC. 5. This Ordinance shall take effect on the May 1, 1946.
Plaintiffs, operator of theaters in Manila And distributor of local or imported films allege that they are
interested in the provision of section 1,2 and 4 of said ordinance which they impugn as null and void
upon the following grounds: (a) For violation the Constitution more particular the provision
regarding the uniformity and equality of taxation and thee equal protection of the laws; ( b) because
the Municipal Board of Manila exceeded and over-stepped the power granted it the Charter of the
City of Manila; (c) because it contravenes violates and is inconsistent with, existing nationallegislation
more particularly revenue and tax laws and (d) because it is unfair, unjust, arbitrary capricious
unreasonable oppressive and is contrary to and violation our basic and recognizes principles of
taxation and licensing laws.
Defendants allege as affirmative defenses the following: (a) That the ordinance was passed by the
Municipal Board of Manila by virtue of its express legislative power to tax fix the license fee and
regulate the business of theaters, cinematographs and further to fix the location of and to tax, fix the
license fee for and regulate the business of theatrical performances public exhibition circus and other
performances and places of amusement; (b) that the graduated tax required by said ordinance being
applied to all cinematographs, theaters, vaudeville companies theatricalshow and boxing exhibitions
similarly situated and as a class without distinction or exception the same does not violate the
prohibition against uniformity and equality of taxation; (c) that the graduated tax onadmission tickets
to theaters and other places of amusement imposed by the National Internal Revenue Code
(Commonwealth Act No. 466) is collected by and for the purposes of the National Government,
whereas, Ordinance No.2958 imposes and requires the collection of a similar tax by and for the
purposes of the Government of the City of Manila, and there is no case of double taxation, ( d) that
said ordinance having been enacted under the express power of the Municipal Board to tax for
revenue as distinguishedfrom its power to license for purely police purposes, the fact that the
amount collected thereunder are higher than what are needed for police regulation and supervision
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does not render said ordinance unfair unjust capricious unreasonable and oppressive; (e) that
consideration the nature of the business of the plaintiffs and the enormous volume of business they
handle the graduated tax fixed by the ordinance is not unreasonable.
Defendants allege also that since May 1, 1946, when the ordinance in question took effect plaintiffs
have been charging the theater-going public increased prices for admission to the cinematographs
owned and operated to the graduated tax imposed by said ordinance and as a result while refusing
to pay said tax but at the same time collecting an amount equal to said tax plaintiffs have taken
undue advantage of said ordinance to realized more profits.
On September 5, 1946, Judge Emilio Pena of the court of first Instance of Manila rendered a decision
upholding the validity of Ordinance No. 2958.
Plaintiffs appellants assign in the their brief three errors committed by the trial court. We will
consider them separately.
Appellants contend that the lower court erred in holding that under section 2444 (m) of the Revised
administrative Code the Municipal Board of the City ofManila had the power to enact Ordinance No.
2958.
Section 2444 (m) of the Revised Administrative code reads as follows:
To tax fix the license fee and regulate the business of hotels restaurants refreshment places,
cafes, lodging houses, boarding houses livery garages warehouses, pawnshops theaters,
cinematographs; and further to fix the location of and to tax fix the license fee for and
regulate the businessof lively stables, the license fee for and regulate the business of livery
stable, boarding stables, embalmers, public billiard table public pool tables, bowling alleys,
dance halls, public dancing halls, cabarets, circusand other similar parades, public vehicles,
race tracks, horse races,Junk dealers, theatrical performances, public exhibitions, circus
andother performances and places of amusements, match factories, blacksmith shops,
foundries, steam boilers, lumber yards, shipyards, thestorage and sale of gunpowder, tar,
pitch, resin, coal, oil, gasoline,benzene, turpentine, 'hemp, cotton, nitroglycerin, petroleum or
any Ofthe products thereof and of all other highly combustible or explosivematerials and
other establishment likely to endanger the public safety or give rise to conflagration or
explosion and subject to the provision of ordinance issue by the (Philippines Health Service)
Bureau of Health in accordance with law tanneries, renders tallow chandlers bone factories
and soap factories.
Appellants line of argument runs as follows:
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By virtue of the specific power granted in the above quoted provision of the Revised Administration
Code Ordinance No. 2958 was enacted.
On August 7, 1940 the National Assembly enacted Commonwealth Act No. 466, known as the
National Internal Revenue Code section 18, 260 and 261 of which read as follows:
SEC. 18. Sources of revenue. The following taxes fees and charges are deemed to be
national internal revenue taxes:
(a) Income tax;
(b) Estate inheritance and gift taxes;
(c) Specific taxes on certain articles;
(d) Privilege taxes on business or occupation;
(e) Documentary stamp taxes;
(f) Mining taxes;
(g) Miscellaneous taxes fees and charges, namely, taxes on banks and insurance
companies franchise taxes on amusements charges on forest product fees for sealing
weights and measures firearms license fees radio registration fees and water rentals.
SEC. 260. Amusement taxes. There shall be collected from the proprietor, lessee, or
operation of theater cinematographs, concert halls, circuses, boxing exhibition and other
places of amusement the following taxes:
(a) When the amount paid for admission exceeds twenty-nine centavos, two centavos on
each admission;
(b) When the amount paid for admission exceeds twenty-nine but does not exceed thirtynine centavos, three centavos on each admission;
(c) When the amount paid for admission exceeds thirty-nine centavos but does not exceed
forty-nine centavos four centavos on each admission.
(d) When the amount paid for admission exceeds forty-nine centavos but does not exceed
fifty-nine centavos five admission.
(e) When the amount paid for admission exceeds fifty-nine centavos but does not exceed
sixty-nine centavos six centavos on each admission.
(f) When the amount paid for admission exceeds sixty-nine centavos but does not exceed
seventy nine centavos seven centavos on each admission.
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(g) When the amount paid for admission exceeds seventy nine centavos but does not exceed
eighty-nine centavos eight centavos on each admission;
(h) When the amount paid for admission exceeds eighty-nine centavos but does not exceed
ninty-nine centavos, nine centavos on each admission;
(i) When the amount paid for admission exceeds ninety-nine centavos, ten centavos on each
admission.
In the case of theaters or cinematographs, the taxes herein prescribed shall first be decuted
and withheld by the proprietros, lessees, or operators of such theaters or cinematogrphs and
paid to the Collector of Internal Revenue before the gross receipts are divided between the
proprietros, lessees, or operators of the theaters of cinematographs and the distributors of
the cinematographic films.
In the case of cockpits, race tracks, and cabarets, there shall be collected from the proprietor,
lessee, or operator a tax equivalent to ten per centum of the gross receipts, irrespective of
whether or not any amount is charged or paid for admission: Provided, however, That in the
case of race tracks, this tax is in addition to the privilege tax prescribed in seciton 193. for the
purpose of the amusement tax, the term "gross receipts" embraces all the receipts of the
proprietor, lessee, or operator of the amusement place, excluding the receipts derived by him
from the sale of liquors, beverages, or other articles subject to specific tax, or from any
business subject to tax under this Code. (This section was amended by section 8, Republic
Act No. 39, effective October 1, 1946. We are quoting the original provision to show the
status of the law when the Ordinance was passed.)
SEC. 261. Exemption. The tax herein imposed shall not be paid where the admission fee or
charges are collected by or for and in behalf of any religious, charitable, scientific, or
educational institution or association, and where no part of the net proceeds of such
admission fees or charges inures to the benefit of any private stockholder or individual.
Ordinance No. 2958 does not specify the kind of the tax sought to be imposed but the seven
schedules and other details of said ordinance are, in every respect, identical with the amusement tax
provided by section 260 of Commonwealth Act No. 466.
But, plaintiffs argue, that section 2444(m) of the Revised Administrative Code confers upon the City
of Manila the power to impose a tax on business but not on amusement and, consequently,
Ordinance No. 2958 was enacted beyond the charter powers of the City of Manila.
The whole argument of plaintiffs hinges, therefore, on the assumption that the power granted to the
City of Manila by section 2444(m) of the Revised Administrative Code is limited to the authority to
Page 267 of 455
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impose a tax on business, with exclusion of the power to impose a tax amusement; but, the
assumption is based on an arbitrary labeling of the kind of tax authorized by said section 2444(m).
The distinction made by plaintiffs as to the power to tax on business and the power to tax on
amusement has no ground under the provisions of section 2444(m) of the Revised Administrative
Code. The tax therein authorized cannot be defined as tax on business and cannot be restricted
within a smaller scope than what is authorized by the words used, to the extent of excluding what
plaintiffs describe as tax on amusement.
The very fact that section 2444 (m) of the Revised Administrative Code includes theaters,
cinematographs, public billiard tables, public pool tables, bowling alleys, dance halls, public dancing
halls, cabarets, circuses and other similar places, race tracks, horse races, theatrical performances,
public exhibition, circus and other performances and places of amusements, will show conclusively
that the power to tax amusement is expressly included within the power granted by section 2444(m)
of the Revised Administrative Code.
Plaintiffs-appellants contend that the lower court erred in not holding that section 2444 (m) of the
Revised Administrative Code was repealed or the power therein contained was withdrawn by the
National Assembly by the enactment of Commonwealth Act No. 466 known as the National Internal
Revenue Code.
In support of this contention, plaintiffs aver that the Charter of the City of Manila, containing section
2444(m) of the Revised Administrative Code, was enacted on December 8, 1929. On April 25, 1940,
the National Assembly enacted Commonwealth Act No. 466, including provisions on amusement tax,
covering the whole field on taxation and provided for more than what the ordinance in question has
provided. As a result, there are two taxing powers seeking to occupy exactly the same field of
legislation, and so the apparent conflict must be resolved with the conclusion that, with the
enactment of Commonwealth Act No. 466, as later amended by Republic Act No. 39, section 2444(m)
of the Revised Administrative Code has been impliedly repealed and the power therein delegated to
the City of Manila withdrawn.
We see absolutely no force in plaintiffs' contention. The conflict pointed out by them is imaginary.
Both provisions of law may stand together and be enforced at the same time without any
incompatibility among themselves.
Finally, plaintiffs contend that the trial court erred in not holding that Ordinance No. 2958 violated
the principle of equality and uniformity of taxation enjoined by the Constitution (sec. 22, sub-sec. 1,
Art. VI, Constitution of the philippines).
To support this contenttion, appellantts point out to the fact that the ordinance in question does not
tax "many more kinds of amusements" than those therein specified, such as "race tracks, cockpits,
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cabarets, concert halls, circuses, and other places of amusement." the argument has absolutely no
merit. The fact that some places of amusement are not taxed while others, such as cinematographs,
theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of
amusements or places of amusement are taxed, is no argument at all against the equality and
uniformity of the tax imposition. Equality and uniformity of the tax imposition. 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; and the appellants cannot point out what places of
amusement taxed by the ordinance do not constitute a class by themselves and which can be
confused with those not included in the ordinance.
The judgment of the trial court is affirmed with costs against appellants.
[No. L-2947. January 11, 1951]
MANILA RACE HORSE TRAINERS ASSOCIATION, INC., and JUAN T. SORDAN, plaintiffs and
appellants, vs. MANUEL DE LA FUENTE, defendant and appellee.
1.MUNICIPAL CORPORATION; STATUTORY CONSTRUCTION; ORDINANCES, How CONSTRUED;

LICENSE FEES FOR BOARDING STABLE FOR RACE HORSES.The spirit rather than the letter of an
ordinance determines the construction thereof, and the court looks less to its words and more to the
context, subject matter, consequence and effect. Accordingly, what is within the spirit is within the
ordinance although it is not within the letter thereof, while that which is in the letter, although not
within the spirit, is not within the ordinance. (62 C. J. S., 845.)
2.ID.; ID.; ID.; ID.From the viewpoint of economics and public policy the taxing of boarding stables
for race horses to the exclusion of boarding stables for horses dedicated to other purposes is not
indefensible. The owners of boarding stables for race horses and, for that matter, the race horse
owners themselves, who in the scheme of shifting may carry the taxation burden, are a class by
themselves and appropriately taxed where owners of other kinds of horses are taxed less or not at
all, considering that equity in taxation is generally conceived in terms of ability to pay in relation to
the benefits received by the tax-payer and by the public from the business or property taxed. Race
horses are devoted to gambling if legalized, their owners derive fat income and the public hardly any
profit from horse racing, and this business demands relatively heavy police supervision. Taking
everything into account, the differentiation against which the plaintiffs complain conform to the
practical dictates of justice and equity and is not discriminatory within the meaning of the
Constitution.
3.APPEAL AND ERROR; QUESTION RAISED FOR FIRST TIME ON APPEAL; POWER OF MUNICIPAL
BOARD TO ENACT ORDINANCE TAXING PRIVATE STABLES FOR RACE HORSES; PERSON NOT
PREJUDICED BY ORDINANCE CANNOT ATTACK VALIDITY.Not having been raised in the pleading,
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this question was properly ignored, not to say that even it had been raised it would not have been
available as basis for a declaration of nullity of the ordinance. The clause of the ordinance taxing or
licensing boarding stables for race horses does not prejudice the plaintiffs in any material way, and it
is well settled that a person who is not adversely affected by a licensing ordinance may not attack its
validity. Stated differently, he may not complain that a licensing ordinance is invalid as against a class
other than that to which he belongs. [Manila Race Horse Trainers Assn., Inc. vs. De la Fuente, 88 Phil.
60(1951)]
TUASON, J.:
This action was instituted for a declaratory relief by the Manila Race Horses Trainers Association, Inc.,
a nonstock corporation duly organized and existing under and by virtue of the laws of the
Philippines, who allege that they are owners of boarding stables for race horses and that their rights
as such are affected by Ordinance No. 3065 of the City of Manila approved on July 1, 1947.1 They
made the Mayor of Manila defendant and prayed that said ordinance be declared invalid as violative
of the Philippine Constitution.
The case was submitted on the pleadings, and the decision was that the ordinance in question "is
constitutional and valid and has been enacted in accordance with the powers of the Municipal Board
granted by the Charter of the City of Manila."
On appeal, the plaintiffs as appellants make three assignments of error, the first two of which are
discussed jointly in their brief under two separate topics.
First, it is maintained that the ordinance under consideration is a tax on race horses as distinct f rom
boarding stables. It is argued that by section 2 the basis of the license fees "is the number of race
horses kept or maintained in the boarding stables to be paid by the maintainers at the rate of P10.00
a year for each race horse;" that "the fee is increased correspondingly P10 for each additional race
horse maintained or fed in the stable;" and that "by the same token, an empty stable for race horse
pays no license fee at all."
The spirit, rather than the letter, of an ordinance determines the construction thereof, and the court
looks less to its words and more to the context, subject matter, consequence and effect. Accordingly,
what is within the spirit is within the ordinance although it is not within the letter thereof, while that
which is in the letter, although not within the spirit, is not within the ordinance. (62 C. J. S., 845.) From
the context of Ordinance No. 3065, the intent to tax or license stables and not horses is clearly manif
est. The tax is assessed not on the owners of the horses but on the owners of the stables, as counsel
admit in their brief, although there is nothing, of course, to stop stable owners from shifting the tax
to the horse owners in the form of increased rents or fees, which is generally the case.
It is also plain from the text of the whole ordinance that the number of horses is used in the
assessment purely as a method of fixing an equitable and practical distribution of the burden
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imposed by the measure. Far from being obnoxious, the method is fair and just. It is but fair and just
that for a boarding stable where only one horse is maintained proportionately less amount should be
exacted than f or a stable where more horses are kept and from which greater income is derived.
We do not share the plaintiff's opinion, apropos the second proposition, that the ordinance in
question is discriminatory and savors of class legislation. In taxing only boarding stables for race
horses, we do not believe that the ordinance makes an arbitrary classification. In the case of Eastern
Theatrical Co. Inc., vs. Alfonso, 46 Off. Gaz. Supp. to No. 11, p. 303,* it was said that there is equality
and uniformity in taxation if all articles or kinds of property of the same class are taxed at the same
rate. Thus, it was held in that case, that "the fact that some places of amusement are not taxed while
others, such as cinematographs, theaters, vaudeville companies, theatrical shows, and boxing
exhibitions and other kinds of amusements or places of amusement are taxed, is not argument at all
against the equality and uniformity of the tax imposition." Applying this criterion to the present case,
there would be discrimination if some boarding stables of the same class used for the same number
of horses were not taxed or were made to pay less or more than others.
From the viewpoint of economics and public policy the taxing of boarding stables for race horses to
the exclusion of boarding stables for horses dedicated to other purposes is not indefensible. The
owners of boarding stables for race horses and, for that matter, the race horse owners themselves,
who in the scheme of shifting may carry the taxation burden, are a class by themselves and
appropriately taxed where owners of other Kinds of horses are taxed less or not at all, considering
that equity in taxation is generally conceived in terms of ability to pay in relation to the benefits
received by the taxpayer and by the public from the business or property taxed. Race horses are
devoted to gambling if legalized, their owners derive fat income and the public hardly any profit f
rom horse racing, and this business demands relatively heavy police supervision. 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.
One ground of attack in the court below on the constitutionality of the ordinancevariance between
the title and the subject matterapparently has been abandoned. In its place a new question is
brought up on appeal in the third and last assignment of error. It is now contended, for the first time,
that "the Municipal Board of Manila (is) without power to enact ordinance taxing private stables for
race horses," and that the lower court erred in not so declaring. This assignment of error has
reference to Class B or the second sub-paragraph of section 1 of the ordinance.
Not having been raised in the pleading, this question was properly ignored, not to say that even it
had been raised it would not have been available as basis for a declaration of nullity of the
ordinance. The clause of the ordinance taxing or licensing boarding stables for race horses does not
prejudice the plaintiffs in any material way, and it is well settled that a person who is not adversely
affected by a licensing ordinance may not attack its validity. Stated differently, he may not complain
that a licensing ordinance is invalid as against a class other than that to which he belongs. (62 C. J. S.
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830, 831.) By analogy, where a municipal ordinance is valid in some of its parts and invalid as to
others and the valid parts are separable from the invalid onesin which latter case the valid
provisions stand as operativethe plaintiff may contest the validity of the provisions that injure his
interest but not those that do not.
We are of the opinion that the trial court committed no error and the judgment is affirmed with costs
against the plaintiff-appellants. [Manila Race Horse Trainers Assn., Inc. vs. De la Fuente, 88 Phil.
60(1951)]
SILVESTER M. PUNSALAN, ET AL. vs. THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL, G.R.
No. L-4817 May 26, 1954
This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical
practitioner, a public accountant, a dental surgeon and a pharmacist, purportedly "in their own
behalf and in behalf of other professionals practising in the City of Manila who may desire to join it."
Object of the suit is the annulment of Ordinance No. 3398 of the City of Manila together with the
provision of the Manila charter authorizing it and the refund of taxes collected under the ordinance
but paid under protest.
The ordinance in question, which was approved by the municipal board of the City of Manila on July
25, 1950, imposes a municipal occupation tax on persons exercising various professions in the city
and penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by
imprisonment of not more than six months, or by both such fine and imprisonment in the discretion
of the court." Among the professions taxed were those to which plaintiffs belong. The ordinance was
enacted pursuant to paragraph (1) of section 18 of the Revised Charter of the City of Manila (as
amended by Republic Act No. 409), which empowers the Municipal Board of said city to impose a
municipal occupation tax, not to exceed P50 per annum, on persons engaged in the various
professions above referred to.
Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same
under protest and then brought the present suit for the purpose already stated. The lower court
upheld the validity of the provision of law authorizing the enactment of the ordinance but declared
the ordinance itself illegal and void on the ground that the penalty there in provided for nonpayment of the tax was not legally authorized. From this decision both parties appealed to this
Court, and the only question they have presented for our determination is whether this ruling is
correct or not, for though the decision is silent on the refund of taxes paid plaintiffs make no
assignment of error on this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that the
imposition of the penalty provided for in the ordinance was without the authority of law. The last
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paragraph (kk) of the very section that authorizes the enactment of this tax ordinance (section 18 of
the Manila Charter) in express terms also empowers the Municipal Board "to fix penalties for the
violation of ordinances which shall not exceed to(sic) two hundred pesos fine or six months"
imprisonment, or both such fine and imprisonment, for a single offense." Hence, the pronouncement
below that the ordinance in question is illegal and void because it imposes a penalty not authorized
by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double
taxation.
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the
professions to which they respectively belong have been singled out for the imposition of this
municipal occupation tax; and in any event, the Legislature may, in its discretion, select what
occupations shall be taxed, and in the exercise of that discretion it may tax all, or it may select for
taxation certain classes and leave the others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp. 33933395.) Plaintiffs' complaint is that while the law has authorized the City of Manila to impose the said
tax, it has withheld that authority from other chartered cities, not to mention municipalities. We do
not think it is for the courts to judge what particular cities or municipalities should be empowered to
impose occupation taxes in addition to those imposed by the National Government. That matter is
peculiarly within the domain of the political departments and the courts would do well not to
encroach upon it. Moreover, as the seat of the National Government and with a population and
volume of trade many times that of any other Philippine city or municipality, Manila, no doubt, offers
a more lucrative field for the practice of the professions, so that it is but fair that the professionals in
Manila be made to pay a higher occupation tax than their brethren in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination
within a class in that while professionals with offices in Manila have to pay the tax, outsiders who
have no offices in the city but practice their profession therein are not subject to the tax. Plaintiffs
make a distinction that is not found in the ordinance. The ordinance imposes the tax upon every
person "exercising" or "pursuing" in the City of Manila naturally any one of the occupations
named, but does not say that such person must have his office in Manila. What constitutes exercise
or pursuit of a profession in the city is a matter of judicial determination. The argument against
double taxation may not be invoked where one tax is imposed by the state and the other is imposed
by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the political subdivisions thereof. (51 Am.
Jur., 341.)
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In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance
No. 3398 of the City of Manila illegal and void and affirmed in so far as it holds the validity of the
provision of the Manila charter authorizing it. With costs against plaintiffs-appellants.
ANTERO M. SISON, JR. vs. RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue;
ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy
Commissioner, Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO
TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, G.R. No.
L-59431 July 25, 1984
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on
the validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional
infirmity. The assailed provision further amends Section 21 of the National Internal Revenue Code of
1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b)
taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield
or any other monetary benefit from deposit substitutes and from trust fund and similar
arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership,
(f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he would be
unduly discriminated against by the imposition of higher rates of tax upon his income arising from
the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried
individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class legislation,
oppressive and capricious in character 5 For petitioner, therefore, there is a transgression of both the
equal protection and due process clauses 6 of the Constitution as well as of the rule requiring
uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days
from notice. Such an answer, after two extensions were granted the Office of the Solicitor General,
was filed on May 28, 1982. 8 The facts as alleged were admitted but not the allegations which to their
mind are "mere arguments, opinions or conclusions on the part of the petitioner, the truth [for them]
being those stated [in their] Special and Affirmative Defenses." 9 The answer then affirmed: "Batas
Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited
while correctly quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the
dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so
clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private
enterprise and initiative and which the government was called upon to enter optionally, and only
'because it was better equipped to administer for the public welfare than is any private individual or
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group of individuals,' continue to lose their well-defined boundaries and to be absorbed within
activities that the government must undertake in its sovereign capacity if it is to meet the increasing
social challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent
prerogative, has to be availed of to assure the performance of vital state functions. It is the source of
the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the
government, their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is
the strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its
plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets forth such
limits . Adversely affecting as it does properly rights, both the due process and equal protection
clauses inay properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue
measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that
"the power to tax involves the power to destroy." 14 In a separate opinion inGraves v. New
York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a

flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of
absolutes." 16 This is merely to emphasize that it is riot and there cannot be such a constitutional
mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's
famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not
the power to destroy while this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any
legislative or executive, act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision as petitioner here alleges fails to abide
by its command, then this Court must so declare and adjudge it null. The injury thus is centered on
the question of whether the imposition of a higher tax rate on taxable net income derived from
business or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as
here. does not suffice. There must be a factual foundation of such unconstitutional taint. Considering
that petitioner here would condemn such a provision as void or its face, he has not made out a case.
This is merely to adhere to the authoritative doctrine that were the due process and equal protection
clauses are invoked, considering that they arc not fixed rules but rather broad standards, there is a
need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can be shown to amount
to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of
this Court to say that such an arbitrary act amounted to the exercise of an authority not conferred.
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That properly calls for the application of the Holmes dictum. It has also been held that where the
assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case
of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process
grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the lice power or the power of
eminent domain is to demonstrated that the governmental act assailed, far from being inspired by
the attainment of the common weal was prompted by the 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. Favoritism and undue preference cannot be allowed. For the principle is that equal
protection and security shall be given to every person under circumtances which if not Identical are
analogous. If law be looked upon in terms of burden or charges, those that fall within a class should
be treated in the same fashion, whatever restrictions cast on some in the group equally binding on
the rest." 20 That same formulation applies as well to taxation measures. The equal protection clause
is, of course, inspired by the noble concept of approximating the Ideal of the laws benefits being
available to all and the affairs of men being governed by that serene and impartial uniformity, which
is of the very essence of the Idea of law. There is, however, wisdom, as well as realism in these words
of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not a disembodied
equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not
abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, address to the attainment of specific ends by the use of specific
remedies. The Constitution does not require things which are different in fact or opinion to be
treated in law as though they were the same." 21 Hence the constant reiteration of the view that
classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz V.
Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, 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.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The
rule of taxation shag be uniform and equitable." 24 This requirement is met according to Justice
Laurel in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the same
force and effect in every place where the subject may be found. " 26 He likewise added: "The rule of
uniformity does not call for perfect uniformity or perfect equality, because this is hardly
attainable." 27 The problem of classification did not present itself in that case. It did not arise until
nine years later, when the Supreme Court held: "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
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power has the authority to make reasonable and natural classifications for purposes of taxation, ...
.28 As clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical
dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is
therefore uniform." 29 There is quite a similarity then to the standard of equal protection for all that is
required is that the tax "applies equally to all persons, firms and corporations placed in similar
situation." 30
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or
taxable income by eliminating all deductible items and at the same time reducing the applicable tax
rate. Taxpayers may be classified into different categories. To repeat, it. is enough that the
classification must rest upon substantial distinctions that make real differences. In the case of the
gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is
the susceptibility of the income to the application of generalized rules removing all deductible items
for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are set apart as a class. As there is practically
no overhead expense, these taxpayers are e not entitled to make deductions for income tax purposes
because they are in the same situation more or less. On the other hand, in the case of professionals
in the practice of their calling and businessmen, there is no uniformity in the costs or expenses
necessary to produce their income. It would not be just then to disregard the disparities by giving all
of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of
gross income. There is ample justification then for the Batasang Pambansa to adopt the gross system
of income taxation to compensation income, while continuing the system of net income taxation as
regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack
of factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of
controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the
reasonableness of the distinction between compensation and taxable net income of professionals
and businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
G.R. No. L-3538
May 28, 1952
JUAN LUNA SUBDIVISION, INC., plaintiff-appellee,

vs.
M. SARMIENTO, ET AL., defendants-appellants.
This is an appeal by the City Treasure of the City of Manila from the following judgment handed
down in the above-entitled cause:
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POR TODAS CONSIDERACIONES, el Jugado dicta sentencia ordenado: que el demandado

Tesorero de la Ciudad de Manila pague a la demandante la cantidad de P2,210.52 sin
intereses; que la demandada Philippine Trust Companypague a la demandante la suma de
P105 sin intereses.
The Philippine Trust Company did not appeal.
The facts of the case, in so far as they are not in controversy, are these: The plaintiff was a
corporation duly organized and existing under the laws of the Philippines with principal office in
Manila. On December 29, 1941 it issued to the City Treasurer of Manila, and the City Treasurer
accepted checks No. 628334 for P2,210.52 drawn upon the Philippine Trust Company with which it
had a credit balance of P4,940.17 on its account. This check was to be applied to plaintiff's land tax
for the second semester of 1941 the exact amount of which was yet undetermine and so it was
entered in the ledger, Exhibit "F", as deposit by the taxpayer. On February 20, 1942, presumably after
the exact amount had been verified, which was P341.60, the balance of P1,868.92, covered by
voucher No. 1487 of the City Treasure's office, was noted in the ledger as a credit to the Juan Luna
Subdivision, Inc.
Further than this, the records of the City Treasurer's office do not show what was done with the
check. But the books of the Philippine Trust Company do reveal that it was deposited with the
Philippine National Bank, the City Treasurer's sole depository, on December 29, 1941, and that it was
presented by that Bank to the Philippine Trust Company on May 1, 1944 and was cashed by the
drawee. Manuel F. Garcia, Assistant Treasurer of the Philippine Trust Company, testified that soon
after his bank was authorized in March, 1942, to reopen for business (it had been closed by order of
the Japanese military authorities,) it received from the Philippine National Bank a bundle of checks,
including appellees check No. 628334, drawn upon the Philippine Trust Company before the
Japanese occupation and held in abeyance by the Philippine National Bank pending resumption of
operation by the Philippine Trust Company; that these checks, including the appellee's check, were
accepted and the amounts thereof debited against the respective drawer's accounts; that with
respect to check No. 628334, the operation was effected on May 1, 1944.
The City refused after liberation to refund the plaintiff's deposit or apply it to such future taxes as
might be found due, while the Philippine Trust Company was unwilling to reverse its debit entry
against the Juan Luna Subdivision, Inc. It was upon this predicament that the Juan Luna Subdivision,
Inc. brought this suit against the City Treasurer and the Philippine Trust Company as defendants in
the alternative. The purpose of the action is determine which of the two defendants is liable for
plaintiff's check. There is a separate cause of action which concerns the plaintiff and the City
Treasurer alone.
On the main cause of action the burden of the City Treasurer's defense is that his office was not
benefited why the check. He denies that the said check was cashed "or rather there was no proof
that it was." It is pointed out that Mr. Gibbs, testifying in open court, admitted that he had never
received nor could he have received the cancelled checks;" that "the courts finding that sum
P2,210.52 was in fact and in truth added to the actual cash of the Treasurer of the City of Manila is
based on conjectures and surprises without any support of pertinent and competent proof;" that
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"special ledger sheet of the City Treasurer . . . simply showed that some accounting transaction in the
book value was done or accomplished but these accounting processes did not show that actual
payment had been made (by the Philippine National Bank) to the City Treasurer, and that the City
Treasurer had in effect received said amount represented by said checks;" that "the burden of
proving that the check in question was in fact paid rest on the defendant Philippine Trust Company."
It is further argued that "there is a lot of difference between the book value and the cash value of
this check," that the acceptance by the City Treasurer and the issuance of the Official Receipt No.
755402 on December 29, 1941 in favor of Juan Luna Subdivision, Inc. did not simultaneously and
automatically place in the hands of the City Treasurer the cash value represented by the said checks
in the amount of P2,210.52".
That the plaintiff's check was deposited by the City Treasurer with the Philippine National Bank, and
the latter was paid the cash equivalent thereof by the Philippine Trust Company, admits of no doubt.
The entries in the books of the latter bank are not in the least impugned. Whether the City Treasurer
was paid that amount by the Philippine National Bank or given credit for it, the City Treasurer would
neither admit nor deny. He said:
A. Not that I am not willing (to admit); I am willing, but I am not the right party to admit that
the check was actually collected by the City of Manila from the Philippine Trust Company,
The Philippine Trust Company never submitted any financial statement. To my knowledge,
the City Treasurer of Manila has never been informed by the Philippine Trust Company or by
the Philippine National Bank, which is the depository of the City of Manila, that same check
was collected by the City Manila from the Philippine National Bank; by that I am not trying to
say that the check was not actually collected by the City.
xxx
xxx
xxx
Q. This particular check in question pertains to the revenue account of the City of Manila, is
that right?
A. Yes, sir.
Q. Ordinarily it would be deposited with the Philippine National Bank, is that right?
A. That is right.
Q. And the Philippine National Bank has not rendered you any account of its collections?
A. I would not say that; they probably gave us statement, but as we have lost our records
pertaining to the occupation and the pre-war years, I could not make a categorial statement.
From the fact that the Philippine National Bank was open throughout the Japanese occupation and
the other facts heretofore admitted or not denied, it is to be presumed that the Philippine National
Bank credited the City Treasurer with the amount of the check in question, and that the City
Treasurer, taking ordinary care of his concerns, withdrew that amount. This is in accordance with the
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presumption that things happened according to the ordinary course of business and habits. The
burden is on the City Treasurer, not on the plaintiff, to rebut these presumptions.
But the point is not material at all as far as the plaintiff is concerned. What became of the check or
where the money went is a matter between the City Treasurer and the Philippine National Bank. The
drawer of the check had funds on deposit to meet it; the City Treasurer accepted it and deposited it
with the Philippine National Bank, and the Philippine National Bank, collected the equivalent amount
from the drawee Bank. In the light of these circumstances, the City Treasurer became the Philippine
National Bank's creditor and the Juan Luna Subdivision, Inc. was released from liability on its checks.
If the City Treasurer did not collect his credit from the Philippine National Bank or otherwise make
use of it, he alone was to blame and should suffer the consequences of his neglect. That the City
Treasurer held the check merely in trust for plaintiff does not alter the situation as far as his branch
of the case goes.
The amount to be refunded to the plaintiff is the subject of another disagreement between the Juan
Luna Subdivision, Inc. and the City Treasurer. This is the ground of other cause of action heretofore
referred to.
The plaintiff claims the whole amount of the check contending that taxes for the last semester of
1941 have been remitted by Commonwealth Act No. 703.
Section 1 of this Act, which was approved on November 1, 1945, provides:
All land taxes and penalties due and payable for the years nineteen hundred and forty-two
nineteen hundred and forty-three nineteen hundred and forty-four and fifty per cent of the
tax due for nineteen hundred and forty-five, are hereby remitted. The land taxes and
penalties due and payable for the second semester of the year nineteen hundred and fortyone shall also be remitted the if the remaining fifty per cent corresponding to the year
nineteen hundred and forty-five shall been paid on or before December thirty-first, nineteen
hundred and forty-five.
Does this provision cover taxes paid before its enactment as the plaintiff maintains and the court
below held, or does it refer, as the City Treasurer believes, only to taxes which were still unpaid?
There is no ambiguity in the language of the law. It says "taxes and penalties due and payable," the
literal meaning of which taxes owned or owing. (See Webster's New International Dictionary) Note
that the provision speaks of penalties, and note that penalties accrue only when taxes are not paid
on time. The word "remit" underlined by the appellant does not help its theory, for to remit to desist
or refrain from exacting, inflicting, or enforcing something as well as to restore what has already
been taken. (Webster's New International Dictionary.)
We do not see that literal interpretation of Commonwealth Act No. 703 runs counter and does
violence to its spirit and intention , nor do we think that such interpretation would be
"constitutionally bad" in that "it would unduly discriminate against taxpayers who had paid in favor
of delinquent taxpayers."
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The remission of taxes due and payable to the exclusion of taxes already collected does not
constitute unfair discrimination. Each set of taxes is a class by itself, and the law would be open to
attack as class legislation only if all taxpayers belonging to one class were not treated alike. They are
not.
As to the justice of the measure, the confinement of the condonation to deliquent taxes was not
without good reason. The property owners who had paid their taxes before liberation and those who
had not were not on the same footing on the need of material relief. It is true that the ravages and
devastations wrought by was operations had rendered the bulk of the people destitute or
impoverished and that it was this situation which prompted the passage of Commonwealth Act No.
703. But it is also true that the taxpayers who had been in arrears in their obligation would have to
satisfy their liability with genuine currency, while the taxes paid during the occupation had been
satisfied in Japanese military notes, many of them at a time when those notes were well-nigh
worthless. To refund those taxes with the restored currency, even if the Government could afford to
do so, would be unduly to enrich many of the payers at a greater expense to the people at large.
What is more, the process of refunding would entail a tremendous amount of work and difficulties,
what with the destruction of tax records and the great number of claimants who would take
advantage of such grace.
It is said that the plaintiff's check was in the nature of deposit, held trust by the City Treasurer, and
that for this reason, plaintiff's taxes are to be regarded as still due and payable. This argument is well
taken but only to the extent of P1,868.92. The amount of P341.60 as early as February 20, 1942, had
been applied to the second half of plaintiff's 1941 tax and become part of the general funds of the
city treasury. From that date that tax was legally and actually paid and settled.
The appealed judgment should, therefore, be modified so that the defendant City Treasurer shall
refund to the plaintiff the sum of P1,868.92 instead P2,210.52, without costs. It is so ordered.
[No. L-4376. May 22, 1953]
Association of Costom Brokers, Inc. and G. Manlapit, Inc., petitioners and appellants, vs. The
Municipality of Board, The City Treasurer, The City Assessor and The City Mayor, all of the City of
Manila, respondents and appellees.
1.Taxation; Taxes on Motor Vehicles; no Fees Other than Property Tax and Those Provided in Act No.
3992 may be Exacted on Motor Vehicles.Under section 70b of Act No. 3992 as amended, no fees
may be exacted or demanded for the operation of any motor vehicle other than those therein
provided, the only exception being that which refers to property tax which may be imposed by a
municipal corporation. This provision is all-inclusive in the sense that it applies to all motor vehicles.
In this sense, this provision should be con-strued as limiting the broad grant of power conferred
upon the City of Manila by its Charter to impose taxes. When Section 18 of said Charter provides that
the City of Manila can impose a tax on motor vehicles operating within its limits, it can only refer to
property tax, as a different interpretation would make it repugnant to the Motor Vehicle Law.
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2.Id; Constitutional Law; Ordinance No. 3379 of Manila Invalid; Property Tax, Distinguished Tax From
Excise Tax or License Fee.While Ordinance No. 3379 of the City of Manila refers to property tax and
it is fixed ad valorem yet we can not reject the idea that it is merely levied on motor vehicles
operating within the said city with the main purpose of raising funds to be expended exclusively for
the repair, maintenance and improvement of the streets and bridges in said city. This is precisely
what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act,
mu-nicipal corporations already participate in the distribution of the proceeds that are raised for the
same purpose of repairing, maintaining and improving bridges and public highways (Motor Vehicle
Law, sec. 73). This prohibition is intended to prevent duplication in the imposition of fees for the
same purpose. It is for this reason that it is believed that the ordinance in question merely imposes a
license fee although under the cloak of an ad valorem tax to circumvent the prohibition adverted to.
3. Id Id.; Id.; Uniformity of Taxation.The said ordinance in-fringes also the rule of uniformity of
taxation ordained by our Constitution. It exacts the tax upon all motor vehicles operating within the
City of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for
private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and
one registered in another place but occasionally comes to Manila and uses its streets and public
highways. There is no pretense that the ordinance equally applies to motor vehicles which come to
Manila for a temporary stay or for short errands, and it cannot be denied that they contribute in no
small degree to the deterioration of the streets and public highways. As they are benefited by their
use they should also be made to share the corresponding burden. This is an inequality which is
found in the ordinance in question and which renders it offensive to the Constitution. [Association of
Costom Brokers, Inc. vs. Municipal Board, Clity of Manila, et al., 93 Phil., 107(1953)]
BAUTISTA ANGELO, J.:
This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by the
Municipal Board of the City of Manila on March 24, 1950.
The Association of Customs Brokers, Inc., which is composed of all brokers and public service
operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of said association,
also a public service operator of the trucks in said City, challenge the validity of said ordinance on the
ground that (1) while it levies a so-called property tax it is in reality a license tax which is beyond the
power of the Municipal Board of the City of Manila; (2) said ordinance offends against the rule of
uniformity of taxation; and (3) it constitutes double taxation.
The respondents, represented by the city fiscal, contend on their part that the challenged ordinance
imposes a property tax which is within the power of the City of Manila to impose under its Revised
Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question does not violate the rule
of uniformity of taxation, nor does it constitute double taxation.
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The issues having been joined, the Court of First Instance of Manila sustained the validity of the
ordinance and dismissed the petition. Hence this appeal.
The disputed ordinance was passed by the Municipal Board of the City of Manila under the authority
conferred by section 18 (p) of Republic Act No. 409. Said section confers upon the municipal board
the power "to tax motor and other vehicles operating within the City of Manila the provisions of any
existing law to the contrary notwithstanding." It is contended that this power is broad enough to
confer upon the City of Manila the power to enact an ordinance imposing the property tax on motor
vehicles operating within the city limits.
In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the
Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the municipal
corporation to impose tax on motor vehicles operating in any highway in the Philippines. The
pertinent provisions are contained in section 70 (b) which provide in part:
No further fees than those fixed in this Act shall be exacted or demanded by any public
highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the
operation of any motor vehicle by the owner thereof: Provided, however, That nothing in this
Act shall be construed to exempt any motor vehicle from the payment of any lawful and
equitable insular, local or municipal property tax imposed thereupon. . . .
Note that under the above section no fees may be exacted or demanded for the operation of any
motor vehicle other than those therein provided, the only exception being that which refers to the
property tax which may be imposed by a municipal corporation. This provision is all-inclusive in that
sense that it applies to all motor vehicles. In this sense, this provision should be construed as limiting
the broad grant of power conferred upon the City of Manila by its Charter to impose taxes. When
section 18 of said Charter provides that the City of Manila can impose a tax on motor vehicles
operating within its limit, it can only refers to property tax as a different interpretation would make it
repugnant to the Motor Vehicle Law.
Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance Levying a
Property Tax on All Motor Vehicles Operating Within the City of Manila", and that in its section 1 it
provides that the tax should be 1 per cent ad valorem per annum. It also provides that the proceeds
of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be expended exclusively
for the repair, maintenance and improvement of its streets and bridges." Considering the wording
used in the ordinance in the light in the purpose for which the tax is created, can we consider the tax
thus imposed as property tax, as claimed by respondents?
While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the
rule should not be taken in its absolute sense if the nature and purpose of the tax as gathered from
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the context show that it is in effect an excise or a license tax. Thus, it has been held that "If a tax is in
its nature an excise, it does not become a property tax because it is proportioned in amount to the
value of the property used in connection with the occupation, privilege or act which is taxed. Every
excise necessarily must finally fall upon and be paid by property and so may be indirectly a tax upon
property; but if it is really imposed upon the performance of an act, enjoyment of a privilege, or the
engaging in an occupation, it will be considered an excise." (26 R. C. L., 35-36.) It has also been held
that
The character of the tax as a property tax or a license or occupation tax must be determined
by its incidents, and from the natural and legal effect of the language employed in the act or
ordinance, and not by the name by which it is described, or by the mode adopted in fixing its
amount. If it is clearly a property tax, it will be so regarded, even though nominally and in
form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons
on account of their business, it will be construed as a license or occupation tax, even though
it is graduated according to the property used in such business, or on the gross receipts of
the business. (37 C.J., 172)
The ordinance in question falls under the foregoing rules. While it refers to property tax and it is
fixed ad valoremyet we cannot reject the idea that it is merely levied on motor vehicles operating
within the City of Manila with the main purpose of raising funds to be expended exclusively for the
repair, maintenance and improvement of the streets and bridges in said city. This is precisely what
the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act,
municipal corporation already participate in the distribution of the proceeds that are raised for the
same purpose of repairing, maintaining and improving bridges and public highway (section 73 of the
Motor Vehicle Law). This prohibition is intended to prevent duplication in the imposition of fees for
the same purpose. It is for this reason that we believe that the ordinance in question merely imposes
a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above
adverted to.
It is also our opinion that the ordinance infringes the rule of the uniformity of taxation ordained by
our Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating within the
City of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for
private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and
one registered in another place but occasionally comes to Manila and uses its streets and public
highways. The distinction is important if we note that the ordinance intends to burden with the tax
only those registered in the City of Manila as may be inferred from the word "operating" used
therein. The word "operating" denotes a connotation which is akin to a registration, for under the
Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration
fees. There is no pretense that the ordinance equally applies to motor vehicles who come to Manila
for a temporary stay or for short errands, and it cannot be denied that they contribute in no small
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degree to the deterioration of the streets and public highway. The fact that they are benefited by
their use they should also be made to share the corresponding burden. And yet such is not the case.
This is an inequality which we find in the ordinance, and which renders it offensive to the
Constitution.
Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and void.
No. L-23794. February 17, 1968.
ORMOC SUGAR COMPANY, INC., plaintiff-appellant, vs. TREASURER OF ORMOC CITY, THE
MUNICIPAL BOARD OF ORMOC CITY, HON. ESTEBAN C. CONEJOS, as Mayor of Ormoc City "and
ORMOC CITY, defendants-appellees.
Constitutional law; Equal protection of law; Reasonable classification ; Requisites.T he eq ual protec
tion c lause a only to persons or things identically situated and does not bar a reasonable
classification of the subject of legislation. 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.
Same; Same; Same; Ta x ordinan ce sho uld no t be sin and exclusive.When the taxing ordinance
was enacted, Ormoc Sugar Co., Inc. was the only sugar central in the City. A reasonable classification
should be in terms applicable to future conditions as well. The taxing ordinance should not be
singular and exclusive as to exclude any subsequently established sugar central from the coverage of
the tax. A subsequently established sugar central cannot be subject to tax because the ordinance
expressly points to Ormoc Sugar Company, Inc. as the entity to be levied upon.
Taxation; Tax; Refund of; No interest can be claimed; Reasons.Appellant is not entitled to interest
on the refund because the taxes were not arbitrarily collected. There is sufficient basis to preclude
arbitrariness. The constitutionality of the statute is presumed until declared otherwise. [Ormoc Sugar
Co., Inc. vs. Treasurer of Ormoc City, 22 SCRA 603(1968)]
BENGZON, J.P., J.:
On January 29, 1964, the Municipal Board of Ormoc City passed 1 Ordinance No. 4, Series of
1964, imposing "on any and all productions of centrifugal sugar milled at the Ormoc Sugar
Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per export sale to
the United States of America and other foreign countries." 2
Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. on March 20,
1964 for P7,087.50 and on April 20, 1964 for P5,000, or a total of P12,087.50.
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On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of First Instance of Leyte,
with service of a copy upon the Solicitor General, a complaint 3 against the City of Ormoc as well as
its Treasurer, Municipal Board and Mayor, alleging that the afore-stated ordinance is unconstitutional
for being violative of the equal protection clause (Sec. 1[1], Art. III, Constitution) and the rule of
uniformity of taxation (Sec. 22[1]), Art. VI, Constitution), aside from being an export tax forbidden
under Section 2287 of the Revised Administrative Code. It further alleged that the tax is neither a
production nor a license tax which Ormoc City under Section 15-kk of its charter and under Section 2
of Republic Act 2264, otherwise known as the Local Autonomy Act, is authorized to impose; and that
the tax amounts to a customs duty, fee or charge in violation of paragraph 1 of Section 2 of Republic
Act 2264 because the tax is on both the sale and export of sugar.
Answering, the defendants asserted that the tax ordinance was within defendant city's power
to enact under the Local Autonomy Act and that the same did not violate the afore-cited
constitutional limitations. After pre-trial and submission of the case on memoranda, the Court of First
Instance, on August 6, 1964, rendered a decision that upheld the constitutionality of the ordinance
and declared the taxing power of defendant chartered city broadened by the Local Autonomy Act to
include all other forms of taxes, licenses or fees not excluded in its charter.
Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar Company, Inc. Appellant
alleges the same statutory and constitutional violations in the aforesaid taxing ordinance mentioned
earlier.
Section 1 of the ordinance states: "There shall be paid to the City Treasurer on any and all
productions of centrifugal sugar milled at the Ormoc Sugar Company, Incorporated, in Ormoc City, a
municipal tax equivalent to one per centum (1%) per export sale to the United States of America and
other foreign countries." 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.
Appellant questions the authority of the defendant Municipal Board to levy such an export tax,
in view of Section 2287 of the Revised Administrative Code which denies from municipal councils the
power to impose an export tax. Section 2287 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."
Subsequently, however, Section 2 of Republic Act 2264 effective June 19, 1959, gave chartered
cities, municipalities and municipal districts authority to levy for public purposes just and uniform
taxes, licenses or fees. Anent the inconsistency between Section 2287 of the Revised Administrative
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Code and Section 2 of Republic Act 2264, this Court, in Nin Bay Mining Co. v. Municipality of
Roxas 4 held the former to have been repealed by the latter. And expressing Our awareness of the
transcendental effects that municipal export or import taxes or licenses will have on the national
economy, due to Section 2 of Republic Act 2264, We stated that there was no other alternative until
Congress acts to provide remedial measures to forestall any unfavorable results.
The point remains to be determined, however, whether constitutional limits on the power of
taxation, specifically the equal protection clause and rule of uniformity of taxation, were infringed.
The Constitution in the bill of rights provides: ". . . nor shall any person be denied the equal
protection of the laws." (Sec. 1 [1], Art. III) In Felwa vs. Salas, 5 We ruled that 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.
A perusal of the requisites instantly shows that the questioned ordinance does not meet them,
for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and
none other. At the time of the taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is true,
was the only sugar central in the city of Ormoc. 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 subsequently established sugar central, of the same class as plaintiff, for
the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to
the tax because the ordinance expressly points only to Ormoc City Sugar Company, Inc. as the entity
to be levied upon.
Appellant, however, is not entitled to interest; on the refund because the taxes were not
arbitrarily collected (Collector of Internal Revenue v. Binalbagan). 6 At the time of collection, the
ordinance provided a sufficient basis to preclude arbitrariness, the same being then presumed
constitutional until declared otherwise.
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.
G.R. No. 108524. November 10, 1994.*
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MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner, vs. DEPARTMENT OF

FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND
REVENUE DISTRICT OFFICER, BIR MISAMIS ORIENTAL, respondents.
Administrative Law; NIRC; In interpreting 103 (a) and (b) of the NIRC, the Commissioner of Internal
Revenue gave it a strict construction consistent with the rule that tax exemption must be strictly
construed against the tax payer and liberally in favor of the state.We agree with respondents. In
interpreting 103(a) and (b) of the NIRC, the Commissioner of Internal Revenue gave it a strict
construction consistent with the rule that tax exemptions must be strictly construed against the
taxpayer and liberally in favor of the state. Indeed, even Dr. Kintanar said that his classification of
copra as food was based on the broader definition of food which includes agricultural commodities
and other components used in the manufacture/processing of food.
Same; Same; Same; Opinion of the Commissioner of Internal Revenue in the absence of any showing
that it is plainly wrong is entitled to great weight.Moreover, as the government agency charged
with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the
absence of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling was
made by the Commissioner of Internal Revenue in the exercise of his power under 245 of the NIRC
to make rulings or opinions in connection with the implementation of the provisions of internal
revenue laws, including rulings on the classification of articles for sales tax and similar purposes.
Same; Same; Same; Same; The Commissioner of Internal Revenue is not bound by the ruling of his
predecessors.In the case at bar, we find no reason for holding that respondent Commissioner
erred in not considering copra as an agricultural food product within the meaning of 103(b) of
the NIRC. As the Solicitor General contends, copra per se is not food, that is, it is not intended for
human consumption. Simply stated, nobody eats copra for food. That previous Commissioners
considered it so, is not reason for holding that the present interpretation is wrong. The
Commissioner of Internal Revenue is not bound by the ruling of his predecessors. To the contrary,
the overruling of decisions is inherent in the interpretation of laws.
Same; Same; Same; There is a material and substantial difference between coconut farmers and
copra producers on the one hand and copra traders and dealers on the other.The argument has no
merit. There is a material or substantial difference between coconut farmers and copra products, on
the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the
latter merely sell copra. The Constitution does not forbid the differential treatment of persons so
long as there is a reasonable basis for classifying them differently.
Same; Same; Same; Same; The argument that the classification of copra as agricultural non-food
product is counterproductive is a question of wisdom or policy which should be addressed to
respondent officials and to Congress.The sale of agricultural non-food products is exempt from
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VAT only when made by the primary producer or owner of the land from which the same is
produced, but in the case of agricultural food products their sale in their original state is exempt at
all stages of production or distribution. At any rate, the argument that the classification of copra as
agricultural non-food product is counterproductive is a question of wisdom or policy which should
be addressed to respondent officials and to Congress. [Misamis Oriental Association of Coco Traders,
Inc. vs. Department of Finance Secretary, 238 SCRA 63(1994)]
MENDOZA, J.:
This is a petition for prohibition and injunction seeking to nullify Revenue Memorandum Circular No.
47-91 and enjoin the collection by respondent revenue officials of the Value Added Tax (VAT) on the
sale of copra by members of petitioner organization. 1
Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose
members, individually or collectively, are engaged in the buying and selling of copra in Misamis
Oriental. The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on
June 11, 1991, which implemented VAT Ruling 190-90, copra was classified as agricultural food
product under $ 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all
stages of production or distribution.
Respondents represent departments of the executive branch of government charged with the
generation of funds and the assessment, levy and collection of taxes and other imposts.
The pertinent provision of the NIRC states:
Sec. 103. Exempt Transactions. The following shall be exempt from the valueadded tax:
(a) Sale of nonfood agricultural, marine and forest products in their original state by
the primary producer or the owner of the land where the same are produced;
(b) Sale or importation in their original state of agricultural and marine food
products, livestock and poultry of a kind generally used as, or yielding or producing
foods for human consumption, and breeding stock and genetic material therefor;
Under 103(a), as above quoted, the sale of agricultural non-food products in their original state is
exempt from VAT only if the sale is made by the primary producer or owner of the land from which
the same are produced. The sale made by any other person or entity, like a trader or dealer, is not
exempt from the tax. On the other hand, under 103(b) the sale of agricultural food products in their
original state is exempt from VAT at all stages of production or distribution regardless of who the
seller is.
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The question is whether copra is an agricultural food or non-food product for purposes of this
provision of the NIRC. On June 11, 1991, respondent Commissioner of Internal Revenue issued the
circular in question, classifying copra as an agricultural non-food product and declaring it "exempt
from VAT only if the sale is made by the primary producer pursuant to Section 103(a) of the Tax
Code, as amended." 2
The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed
when copra was classified as an agricultural food product under 103(b) of the NIRC. Petitioner
challenges RMC No. 47-91 on various grounds, which will be presently discussed although not in the
order raised in the petition for prohibition.
First. Petitioner contends that the Bureau of Food and Drug of the Department of Health and not the
BIR is the competent government agency to determine the proper classification of food products.
Petitioner cites the opinion of Dr. Quintin Kintanar of the Bureau of Food and Drug to the effect that
copra should be considered "food" because it is produced from coconut which is food and 80% of
coconut products are edible.
On the other hand, the respondents argue that the opinion of the BIR, as the government agency
charged with the implementation and interpretation of the tax laws, is entitled to great respect.
We agree with respondents. In interpreting 103(a) and (b) of the NIRC, the Commissioner of Internal
Revenue gave it a strict construction consistent with the rule that tax exemptions must be strictly
construed against the taxpayer and liberally in favor of the state. Indeed, even Dr. Kintanar said that
his classification of copra as food was based on "the broader definition of food which includes
agricultural commodities and other components used in the manufacture/processing of food." The
full text of his letter reads:
10 April 1991
Mr. VICTOR A. DEOFERIO, JR.
Chairman VAT Review Committee
Bureau of Internal Revenue
Diliman, Quezon City
Dear Mr. Deoferio:
This is to clarify a previous communication made by this Office about copra in a letter
dated 05 December 1990 stating that copra is not classified as food. The statement
was made in the context of BFAD's regulatory responsibilities which focus mainly on
foods that are processed and packaged, and thereby copra is not covered.
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However, in the broader definition of food which include agricultural commodities

and other components used in the manufacture/ processing of food, it is our opinion
that copra should be classified as an agricultural food product since copra is
produced from coconut meat which is food and based on available information,
more than 80% of products derived from copra are edible products.
Very truly yours,
QUINTIN L. KINTANAR, M.D., Ph.D.
Director
Assistant Secretary of Health for Standards and Regulations
Moreover, as the government agency charged with the enforcement of the law, the opinion of the
Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled
to great weight. Indeed, the ruling was made by the Commissioner of Internal Revenue in the
exercise of his power under 245 of the NIRC to "make rulings or opinions in connection with the
implementation of the provisions of internal revenue laws,including rulings on the classification of
articles for sales tax and similar purposes."

Second. Petitioner complains that it was denied due process because it was not heard before the
ruling was made. There is a distinction in administrative law between legislative rules and
interpretative rules. 3 There would be force in petitioner's argument if the circular in question were in
the nature of a legislative rule. But it is not. It is a mere interpretative rule.
The reason for this distinction is that a legislative rule is in the nature of subordinate legislation,
designed to implement a primary legislation by providing the details thereof. In the same way that
laws must have the benefit of public hearing, it is generally required that before a legislative rule is
adopted there must be hearing. In this connection, the Administrative Code of 1987 provides:
Public Participation. If not otherwise required by law, an agency shall, as far as

practicable, publish or circulate notices of proposed rules and afford interested
parties the opportunity to submit their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates
shall have been published in a newspaper of general circulation at least two (2) weeks
before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed. 4
In addition such rule must be published. 5 On the other hand, interpretative rules are designed to
provide guidelines to the law which the administrative agency is in charge of enforcing.
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Accordingly, in considering a legislative rule a court is free to make three inquiries: (i) whether the
rule is within the delegated authority of the administrative agency; (ii) whether it is reasonable; and
(iii) whether it was issued pursuant to proper procedure. But the court is not free to substitute its
judgment as to the desirability or wisdom of the rule for the legislative body, by its delegation of
administrative judgment, has committed those questions to administrative judgments and not to
judicial judgments. In the case of an interpretative rule, the inquiry is not into the validity but into the
correctness or propriety of the rule. As a matter of power a court, when confronted with an
interpretative rule, is free to (i) give the force of law to the rule; (ii) go to the opposite extreme and
substitute its judgment; or (iii) give some intermediate degree of authoritative weight to the
interpretative rule. 6
In the case at bar, we find no reason for holding that respondent Commissioner erred in not
considering copra as an "agricultural food product" within the meaning of 103(b) of the NIRC. As
the Solicitor General contends, "copra per se is not food, that is, it is not intended for human
consumption. Simply stated, nobody eats copra for food." That previous Commissioners considered
it so, is not reason for holding that the present interpretation is wrong. The Commissioner of Internal
Revenue is not bound by the ruling of his predecessors. 7 To the contrary, the overruling of decisions
is inherent in the interpretation of laws.
Third. Petitioner likewise claims that RMC No. 47-91 is discriminatory and violative of the equal
protection clause of the Constitution because while coconut farmers and copra producers are
exempt, traders and dealers are not, although both sell copra in its original state. Petitioners add that
oil millers do not enjoy tax credit out of the VAT payment of traders and dealers.
The argument has no merit. There is a material or substantial difference between coconut farmers
and copra producers, on the one hand, and copra traders and dealers, on the other. The
former produce and sell copra, the latter merely sell copra. The Constitution does not forbid the
differential treatment of persons so long as there is a reasonable basis for classifying them
differently. 8
It is not true that oil millers are exempt from VAT. Pursuant to 102 of the NIRC, they are subject to
10% VAT on the sale of services. Under 104 of the Tax Code, they are allowed to credit the input tax
on the sale of copra by traders and dealers, but there is no tax credit if the sale is made directly by
the copra producer as the sale is VAT exempt. In the same manner, copra traders and dealers are
allowed to credit the input tax on the sale of copra by other traders and dealers, but there is no tax
credit if the sale is made by the producer.
Fourth. It is finally argued that RMC No. 47-91 is counterproductive because traders and dealers
would be forced to buy copra from coconut farmers who are exempt from the VAT and that to the
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extent that prices are reduced the government would lose revenues as the 10% tax base is
correspondingly diminished.
This is not so. The sale of agricultural non-food products is exempt from VAT only when made by the
primary producer or owner of the land from which the same is produced, but in the case of
agricultural food products their sale in their original state is exempt at all stages of production or
distribution. At any rate, the argument that the classification of copra as agricultural non-food
product is counterproductive is a question of wisdom or policy which should be addressed to
respondent officials and to Congress.
WHEREFORE, the petition is DISMISSED.
G.R. No. 115455. August 25, 1994.*
ARTURO M. TOLENTINO, petitioner, vs. THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
Constitutional Law; Statutes; Taxation; Origin of revenue bills; A bill originating in the House of
Representatives may undergo such extensive changes in the Senate that the result may be a
rewriting of the whole; As a result of the Senate action, a distinct bill may be produced and to insist
that a revenue statute must substantially be the same as the House bill would be to deny the
Senates power not only to concur with amendments but also to propose amendments.
Petitioners contention is that Republic Act No. 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, 24 of the Constitution, because it is in fact the result of the
consolidation of two distinct bills, H. No. 11197 and S. No. 1630. In this connection, petitioners point
out that although Art. VI, 24 was adopted from the American Federal Constitution, it is notable in
two respects: the verb shall originate is qualified in the Philippine Constitution by the word
exclusively and the phrase as on other bills in the American version is omitted. This means,
according to them, that to be considered as having originated in the House, Republic Act No. 7716
must retain the essence of H. No. 11197. This argument will not bear analysis. To begin with, it is not
the lawbut the revenue billwhich is required by the Constitution to originate exclusively in the
House of Representatives. It is important to emphasize this, because a bill originating in the House
may undergo such extensive changes in the Senate that the result may be a rewriting of the whole.
The possibility of a third version by the conference committee will be discussed later. At this point,
what is important to note is that, as a result of the Senate action, a distinct bill may be produced. To
insist that a revenue statuteand not only the bill which initiated the legislative process culminating
in the enactment of the lawmust substantially be the same as the House bill would be to deny the
Senates power not only to concur with amendments but also to propose amendments. It would
be to violate the coequality of legislative power of the two houses of Congress and in fact make the
House superior to the Senate.
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Same; Same; Same; Same; Legislative power is vested in the Congress of the Philippines, consisting of
a Senate and a House of Representatives, not in any particular chamber.The contention that the
constitutional design is to limit the Senates power in respect of revenue bills in order to compensate
for the grant to the Senate of the treaty-ratifying power and thereby equalize its powers and those of
the House overlooks the fact that the powers being compared are different. We are dealing here with
the legislative power which under the Constitution is vested not in any particular chamber but in the
Congress of the Philippines, consisting of a Senate and a House of Represen-tatives. The exercise of
the treaty-ratifying power is not the exercise of legislative power. It is the exercise of a check on the
executive power. There is, therefore, no justification for comparing the legislative powers of the
House and of the Senate on the basis of the possession of such nonlegislative power by the Senate.
The possession of a similar power by the U.S. Senate has never been thought of as giving it more
legislative powers than the House of Representatives.
Same; Same; Same; Same; There is really no difference between the Senate preserving the House Bill
up to the enacting clause and then writing its own version following the enacting clause and, on the
other hand, separately presenting a bill of its own on the same subject matter.It is insisted,
however, that S. No. 1630 was passed not in substitution of H. No. 11197 but of another Senate bill
(S. No. 1129) earlier filed and that what the Senate did was merely to take [H. No. 11197] into
consideration in enacting S. No. 1630. There is really no difference between the Senate preserving H.
No. 11197 up to the enacting clause and then writing its own version following the enacting clause
(which, it would seem, petitioners admit is an amendment by substitution), and, on the other hand,
separately presenting a bill of its own on the same subject matter. In either case the result are two
bills on the same subject.
Same; Same; Same; Same; The Constitution simply means that the initiative for filing revenue, tariff,
or tax bills, bills authorizing an increase of the public debt, private bills and bills of local application
must come from the House of Representatives and that it does not prohibit the filing in the Senate
of a substitute bill in anticipation of its receipt of the bill from the House.Indeed, what the
Constitution simply means is that the initiative for filing revenue, tariff, or tax bills, bills authorizing an
increase of the public debt, private bills and bills of local application must come from the House of
Representatives on the theory that, elected as they are from the districts, the members of the House
can be expected to be more sensitive to the local needs and problems. On the other hand, the
senators, who are elected at large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment of such laws. Nor does the
Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill
from the House, so long as action by the Senate as a body is withheld pending receipt of the House
bill.
Same; Same; Presidential certification on urgency of a bill dispenses with the requirement not only of
printing but also that of reading the bill on separate days.The presidential certification dispensed
with the requirement not only of printing but also that of reading the bill on separate days. The
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phrase except when the President certifies to the necessity of its immediate enactment, etc. in Art.
VI, 26(2) qualifies the two stated conditions before a bill can become a law: (i) the bill has passed
three readings on separate days and (ii) it has been printed in its final form and distributed three
days before it is finally approved. In other words, the unless clause must be read in relation to the
except clause, because the two are really coordinate clauses of the same sentence. To construe the
except clause as simply dispensing with the second requirement in the unless clause (i.e., printing
and distribution three days before final approval) would not only violate the rules of grammar. It
would also negate the very premise of the except clause: the necessity of securing the immediate
enactment of a bill which is certified in order to meet a public calamity or emergency. For if it is only
the printing that is dispensed with by presidential certification, the time saved would be so negligible
as to be of any use in insuring immediate enactment. It may well be doubted whether doing away
with the necessity of printing and distributing copies of the bill three days before the third reading
would insure speedy enactment of a law in the face of an emergency requiring the calling of a
special election for President and Vice-President. Under the Constitution such a law is required to be
made within seven days of the convening of Congress in emergency session.
Same; Same; Judicial Review; While the sufficiency of the factual basis of the suspension of the writ of
habeas corpus or declaration of martial law is subject to judicial review because basic rights of
individuals may be at hazard, the factual basis of presidential certification of bills, which involves
doing away with procedural requirements designed to insure that bills are duly considered by
members of Congress, certainly should elicit a different standard of review.It is nonetheless urged
that the certification of the bill in this case was invalid because there was no emergency, the
condition stated in the certification of a growing budget deficit not being an unusual condition in
this country. It is noteworthy that no member of the Senate saw fit to controvert the reality of the
factual basis of the certification. To the contrary, by passing S. No. 1630 on second and third
readings on March 24, 1994, the Senate accepted the Presidents certification. Should such certification be now reviewed by this Court, especially when no evidence has been shown that, because S.
No. 1630 was taken up on second and third readings on the same day, the members of the Senate
were deprived of the time needed for the study of a vital piece of legislation? The sufficiency of the
factual basis of the suspension of the writ of habeas corpus or declaration of martial law under Art.
VII, 18, or the existence of a national emergency justifying the delegation of extraordinary powers
to the President under Art. VI, 23(2), is subject to judicial review because basic rights of individuals
may be at hazard. But the factual basis of presidential certification of bills, which involves doing away
with procedural requirements designed to insure that bills are duly considered by members of
Congress, certainly should elicit a different standard of review.
Same; Same; Bicameral Conference Committee; A third version of the bill may result from the
conference committee, which is considered an amendment in the nature of a substitute, the only
requirement being that the third version be germane to the subject of the House and Senate bills.
As to the possibility of an entirely new bill emerging out of a Conference Committee, it has been
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explained: Under congressional rules of procedure, conference committees are not expected to make
any material change in the measure at issue, either by deleting provisions to which both houses have
already agreed or by inserting new provisions. But this is a difficult provision to enforce. Note the
problem when one house amends a proposal originating in either house by striking out everything
following the enacting clause and substituting provisions which make it an entirely new bill. The
versions are now altogether different, permitting a conference committee to draft essentially a new
bill . . . . The result is a third version, which is considered an amendment in the nature of a
substitute, the only requirement for which being that the third version be germane to the subject of
the House and Senate bills.
Same; Same; Same; The report of the conference committee needs the approval of both houses of
Congress to become valid as an act of the legislative department.Indeed, this Court recently held
that it is within the power of a conference committee to include in its report an entirely new
provision that is not found either in the House bill or in the Senate bill. If the committee can propose
an amendment consisting of one or two provisions, there is no reason why it cannot propose several
provisions, collectively considered as an amendment in the nature of a substitute, so long as such
amendment is germane to the subject of the bills before the committee. After all, its report was not
final but needed the approval of both houses of Congress to become valid as an act of the legislative
department. The charge that in this case the Conference Committee acted as a third legislative
chamber is thus without any basis.
Same; Same; Same; Separation of Powers; It is common place in Congress that conference committee
reports include new matters which, though germane, have not been committed to the committee,
and if a change is desired in the practice, it must be sought in Congress since this question is not
covered by any constitutional provision but is only an internal rule of each house.To be sure,
nothing in the Rules limits a conference committee to a consideration of conflicting provisions. But
Rule XLIV, 112 of the Rules of the Senate is cited to the effect that If there is no Rule applicable to
a specific case the precedents of the Legislative Department of the Philippines shall be resorted to,
and as a supplement of these, the Rules contained in Jeffersons Manual. The following is then
quoted from the Jeffersons Manual: The managers of a conference must confine themselves to the
differences committed to them . . . and may not include subjects not within disagreements, even
though germane to a question in issue. Note that, according to Rule XLIX, 112, in case there is no
specific rule applicable, resort must be to the legislative practice. The Jeffersons Manual is resorted
to only as supplement. It is common place in Congress that conference committee reports include
new matters which, though germane, have not been committed to the committee. This practice was
admitted by Senator Raul S. Roco, petitioner in G.R. No. 115543, during the oral argument in these
cases. Whatever, then, may be provided in the Jeffersons Manual must be considered to have been
modified by the legislative practice. If a change is desired in the practice it must be sought in
Congress since this question is not covered by any constitutional provision but is only an internal
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rule of each house. Thus, Art. VI, 16(3) of the Constitution provides that Each House may determine
the rules of its proceedings . . . .
Same; Same; Same; Same; Bill-Drafting; The use of brackets and capital letters to indicate changes is
a standard practice in bill-drafting; The Supreme Courts concern is with the procedural requirements
of the Constitution for the enactment of laws, not the enforcement of internal Rules of Congress
since parliamentary rules are merely procedural and with their observance the courts have no
concern.This observation applies to the other contention that the Rules of the two chambers were
likewise disregarded in the preparation of the Conference Committee Report because the Report did
not contain a detailed and sufficiently explicit statement of changes in, or amendments to, the
subject measure. The Report used brackets and capital letters to indicate the changes. This is a
standard practice in bill-drafting. We cannot say that in using these marks and symbols the
Committee violated the Rules of the Senate and the House. Moreover, this Court is not the proper
forum for the enforcement of these internal Rules. To the contrary, as we have already ruled,
parliamentary rules are merely procedural and with their observance the courts have no concern.
Our concern is with the procedural requirements of the Constitution for the enactment of laws. As far
as these requirements are concerned, we are satisfied that they have been faithfully observed in
these cases.
Same; Same; Same; Same; The three-reading requirement refers only to bills introduced for the first
time in either house of Congress, not to the conference committee report.Art. VI, 26(2) must,
therefore, be construed as referring only to bills introduced for the first time in either house of
Congress, not to the conference committee report. For if the purpose of requiring three readings is
to give members of Congress time to study bills, it cannot be gainsaid that H. No. 11197 was passed
in the House after three readings; that in the Senate it was considered on first reading and then
referred to a committee of that body; that although the Senate committee did not report out the
House bill, it submitted a version (S. No. 1630) which it had prepared by taking into consideration
the House bill; that for its part the Conference Committee consolidated the two bills and prepared a
compromise version; that the Conference Committee Report was thereafter approved by the House
and the Senate, presumably after appropriate study by their members. We cannot say that, as a
matter of fact, the members of Congress were not fully informed of the provisions of the bill. The
allegation that the Conference Committee usurped the legislative power of Congress is, in our view,
without warrant in fact and in law.
Same; Same; Same; Same; Enrolled Bill Doctrine; An enrolled copy of a bill is conclusive not only of its
provisions but also of its due enactment.Whatever doubts there may be as to the formal validity of
Republic Act No. 7716 must be resolved in its favor. Our cases manifest firm adherence to the rule
that an enrolled copy of a bill is conclusive not only of its provisions but also of its due enactment.
Not even claims that a proposed constitutional amendment was invalid because the requisite votes
for its approval had not been obtained or that certain provisions of a statute had been smuggled in
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the printing of the bill have moved or persuaded us to look behind the proceedings of a coequal
branch of the government. There is no reason now to depart from this rule.
Same; Same; Same; Same; Same; While the enrolled bill rule is not absolute, the Supreme Court
should decline the invitation to go behind the enrolled copy of the bill where allegations that the
constitutional procedures for the passage of bills have not been observed have no more basis than
another allegation that the Conference Committee surreptitiously inserted provisions into a bill
which it had prepared.No claim is here made that the enrolled bill rule is absolute. In fact in one
case we went behind an enrolled bill and consulted the Journal to determine whether certain
provisions of a statute had been approved by the Senate in view of the fact that the President of the
Senate himself, who had signed the enrolled bill, admitted a mistake and withdrew his signature, so
that in effect there was no longer an enrolled bill to consider. But where allegations that the
constitutional procedures for the passage of bills have not been observed have no more basis than
another allegation that the Conference Committee surreptitiously inserted provisions into a bill
which it had prepared, we should decline the invitation to go behind the enrolled copy of the bill. To
disregard the enrolled bill rule in such cases would be to disregard the respect due the other two
departments of our government.
Same; Same; Titles of Bills; The constitutional requirement that every bill passed by Congress shall
embrace only one subject which shall be expressed in its title is intended to prevent surprise upon
the members of Congress and to inform the people of pending legislation so that, if they wish to,
they can be heard regarding it.The question is whether this amendment of 103 of the NIRC is
fairly embraced in the title of Republic Act No. 7716, although no mention is made therein of P.D.
No. 1590 as among those which the statute amends. We think it is, since the title states that the
purpose of the statute is to expand the VAT system, and one way of doing this is to widen its base by
withdrawing some of the exemptions granted before. To insist that P.D. No. 1590 be mentioned in
the title of the law, in addition to 103 of the NIRC, in which it is specifically referred to, would be to
insist that the title of a bill should be a complete index of its content. The constitutional requirement
that every bill passed by Congress shall embrace only one subject which shall be expressed in its title
is intended to prevent surprise upon the members of Congress and to inform the people of pending
legislation so that, if they wish to, they can be heard regarding it. If, in the case at bar, petitioner did
not know before that its exemption had been withdrawn, it is not because of any defect in the title
but perhaps for the same reason other statutes, although published, pass unnoticed until some event
somehow calls attention to their existence. Indeed, the title of Republic Act No. 7716 is not any more
general than the title of PALs own franchise under P.D. No. 1590, and yet no mention is made of its
tax exemption.
Same; Same; Same; The trend is to construe the constitutional requirement in such a manner that
courts do not unduly interfere with the enactment of necessary legislation.The trend in our cases is
to construe the constitutional requirement in such a manner that courts do not unduly interfere with
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the enactment of necessary legislation and to consider it sufficient if the title expresses the general
subject of the statute and all its provisions are germane to the general subject thus expressed.
Same; Same; Public Utilities; Franchises; 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.In
contrast, in the case at bar, Republic Act No. 7716 expressly amends PALs franchise (P.D. No. 1590)
by specifically excepting from the grant of exemptions from the VAT PALs exemption under P.D. No.
1590. This is within the power of Congress to do under Art. XII, 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.
Same; Taxation; Expanded Value Added Tax Law; Bill of Rights; Freedom of Expression; Even with due
recognition of its high estate and its importance in a democratic society, the press is not immune
from general regulation by the State.To be sure, we are not dealing here with a statute that on its
face operates in the area of press freedom. The PPIs claim is simply that, as applied to newspapers,
the law abridges press freedom. Even with due recognition of its high estate and its importance in a
democratic society, however, the press is not immune from general regulation by the State.
Same; Same; Same; Same; Same; Equal Protection Clause; The VAT law would perhaps be open to the
charge of discriminatory treatment if the only privilege withdrawn had been that granted to the
press.What it contends is that by withdrawing the exemption previously granted to print media
transactions involving printing, publication, importation or sale of newspapers, Republic Act No. 7716
has singled out the press for discriminatory treatment and that within the class of mass media the
law discriminates against print media by giving broadcast media favored treatment. We have
carefully examined this argument, but we are unable to find a differential treatment of the press by
the law, much less any censorial motivation for its enactment. If the press is now required to pay a
value-added tax on its transactions, it is not because it is being singled out, much less targeted, for
special treatment but only because of the removal of the exemption previously granted to it by law.
The withdrawal of exemption is all that is involved in these cases. Other transactions, likewise
previously granted exemption, have been delisted as part of the scheme to expand the base and the
scope of the VAT system. The law would perhaps be open to the charge of discriminatory treatment
if the only privilege withdrawn had been that granted to the press. But that is not the case.
Same; Same; Same; Same; Same; Same; There is a reasonable basis for the classification and different
treatment between print media and broadcast media.Nor is impermissible motive shown by the
fact that print media and broadcast media are treated differently. The press is taxed on its
transactions involving printing and publication, which are different from the transactions of
broadcast media. There is thus a reasonable basis for the classification.
Same; Same; Same; Same; Freedom of Religion; 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
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religious organization.What has been said above also disposes of the allegations of the PBS that
the removal of the exemption of printing, publication or importation of books and religious articles,
as well as their printing and publication, likewise violates freedom of thought and of conscience. For
as the U.S. Supreme Court unanimously held in Jimmy Swaggart Ministries v. Board of Equalization,
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.
Same; Same; Same; Same; The VAT registration fee is a mere administrative fee, one not imposed on
the exercise of a privilege, much less a constitutional right.In this case, the fee in 107, although a
fixed amount (P1,000), is not imposed for the exercise of a privilege but only for the purpose of
defraying part of the cost of registration. The registration requirement is a central feature of the VAT
system. It is designed to provide a record of tax credits because any person who is subject to the
payment of the VAT pays an input tax, even as he collects an output tax on sales made or services
rendered. The registration fee is thus a mere administrative fee, one not imposed on the exercise of a
privilege, much less a constitutional right.
Same; Same; Same; Same; Due Process; Hierarchy of Values; When freedom of the mind is imperiled
by law, it is freedom that commands a momentum of respect and when property is imperiled, it is
the lawmakers judgment that commands respect.There is basis for passing upon claims that on its
face the statute violates the guarantees of freedom of speech, press and religion. The possible
chilling effect which it may have on the essential freedom of the mind and conscience and the
need to assure that the channels of communication are open and operating importunately demand
the exercise of this Courts power of review. There is, however, no justification for passing upon the
claims that the law also violates the rule that taxation must be progressive and that it denies
petitioners right to due process and the equal protection of the laws. The reason for this different
treatment has been cogently stated by an eminent authority on constitutional law thus: [W]hen
freedom of the mind is imperiled by law, it is freedom that commands a momentum of respect; when
property is imperiled it is the lawmakers judgment that commands respect. This dual standard may
not precisely reverse the presumption of constitutionality in civil liberties cases, but obviously it does
set up a hierarchy of values within the due process clause.
Same; Same; Same; The legislature is not required to adhere to a policy of all or none in choosing
the subject of taxation.On the other hand, the CUPs 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, 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.
Same; Same; Same; 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.Indeed,
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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, 1), or for the
promotion of the right to quality education (Art. XIV, 1). These provisions are put in the
Constitution as moral incentives to legislation, not as judicially enforceable rights.
Same; Same; Same; Contract Clause; Contracts; 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.Only slightly less abstract but
nonetheless hypothetical is the contention of CREBA that the imposition of the VAT on the sales and
leases of real estate by virtue of contracts entered into prior to the effectivity of the law would violate
the constitutional provision that No law impairing the obligation of contracts shall be passed. 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.
Same; Same; Same; Same; Same; Contract Clause is not a limitation on the power of taxation save
only where a tax exemption was granted for a valid consideration.In truth, the Contract Clause has
never been thought as a limitation on the exercise of the States power of taxation save only where a
tax exemption has been granted for a valid consideration. Such is not the case of PAL in G.R. No.
115852, and we do not understand it to make this claim. Rather, its position, as discussed above, is
that the removal of its tax exemption cannot be made by a general, but only by a specific, law.
Same; Judicial Review; Public actions by non-Hohfeldian or ideological plaintiffs are now cognizable
provided they meet the standing requirement of the Constitution; There must be before the Court a
fully developed factual record that alone can impart to its adjudication the impact of actuality to
insure that decision-making is informed and well-grounded.The substantive issues raised in some
of the cases are presented in abstract, hypothetical form because of the lack of a concrete record.
We accept that this Court does not only adjudicate private cases; that public actions by nonHohfeldian or ideological plaintiffs are now cognizable provided they meet the standing
requirement of the Constitution; that under Art. VIII, 1, 2 the Court has a special function of
vindicating constitutional rights. Nonetheless the feeling cannot be escaped that we do not have
before us in these cases a fully developed factual record that alone can impart to our adjudication
the impact of actuality to insure that decision-making is informed and well grounded. Needless to
say, we do not have power to render advisory opinions or even jurisdiction over petitions for
declaratory judgment. In effect we are being asked to do what the Conference Committee is
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precisely accused of having done in these casesto sit as a third legislative chamber to review
legislation.
Same; Same; The duty of the Court to exercise its power of judicial review must still be performed in
the context of a concrete case or controversy; That the other departments of the government may
have committed a grave abuse of discretion is not an independent ground for exercising the Courts
power.It does not add anything, therefore, to invoke this duty to justify this Courts intervention
in what is essentially a case that at best is not ripe for adjudication. That duty must still be performed
in the context of a concrete case or controversy, as Art. VIII, 5(2) clearly defines our jurisdiction in
terms of cases, and nothing but cases. That the other departments of the government may have
committed a grave abuse of discretion is not an independent ground for exercising our power.
Disregard of the essential limits imposed by the case and controversy requirement can in the long
run only result in undermining our authority as a court of law. For, as judges, what we are called
upon to render is judgment according to law, not according to what may appear to be the opinion of
the day.
NARVASA, C.J., Separate Opinion:
Constitutional Law; Statutes; Origin of Revenue Bills; Origination should have no reference to time of
conception but to the affirmative act which effectively puts the bicameral legislative procedure in
motion, i.e., the transmission by one chamber to the other of a bill for its adoption, and it may be
that in the Senate, revenue or tax measures are discussed, even drafted, before a similar activity takes
place in the House.Exclusive origination, I submit, should have no reference to time of conception.
As a practical matter, origination should refer to the affirmative act which effectively puts the
bicameral legislative procedure in motion, i.e., the transmission by one chamber to the other of a bill
for its adoption. This is the purposeful act which sets the legislative machinery in operation to
effectively lead to the enactment of a statute. Until this transmission takes place, the formulation and
discussions, or the reading for three or more times of proposed measures in either chamber, would
be meaningless in the context of the activity leading towards concrete legislation. Unless transmitted
to the other chamber, a bill prepared by either house cannot possibly become law. In other words,
the first affirmative, efficacious step, the operative act as it were, leading to actual enactment of a
statute, is the transmission of a bill from one house to the other for action by the latter. This is the
origination that is spoken of in the Constitution in its Article VI, Section 24, in reference to
appropriation, revenue, or tariff bills, etc. It may be that in the Senate, revenue or tax measures are
discussed, even drafted, and this before a similar activity takes place in the House. This is of no
moment, so long as those measures or bills remain in the Senate and are not sent over to the House.
There is no origination of revenue or tax measures by the Senate in this case. However, once the
House completes the drawing up of a similar tax measure in accordance with the prescribed
procedure, even if this is done subsequent to the Senates own measureindeed, even if this be
inspired by information that a measure of the same nature or on the same subject has been
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formulated in the Senateand after third reading transmits its bill to the Senate, there is origination
by (or in) the House within the contemplation of the Constitution.
Same; Same; Judicial Review; Supreme Court; Petitioners may not, by raising what are concededly
novel and weighty constitutional questions, compel the Supreme Court to assume the role of a trier
of facts.The Court will reject a case where the legal issues raised, whatever they may be, depend
for their resolution on still unsettled questions of fact. Petitioners may not, by raising what are
concededly novel and weighty constitutional questions, compel the Court to assume the role of a
trier of facts. It is on the contrary their obligation, before raising those questions to this Court, to see
to it that all issues of fact are settled in accordance with the procedures laid down by law for proof of
facts. Failing this, petitioners would have only themselves to blame for a peremptory dismissal.
Same; Same; Enrolled Bill Doctrine; Separation of Powers; There is no proof worthy of the name of
any facts to justify the reexamination and, possibly, disregard, of the enrolled bill theory.I would
myself consider the enrolled bill theory as laying down a presumption of so strong a character as to
be well nigh absolute or conclusive, fully in accord with the familiar and fundamental philosophy of
separation of powers. The result, as far as I am concerned, is to make discussion of the enrolled bill
principle purely academic; for as already pointed out, there is no proof worthy of the name of any
facts to justify its reexamination and, possibly, disregard.
Same; Same; Bicameral Conference Committee; Both chambers of Congress entrust the function of
reconciling the bills to their delegates at a conference committee with full awareness, and tacit
consent, that new provisions may be included even if not within the disagreeing provisions.The
fact is that conference committees only take up bills which have already been freely and fully
discussed in both chambers of the legislature, but as to which there is need of reconciliation in view
of disagreeing provisions between them; and both chambers entrust the function of reconciling the
bills to their delegates at a conference committee with full awareness, and tacit consent, that
conformably with established practice unquestioningly observed over many years, new provisions
may be included even if not within the disagreeing provisions but of which, together with other
changes, they will be given detailed and sufficiently explicit information prior to voting on the
conference committee version.
Same; Same; Same; It is an unacceptable theorization that when the BCC report and its proposed bill
were submitted to the Senate and the House, and the members thereof did not bother to read, or
what is worse, having read did not understand, what was before them.In any case, all the changes
and revisions, and deletions, made by the conference committee were all subsequently considered
by and approved by both the Senate and the House, meeting and voting separately. It is an
unacceptable theorization, to repeat, that when the BCC report and its proposed bill were submitted
to the Senate and the House, and the members thereof did not bother to read, or what is worse,
having read did not understand, what was before them, or did not realize that there were new
provisions in the reconciled version unrelated to any disagreeing provisions, or that said new
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provisions or revisions were effectively concealed from them. Moreover, it certainly was entirely
within the power and prerogative of either legislative chamber to reject the BCC bill and require the
organization of a new bicameral conference committee. That this option was not exercised by either
house only proves that the BCC measure was found to be acceptable as in fact it was approved and
adopted by both chambers.
CRUZ, J., Separate Opinion:
Constitutional Law; Judicial Review; Where a specific procedure is fixed by the Constitution itself, it
should not suffice for Congress to simply say that the rules have been observed and flatly consider
the matter closed.I am persuaded even now that where a specific procedure is fixed by the
Constitution itself, it should not suffice for Congress to simply say that the rules have been observed
and flatly consider the matter closed. It does not have to be as final as that. I would imagine that the
judiciary, and particularly this Court, should be able to verify that statement and determine for itself,
through the exercise of its own powers, if the Constitution has, indeed, been obeyed. In fact, the
Court has already said that the question of whether certain procedural rules have been followed is
justiciable rather than political because what is involved is the legality and not the wisdom of the act
in question. So we ruled in Sanidad v. Commission on Elections (73 SCRA 333) on the amendment of
the Constitution; in Daza v. Singson (180 SCRA 496) on the composition of the Commission on
Appointments; and in the earlier case of Taada v. Cuenco (100 SCRA 1101) on the organization of
the Senate Electoral Tribunal, among several other cases. By the same token, the ascertainment of
whether a bill underwent the obligatory three readings in both Houses of Congres should not be
considered an invasion of the territory of the legislature as this would not involve an inquiry into its
discretion in approving the measure but only the manner in which the measure was enacted.
Same; Expanded VAT Law; Bicameral Conference Committee; The resultant enrolled bill did not
originate exclusively in the House of Representatives.The two bills were separately introduced in
their respective Chambers. Both retained their independent existence until they reached the
bicameral conference committee where they were consolidated. It was this consolidated measure
that was finally passed by Congress and submitted to the President of the Philippines for his
approval. House Bill No. 11197 originated in the House of Representatives but this was not the bill
that eventually became R.A. No. 7716. The measure that was signed into law by President Ramos was
the consolidation of that bill and another bill, viz., Senate Bill No. 1630, which was introduced in the
Senate. The resultant enrolled bill thus did not originate exclusively in the House of Representatives.
The enrolled bill itself says that part of it (and it does not matter to what extent) originated in the
Senate.
Same; Same; Same; The participation of the Senate was not in proposing or concurring with
amendments but in originating its own Senate bill which was not embodied in but merged with the
House bill.It would have been different if the only participation of the Senate was in the
amendment of the measure that was originally proposed in the House of Representatives. But this
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was not the case. The participation of the Senate was not in proposing or concurring with
amendments that would have been incorporated in House Bill No. 11197. Its participation was in
originating its own Senate Bill No. 1630, which was not embodied in but merged with House Bill No.
11197. Senate Bill No. 1630 was not even an amendment by substitution, assuming this was
permissible. To substitute means to take the place of; to put or use in place of another. Senate Bill
No. 1630 did not, upon its approval, replace (and thus eliminate) House Bill No. 11197. Both bills
retained their separate identities until they were joined or united into what became the enrolled bill
and ultimately R.A. No. 7716.
PADILLA, J., Separate Opinion:
Constitutional Law; Statutes; Origin of Revenue Bills; The approval by the Senate of Senate Bill No.
1630, after it had considered House Bill No. 11197, may be taken as an amendment by substitution
by the Senate not only of Senate Bill No. 1129 but of House Bill No. 11197 as well.Since the Senate
is, under the above-quoted constitutional provision, empowered to concur with a revenue measure
exclusively originating from the House, or to propose amendments thereto, to the extent of
proposing amendments by SUBSTITUTION to the House measure, the approval by the Senate of
Senate Bill No. 1630, after it had considered House Bill No. 11197, may be taken, in my view, as an
AMENDMENT BY SUBSTITUTION by the Senate not only of Senate Bill No. 1129 but of House Bill No.
11197 as well which, it must be remembered, originated exclusively from the House.
Same; Same; Separation of Powers; Presidential Certification of Bills; A becoming respect for a coequal and coordinate department of government points that weight and credibility be given to such
Presidential judgment.We have here then a situation where the President did certify to the
necessity of Senate Bill No. 1630s immediate enactment to meet an emergency and the Senate
responded accordingly. While I would be the last to say that this Court cannot review the exercise of
such power by the President in appropriate cases ripe for judicial review, I am not prepared however
to say that the President gravely abused his discretion in the exercise of such power as to require
that this Court overturn his action. We have been shown no fact or circumstance which would
impugn the judgment of the President, concurred in by the Senate, that there was an emergency that
required the immediate enactment of Senate Bill No. 1630. On the other hand, a becoming respect
for a co-equal and coordinate department of government points that weight and credibility be given
to such Presidential judgment.
Same; Bill of Rights; Freedom of Expression; R.A. 7716 in imposing a value-added tax on circulation
income of newspapers and similar publications and on income derived from publishing
advertisements in newspapers violates Sec. 4, Art III of the Constitution.Rep. Act No. 7716 in
imposing a value-added tax on circulation income of newspapers and similar publications and on
income derived from publishing advertisements in newspapers, to my mind, violates Sec. 4, Art. III of
the Constitution. Indeed, even the Executive Department has tried to cure this defect by the issuance
of BIR Regulation No. 11-94 precluding implementation of the tax in this area. It should be clear,
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however, that the BIR regulation cannot amend the law (Rep. Act No. 7716). Only legislation (as
distinguished from administration regulation) can amend an existing law.
Same; Same; Freedom of Religion; The imposition of the VAT on the sale and distribution of religious
articles must be struck down for being contrary to Sec. 5, Art. III of the Constitution.Similarly, the
imposition of the VAT on the sale and distribution of religious articles must be struck down for being
contrary to Sec. 5, Art. III of the Constitution which provides: Sec. 5. 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 forever be allowed.
No religious test shall be required for the exercise of civil or political rights.
Same; Same; Taxation; The inherent power of the State to tax, which is vested in the legislature,
includes the power to determine whom or what to tax, as well as how much to tax.CREBA which
specifically assails the 10% value-added tax on the gross selling price of real properties, fails to
distinguish between a sale of real properties primarily held for sale to customers or held for lease in
the ordinary course of trade or business and isolated sales by individual real property owners (Sec.
103[s]). That those engaged in the business of real estate development realize great profits is of
common knowledge and need not be discussed at length here. The qualification in the law that the
10% VAT covers only sales of real property primarily held for sale to customers, i.e. for trade or
business thus takes into consideration a taxpayers capacity to pay. There is no showing that the
consequent distinction in real estate sales is arbitrary and in violation of the equal protection clause
of the Constitution. The inherent power to tax of the State, which is vested in the legislature, includes
the power to determine whom or what to tax, as well as how much to tax. In the absence of a clear
showing that the tax violates the due process and equal protection clauses of the Constitution, this
Court, in keeping with the doctrine of separation of powers, has to defer to the discretion and
judgment of Congress on this point.
Same; Same; Franchises; R.A. 7716 can be considered a special law amending PALs franchise.There
can be no dispute, in my mind, that the clear intent of Congress was to modify PALs franchise with
respect to the taxes it has to pay. To this extent, Rep. Act No. 7716 can be considered as a special law
amending PALs franchise and its tax liability thereunder. That Rep. Act No. 7716 imposes the valueadded taxes on other subjects does not make it a general law which cannot amend PD No. 1590.
VITUG, J., Separate Opinion:
Constitutional Law; Judicial Review; Separation of Powers; It is not believed that judicial tyranny is
envisioned, let alone institutionalized, by the people in the 1987 Constitution.I cannot yet concede
to the novel theory, so challengingly provocative as it might be, that under the 1987 Constitution the
Court may now at good liberty intrude, in the guise of the peoples imprimatur, into every affair of
government. What significance can still then remain, I ask, of the time honored and widely acclaimed
principle of separation of powers, if at every turn the Court allows itself to pass upon, at will, the
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disposition of a co-equal, independent and coordinate branch in our system of government. I dread
to think of the so varied uncertainties that such an undue interference can lead to. The respect for
long standing doctrines in our jurisprudence, nourished through time, is one of maturity not timidity,
of stability rather than quiescence. It has never occurred to me, and neither do I believe it has been
intended, that judicial tyranny is envisioned, let alone institutionalized, by our people in the 1987
Constitution. The test of tyranny is not solely on how it is wielded but on how, in the first place, it can
be capable of being exercised. It is time that any such perception of judicial omnipotence is
corrected.
REGALADO, J., Dissenting Opinion:
Constitutional Law; Expanded VAT Law; The Senate clearly and deliberately violated the requirements
of the Constitution not only in the origination of the bill but in the very enactment of R.A. 7716.
This writer consequently agrees with the clearly tenable proposition of petitioners that when the
Senate passed and approved S.B. No. 1630, had it certified by the Chief Executive, and thereafter
caused its consideration by the bicameral conference committee in total substitution of H.B. No.
11197, it clearly and deliberately violated the requirements of the Constitution not only in the
origination of the bill but in the very enactment of Republic Act No. 7716. Contrarily, the shifting
sands of inconsistency in the arguments adduced for respondents betray such lack of intellectual
rectitude as to give the impression of being mere rhetorics in defense of the indefensible.
DAVIDE, JR., J., Dissenting Opinion:
Constitutional Law; Expanded VAT Law; R.A. 7716 did not originate exclusively in the House.Since
R.A. No. 7716 is a revenue measure, it must originate exclusively in the Housenot in the Senate. As
correctly asserted by petitioner Tolentino, on the face of the enrolled copy of R.A. No. 7716, it is a
CONSOLIDATION OF HOUSE BILL NO. 11197 AND SENATE BILL NO. 1630. In short, it is an illicit
marriage of a bill which originated in the House and a bill which originated in the Senate. Therefore,
R.A. No. 7716 did not originate exclusively in the House.
Same; Same; Origin of Revenue Bills; The Senate cannot amend by substitution with an entirely new
bill of its own any bill covered by Section 24 of Article VI which the House transmitted to it because
such substitution would indirectly violate Section 24.Since the origination is not exclusively vested
in the House of Representatives of the United States, the Senates authority to propose or concur
with amendments is necessarily broader. That broader authority is further confirmed by the phrase
as on other Bills, i.e., its power to propose or concur with amendments thereon is the same as in
ordinary bills. The absence of this phrase in our Constitution was clearly intended to restrict or limit
the Philippine Senates power to propose or concur with amendments. In the light of the exclusivity
of origination and the absence of the phrase as on other Bills, the Philippine Senate cannot amend
by substitution with an entirely new bill of its own any bill covered by Section 24 of Article VI which
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the House of Representatives transmitted to it because such substitution would indirectly violate
Section 24.
Same; Same; Same; Presidential Certification of Bills; The only revenue bill which could be properly
certified on permissible constitutional grounds is the bill that was introduced in the House.I
submit, however, that the Presidential certification is void ab initio not necessarily for the reason
adduced by petitioner Kilosbayan, Inc., but because it was addressed to the Senate for a bill which is
prohibited from originating therein. The only bill which could be properly certified on permissible
constitutional grounds even if it had already been transmitted to the Senate is HB No. 11197. As
earlier observed, this was not so certified, although HB No. 9210 (one of those consolidated into HB
No. 11197) was certified on 1 June 1993. Also, the certification of SB No. 1630 cannot, by any stretch
of the imagination, be extended to HB No. 11197 because SB No. 1630 did not substitute HB No.
11197 but SB No. 1129. Considering that the certification of SB No. 1630 is void, its approval on
second and third readings in one day violated Section 26(2), Article VI of the Constitution.
Same; Statutes; Bicameral Conference Committee; The duty of the BCC is limited to the reconciliation
of disagreeing provisions or the resolution of differences or inconsistencies of the bills from both
Houses of Congress.Even granting arguendo that both HB No. 11197 and SB No. 1630 had been
validly approved by both chambers of Congress and validly referred to the bicameral conference
committee, the latter had very limited authority thereon. It was created in view of the disagreeing
provisions of the two bills. Its duty was limited to the reconciliation of disagreeing provisions or the
resolution of differences or inconsistencies. The committee recognized that limited authority in the
opening paragraph of its Report when it said: The Conference Committee on the disagreeing
provisions of House Bill No. 11197 x x x and Senate Bill No. 1630 x x x. Under such limited authority,
it could only either (a) restore, wholly or partly, the specific provisions of HB No. 11197 amended by
SB No. 1630, (b) sustain, wholly or partly, the Senates amendments, or (c) by way of a compromise,
to agree that neither provisions in HB No. 11197 amended by the Senate nor the latters
amendments thereto be carried into the final form of the former.
Same; Same; Same; Doctrine of Ratification; The doctrine of ratification may apply to minor
procedural flaws or tolerable breaches of the parameters of the bicameral conference committees
limited powers but never to violations of the Constitution.I cannot agree with the suggestion that
since both the Senate and the House had approved the bicameral conference committee report and
the bill proposed by it in substitution of HB No. 11197 and SB No. 1630, whatever infirmities may
have been committed by it were cured by ratification. This doctrine of ratification may apply to minor
procedural flaws or tolerable breaches of the parameters of the bicameral conference committees
limited powers but never to violations of the Constitution. Congress is not above the Constitution. In
the instant case, since SB No. 1630 was introduced in violation of Section 24, Article VI of the
Constitution, was passed in the Senate in violation of the three readings rule, and was not
transmitted to the House for the completion of the constitutional process of legislation, and HB No.
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11197 was not likewise passed by the Senate on second and third readings, neither the Senate nor
the House could validly approve the bicameral conference committee report and the proposed bill.
Same; Same; Enrolled Bill Doctrine; Invocation of the enrolled bill doctrine is misplaced.The
majority opinion, however, invokes the enrolled bill doctrine and wants this Court to desist from
looking behind the copy of the assailed measure as certified by the Senate President and the
Speaker of the House. I respectfully submit that the invocation is misplaced. First, as to the issue of
origination, the certification in this case explicitly states that R.A. No. 7716 is a consolidation of
House Bill No. 11197 and Senate Bill No. 1630. This is conclusive evidence that the measure did not
originate exclusively in the House. Second, the enrolled bill doctrine is of American origin, and
unquestioned fealty to it may no longer be justified in view of the expanded jurisdiction of this Court
under Section 1, Article VIII of our Constitution. Third, even under the regime of the 1935
Constitution which did not contain the above provision, this Court, through Mr. Chief Justice
Makalintal, in Astorga vs. Villegas, declared that it cannot be truly said that Mabanag vs. Lopez Vito
has laid to rest the question of whether the enrolled bill doctrine or the journal entry rule should be
adhered to in this jurisdiction. Fourth, even in the United States, the enrolled bill doctrine has been
substantially undercut. This is shown in the disquisitions of Mr. Justice Reynato S. Puno in his
dissenting opinion, citing Sutherland, Statutory Construction.
ROMERO, J., Dissenting Opinion:
Constitutional Law; Expanded VAT Law; Bicameral Conference Committee; A bicameral conference
committee is a creature, not of the Constitution, but of the legislative body under its power to
determine rules of its proceeding.As a conference committee has been defined: . . . unlike the
joint committee is two committees, one appointed by each house. It is normally appointed for a
specific bill and its function is to gain accord between the two houses either by the recession of one
house from its bill or its amendments or by the further amendment of the existing legislation or by
the substitution of an entirely new bill. Obviously the conference committee is always a special
committee and normally includes the member who introduced the bill and the chairman of the
committee which considered it together with such other representatives of the house as seem
expedient. (Horack, Cases and Materials on Legislation [1940] 220. See also Zinn, Conference
Procedure in Congress, 38 ABAJ 864 [1952]; Steiner, The Congressional Conference Committee [U of
Ill. Press, 1951]). From the foregoing definition, it is clear that a bicameral conference committee is a
creature, not of the Constitution, but of the legislative body under its power to determine rules of its
proceedings under Article VI, Sec. 16 (3) of the Constitution. Thus, it draws its life and vitality from
the rules governing its creation.
Same; Same; Same; The Bicameral Conference Committee exceeded the power and authority granted
in the Rules of its creation.Even a cursory perusal of the above outline will convince one that,
indeed, the Bicameral Conference Committee (henceforth to be referred to as BICAM) exceeded the
power and authority granted in the Rules of its creation. Both Senate and House Rules limit the task
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of the Conference Committee in almost identical language to the settlement of differences in the
provisions or amendments to any bill or joint resolution. If it means anything at all, it is that there are
provisions in subject bill, to start with, which differ and, therefore, need reconciliation. Nowhere in
the Rules is it authorized to initiate or propose completely new matter. Although under certain rules
on legislative procedure, like those in Jeffersons Manual, a conference committee may introduce
germane matters in a particular bill, such matters should be circumsribed by the committees sole
authority and function to reconcile differences.
Same; Same; Same; Insertion of new matter on the part of the Bicameral Conference Committee is an
ultra vires act which makes the same void.Parenthetically, in the Senate and in the House, a matter
is germane to a particular bill if there is a common tie between said matter and the provisions
which tend to promote the object and purpose of the bill it seeks to amend. If it introduces a new
subject matter not within the purview of the bill, then it is not germane to the bill. The test is
whether or not the change represented an amendment or extension of the basic purpose of the
original, or the introduction of an entirely new and different subject matter. In the BICAM, however,
the germane subject matter must be within the ambit of the disagreement between the two Houses.
If the germane subject is not covered by the disagreement but it is reflected in the final version of
the bill as reported by the Conference Committee or, if what appears to be a germane matter in the
sense that it is relevant or closely allied with the purpose of the bill, was not the subject of a
disagreement between the Senate and the House, it should be deemed an extraneous matter or
even a rider which should never be considered legally passed for not having undergone the threeday reading requirement. Insertion of new matter on the part of the BICAM is, therefore, an ulta vires
act which makes the same void.
BELLOSILLO, J., Dissenting Opinion:
Constitutional Law; Origin of Revenue Bills; Statutory Construction; The provision in the Constitution
requiring that all revenue bills shall originate exclusively from the Lower House is mandatory.Verily,
the provision in our Constitution requiring that all revenue bills shall originate exclusively from the
Lower House is mandatory. The word exclusively is an exclusive word, which is indicative of an
intent that the provision is mandatory. Hence, all American authorities expounding on the meaning
and application of Sec. 7, par. (1), Art. I, of the U.S. Constitution cannot be used in the interpretation
of Sec. 24, Art. VI, of our 1987 Constitution which has a distinct feature of exclusiveness all its own.
Thus, when our Constitution absolutely requiresas it is mandatorythat a particular bill should
exclusively emanate from the Lower House, there is no alternative to the requirement that the bill to
become valid law must originate exclusively from that House.
Same; Same; Same; It is the general rule to regard constitutional provisions as mandatory, and not to
leave any discretion to the will of the legislature to obey or disregard them.In the interpretation of
constitutions, questions frequently arise as to whether particular sections are mandatory or directory.
The courts usually hesitate to declare that a constitutional provision is directory merely in view of the
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tendency of the legislature to disregard provisions which are not said to be mandatory. Accordingly,
it is the general rule to regard constitutional provisions as mandatory, and not to leave any discretion
to the will of the legislature to obey or disregard them. This presumption as to mandatory quality is
usually followed unless it is unmistakably manifest that the provisions are intended to be merely
directory. So strong is the inclination in favor of giving obligatory force to the terms of the organic
law that it has even been said that neither by the courts nor by any other department of the
government may any provision of the Constitution be regarded as merely directory, but that each
and everyone of its provisions should be treated as imperative and mandatory, without reference to
the rules and distinguishing between the directory and the mandatory statutes.
Same; Same; A Senate amendment by substitution simply means that the bill did not in effect
originate from the lower chamber but from the upper chamber, disguising itself as a mere
amendment of the House version.In fine, in the cases cited which were lifted from American
authorities, it appears that the revenue bills in question actually originated from the House of
Representatives and were amended by the Senate only after they were transmitted to it. Perhaps, if
the factual circumstances in those cases were exactly the same as the ones at bench, then the subject
revenue or tariff bill may be upheld in this jurisdiction on the principle of substantial compliance, as
they were in the United States, except possibly in instances where the House bill undergoes what is
now referred to as amendment by substitutionn, for that would be in derogation of our
Constitution which vests solely in the House of Representatives the power to initiate revenue bills. A
Senate amendment by substitution simply means that the bill in question did not in effect originate
from the lower chamber but from the upper chamber and now disguises itself as a mere amendment
of the House version.
Same; Judicial Review; Courts will not decline the exercise of jurisdiction upon the suggestion that
action might be taken by political agencies in disregard of the judgment of the judicial tribunals.
The rule is fixed that the duty in a proper case to declare a law unconstitutional cannot be declined
and must be performed in accordance with the deliberate judgment of the tribunal before which the
validity of the enactment is directly drawn into question. When it is clear that a statute transgresses
the authority vested in the legislature by the Constitution, it is the duty of the courts to declare the
act unconstitutional because they cannot shirk from it without violating their oaths of office. This
duty of the courts to maintain the Constitution as the fundamental law of the state is imperative and
unceasing; and, as Chief Justice Marshal said, whenever a statute is in violation of the fundamental
law, the courts must so adjudge and thereby give effect to the Constitution. Any other course would
lead to the destruction of the Constitutionn. Since the question as to the constitutionality of a statute
is a judicial matter, the courts will not decline the exercise of jurisdiction upon the suggestion that
action might be taken by political agencies in disregard of the judgment of the judicial tribunals.
PUNO, J., Dissenting Opinion:
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Constitutional Law; Bicameral Conference Committee; Ex Post Veto Power; There is absolutely no
legal warrant for the bold submission that a Bicameral Conference Committee possesses the power
to add or delete provisions in bills already approved on third reading by both Houses or an ex post
veto power.There is absolutely no legal warrant for the bold submission that a Bicameral
Conference Committee possesses the power to add/delete provisions in bills already approved on
third reading by both Houses or an ex post veto power. To support this postulate that can enfeeble
Congress itself, respondents cite no constitutional provision, no law, not even any rule or regulation.
Worse, their stance is categorically repudiated by the rules of both the Senate and the House of
Representatives which define with precision the parameters of power of a Bicameral Conference
Committee.
Same; Same; Same; The thesis that a Bicameral Conference Committee can wield ex post veto power
wages war against our settled ideals of representative democracy.But the thesis that a Bicameral
Conference Committee can wield ex post veto power does not only contravene the rules of both the
Senate and the House. It wages war againt our settled ideals of representative democracy. For the
inevitable, catastrophic effect of the thesis is to install a Bicameral Conference Committee as the
Third Chamber of our Congress, similarly vested with the power to make laws but with the
dissimilarity that its laws are not the subject of a free and full discussion of both Houses of Congress.
With such a vagrant power, a Bicameral Conference Com-mittee acting as a Third Chamber will be a
constitutional monstrosity.
Same; Enrolled Bill Doctrine; The enrolled bill theory is a historical relic that should not
continuously rule us from the fossilized past.Respondents seek sanctuary in the conclusiveness of
an enrolled bill to bar any judicial inquiry on whether Congress observed our constitutional
procedure in the passage of R.A. No. 7716. The enrolled bill theory is a historical relic that should not
continuously rule us from the fossilized past. It should be immediately emphasized that the enrolled
bill theory originated in England where there is no written constitution and where Parliament is
supreme. In this jurisdiction, we have a written constitution and the legislature is a body of limited
powers. Likewise, it must be pointed out that starting from the decade of the 40s, even American
courts have veered away from the regidity and unrealism of the conclusiveness of an enrolled bill.
Same; Same; The previous rulings of the Supreme Court on the conclusiveness of an enrolled bill are
no longer good law.I am not unaware that this Court has subscribed to the conclusiveness of an
enrolled bill as enunciated in the 1947 lead case of Mabanag v. Lopez Vito, and reiterated in
subsequent cases. With due respect, I submit that these rulings are no longer good law. Suffice to
state that section 313 of the Old Code of Civil Procedure as amended by Act No. 2210 is no longer in
our statute books. It has long been repealed by the Rules of Court. Mabanag also relied on
jurisprudence and authorities in the United States which are under severe criticisms by modern
scholars. Hence, even in the United States the conclusiveness of an enrolled bill has been junked by
most of the States. [Tolentino vs. Secretary of Finance, 235 SCRA 630(1994)]
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MENDOZA, J.:
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. The motions, of which there are 10 in all, have been filed by the several
petitioners in these cases, with the exception of the Philippine Educational Publishers Association,
Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to which the
Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc.,
petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R. No. 115525, each filed a reply. In
turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders Association
(CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not "originate exclusively" in
the House of Representatives as required by Art. VI, 24 of the Constitution. Although they admit
that H. No. 11197 was filed in the House of Representatives where it passed three readings and that
afterward it was sent to the Senate where after first reading it was referred to the Senate Ways and
Means Committee, they complain that the Senate did not pass it on second and third readings.
Instead what the Senate did was to pass its own version (S. No. 1630) which it approved on May 24,
1994. Petitioner Tolentino adds that what the Senate committee should have done was to amend H.
No. 11197 by striking out the text of the bill and substituting it with the text of S. No. 1630. That way,
it is said, "the bill remains a House bill and the Senate version just becomes the text (only the text) of
the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment
to a House revenue bill by enacting its own version of a revenue bill. On at least two occasions
during the Eighth Congress, the Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING
FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT
ON CAPITAL EQUIPMENT) which was approved by the President on April 10, 1992. This Act is actually
a consolidation of H. No. 34254, which was approved by the House on January 29, 1992, and S. No.
1920, which was approved by the Senate on February 3, 1992.
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R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY
FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President
on May 22, 1992. This Act is a consolidation of H. No. 22232, which was approved by the House of
Representatives on August 2, 1989, and S. No. 807, which was approved by the Senate on October
21, 1991.
On the other hand, the Ninth Congress passed revenue laws which were also the result of the
consolidation of House and Senate bills. These are the following, with indications of the dates on
which the laws were approved by the President and dates the separate bills of the two chambers of
Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS
PURPOSE THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE
(December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE
THE PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL
GOVERNMENT UNITS TO SHARE IN VAT REVENUE, AMENDING FOR THIS PURPOSE
CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28,
1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE
THE PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS,
AMENDING FOR THIS PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
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Senate Bill No. 35, November 19, 1992

4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS,
INSTRUMENTALITIES
OR
AGENCIES
INCLUDING
GOVERNMENT-OWNED
OR
CONTROLLED CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUEADDED TAX DUE AT THE RATE OF THREE PERCENT (3%) ON GROSS PAYMENT FOR
THE PURCHASE OF GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR
SERVICES RENDERED BY CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO
DECLARE
DIVIDENDS
UNDER
CERTAIN
CONDITIONS
TO
THE
NATIONAL
GOVERNMENT, AND FOR OTHER PURPOSES (November 9, 1993)

House Bill No. 11024, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE
DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS
OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, ALLOCATING FUNDS
FOR SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF
STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR
THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR THE PURPOSE THE
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NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A NEW

SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its
power to propose amendments to bills required to originate in the House, passed its own version of
a House revenue measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners
Tolentino and Roco, as members of the Senate, voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino,
concerns a mere matter of form. Petitioner has not shown what substantial difference it would make
if, as the Senate actually did in this case, a separate bill like S. No. 1630 is instead enacted as a
substitute measure, "taking into Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one amendment to the original amendment shall be considered.
No amendment by substitution shall be entertained unless the text thereof is

submitted in writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
69. No amendment which seeks the inclusion of a legislative provision foreign to the
subject matter of a bill (rider) shall be entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be amended by substituting it with another which
covers a subject distinct from that proposed in the original bill or resolution.
(emphasis added).
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Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate
possesses less power than the U.S. Senate because of textual differences between constitutional
provisions giving them the power to propose or concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but the
Senate may propose or concur with amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the
phrase "as on other Bills" in the American version, according to petitioners, shows the intention of
the framers of our Constitution to restrict the Senate's power to propose amendments to revenue
bills. Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate" and
"the words 'as in any other bills' (sic) were eliminated so as to show that these bills were not to be
like other bills but must be treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of constitutional
intent are nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be
recalled that the 1935 Constitution originally provided for a unicameral National Assembly. When it
was decided in 1939 to change to a bicameral legislature, it became necessary to provide for the
procedure for lawmaking by the Senate and the House of Representatives. The work of proposing
amendments to the Constitution was done by the National Assembly, acting as a constituent
assembly, some of whose members, jealous of preserving the Assembly's lawmaking powers, sought
to curtail the powers of the proposed Senate. Accordingly they proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application,
and private bills shall originate exclusively in the Assembly, but the Senate may
propose or concur with amendments. In case of disapproval by the Senate of any
such bills, the Assembly may repass the same by a two-thirds vote of all its members,
and thereupon, the bill so repassed shall be deemed enacted and may be submitted
to the President for corresponding action. In the event that the Senate should fail to
finally act on any such bills, the Assembly may, after thirty days from the opening of
the next regular session of the same legislative term, reapprove the same with a vote
of two-thirds of all the members of the Assembly. And upon such reapproval, the bill
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shall be deemed enacted and may be submitted to the President for corresponding
action.
The special committee on the revision of laws of the Second National Assembly vetoed the proposal.
It deleted everything after the first sentence. As rewritten, the proposal was approved by the
National Assembly and embodied in Resolution No. 38, as amended by Resolution No. 73. (J.
ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to
the people and ratified by them in the elections held on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present
Constitution was derived. It explains why the word "exclusively" was added to the American text from
which the framers of the Philippine Constitution borrowed and why the phrase "as on other Bills" was
not copied. Considering the defeat of the proposal, the power of the Senate to propose
amendments must be understood to be full, plenary and complete "as on other Bills." Thus, because
revenue bills are required to originate exclusively in the House of Representatives, the Senate cannot
enact revenue measures of its own without such bills. After a revenue bill is passed and sent over to
it by the House, however, the Senate certainly can pass its own version on the same subject matter.
This follows from the coequality of the two chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power to concur is
clear from the following commentaries:
The power of the Senate to propose or concur with amendments is apparently
without restriction. It would seem that by virtue of this power, the Senate can
practically re-write a bill required to come from the House and leave only a trace of
the original bill. For example, a general revenue bill passed by the lower house of the
United States Congress contained provisions for the imposition of an inheritance tax .
This was changed by the Senate into a corporation tax. The amending authority of
the Senate was declared by the United States Supreme Court to be sufficiently broad
to enable it to make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55 L.
ed. 389].
(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by the House of
Representatives because it is more numerous in membership and therefore also more
representative of the people. Moreover, its members are presumed to be more
familiar with the needs of the country in regard to the enactment of the legislation
involved.
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The Senate is, however, allowed much leeway in the exercise of its power to propose
or concur with amendments to the bills initiated by the House of Representatives.
Thus, in one case, a bill introduced in the U.S. House of Representatives was changed
by the Senate to make a proposed inheritance tax a corporation tax. It is also
accepted practice for the Senate to introduce what is known as an amendment by
substitution, which may entirely replace the bill initiated in the House of
Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills must "originate exclusively in
the House of Representatives," it also adds, "but the Senate may propose or concur with
amendments." In the exercise of this power, the Senate may propose an entirely new bill as a
substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill is
referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or
adding sections or altering its language; (3) to make and endorse an entirely new bill
as a substitute, in which case it will be known as a committee bill; or (4) to make no
report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required to originate in the House
by prescribing that the number of the House bill and its other parts up to the enacting clause must
be preserved although the text of the Senate amendment may be incorporated in place of the
original body of the bill is to insist on a mere technicality. At any rate there is no rule prescribing this
form. S. No. 1630, as a substitute measure, is therefore as much an amendment of H. No. 11197 as
any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S.
No. 1630 is an independent and distinct bill. Hence their repeated references to its certification that
it was passed by the Senate "in substitution of S.B. No. 1129, taking into consideration P.S. Res. No.
734 and H.B. No.11197," implying that there is something substantially different between the
reference to S. No. 1129 and the reference to H. No. 11197. From this premise, they conclude that
R.A. No. 7716 originated both in the House and in the Senate and that it is the product of two "halfbaked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere
amendments of the corresponding provisions of H. No. 11197. The very tabular comparison of the
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provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between the two bills, at the same time indicates that
the provisions of the Senate bill were precisely intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a
mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate
on second and three readings. It was enough that after it was passed on first reading it was referred
to the Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be passed by
the House of Representatives before the two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When
the House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank
deposits), were referred to a conference committee, the question was raised whether the two bills
could be the subject of such conference, considering that the bill from one house had not been
passed by the other and vice versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is
passed by the House but not passed by the Senate, and a Senate bill of a similar
nature is passed in the Senate but never passed in the House, can the two bills be the
subject of a conference, and can a law be enacted from these two bills? I understand
that the Senate bill in this particular instance does not refer to investments in
government securities, whereas the bill in the House, which was introduced by the
Speaker, covers two subject matters: not only investigation of deposits in banks but
also investigation of investments in government securities. Now, since the two bills
differ in their subject matter, I believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely in
cases like this where a conference should be had. If the House bill had been
approved by the Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the same subject matter, the
conference committee had to be created, and we are now considering the report of
that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct
and unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that
because the President separately certified to the need for the immediate enactment of these
measures, his certification was ineffectual and void. The certification had to be made of the version
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of the same revenue bill which at the momentwas being considered. Otherwise, to follow petitioners'
theory, it would be necessary for the President to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the bill he has already certified. It is enough
that he certifies the bill which, at the time he makes the certification, is under consideration. Since on
March 22, 1994 the Senate was considering S. No. 1630, it was that bill which had to be certified. For
that matter on June 1, 1993 the President had earlier certified H. No. 9210 for immediate enactment
because it was the one which at that time was being considered by the House. This bill was later
substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the main decision
that the phrase "except when the President certifies to the necessity of its immediate enactment,
etc." in Art. VI, 26 (2) qualifies not only the requirement that "printed copies [of a bill] in its final
form [must be] distributed to the members three days before its passage" but also the requirement
that before a bill can become a law it must have passed "three readings on separate days." There is
not only textual support for such construction but historical basis as well.
Art. VI, 21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been printed and
copies thereof in its final form furnished its Members at least three calendar days
prior to its passage, except when the President shall have certified to the necessity of
its immediate enactment. Upon the last reading of a bill, no amendment thereof shall
be allowed and the question upon its passage shall be taken immediately thereafter,
and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):
(2) No bill shall become a law unless it has passed three readings on separate days,
and printed copies thereof in its final form have been distributed to the Members
three days before its passage, except when the Prime Minister certifies to the
necessity of its immediate enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the yeas and nays entered in the
Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of the
present Constitution, thus:
(2) No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President
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certifies to the necessity of its immediate enactment to meet a public calamity or

emergency. Upon the last reading of a bill, no amendment thereto shall be allowed,
and
the
vote
thereon
shall
be
taken
immediately
thereafter,
and
the yeasand nays entered in the Journal.

The exception is based on the prudential consideration that if in all cases three readings on separate
days are required and a bill has to be printed in final form before it can be passed, the need for a law
may be rendered academic by the occurrence of the very emergency or public calamity which it is
meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a
country like the Philippines where budget deficit is a chronic condition. Even if this were the case, an
enormous budget deficit does not make the need for R.A. No. 7716 any less urgent or the situation
calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases) believed
that there was an urgent need for consideration of S. No. 1630, because they responded to the call
of the President by voting on the bill on second and third readings on the same day. While the
judicial department is not bound by the Senate's acceptance of the President's certification, the
respect due coequal departments of the government in matters committed to them by the
Constitution and the absence of a clear showing of grave abuse of discretion caution a stay of the
judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it
was discussed for six days. Only its distribution in advance in its final printed form was actually
dispensed with by holding the voting on second and third readings on the same day (March 24,
1994). Otherwise, sufficient time between the submission of the bill on February 8, 1994 on second
reading and its approval on March 24, 1994 elapsed before it was finally voted on by the Senate on
third reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to
inform the members of Congress of what they must vote on and (2) to give them notice that a
measure is progressing through the enacting process, thus enabling them and others interested in
the measure to prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION 10.04, p. 282 (1972)). These purposes were substantially achieved in
the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the
Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of
the constitutional policy of full public disclosure and the people's right to know (Art. II, 28 and Art.
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III, 7) the Conference Committee met for two days in executive session with only the conferees
present.
As pointed out in our main decision, even in the United States it was customary to hold such sessions
with only the conferees and their staffs in attendance and it was only in 1975 when a new rule was
adopted requiring open sessions. Unlike its American counterpart, the Philippine Congress has not
adopted a rule prescribing open hearings for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least
staff members were present. These were staff members of the Senators and Congressmen, however,
who may be presumed to be their confidential men, not stenographers as in this case who on the
last two days of the conference were excluded. There is no showing that the conferees themselves
did not take notes of their proceedings so as to give petitioner Kilosbayan basis for claiming that
even in secret diplomatic negotiations involving state interests, conferees keep notes of their
meetings. Above all, the public's right to know was fully served because the Conference Committee
in this case submitted a report showing the changes made on the differing versions of the House
and the Senate.
Petitioners cite the rules of both houses which provide that conference committee reports must
contain "a detailed, sufficiently explicit statement of the changes in or other amendments." These
changes are shown in the bill attached to the Conference Committee Report. The members of both
houses could thus ascertain what changes had been made in the original bills without the need of a
statement detailing the changes.
The same question now presented was raised when the bill which became R.A. No. 1400 (Land
Reform Act of 1955) was reported by the Conference Committee. Congressman Bengzon raised a
point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the report of
the conference committee regarding House Bill No. 2557 by reason of the provision
of Section 11, Article XII, of the Rules of this House which provides specifically that
the conference report must be accompanied by a detailed statement of the effects of
the amendment on the bill of the House. This conference committee report is not
accompanied by that detailed statement, Mr. Speaker. Therefore it is out of order to
consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with
the point of order raised by the gentleman from Pangasinan.
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There is no question about the provision of the Rule cited by the gentleman from
Pangasinan, butthis provision applies to those cases where only portions of the bill
have been amended. In this case before us an entire bill is presented; therefore, it can
be easily seen from the reading of the bill what the provisions are. Besides, this
procedure has been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for
the provisions of the Rules, and the reason for the requirement in the provision cited
by the gentleman from Pangasinan is when there are only certain words or phrases
inserted in or deleted from the provisions of the bill included in the conference
report, and we cannot understand what those words and phrases mean and their
relation to the bill. In that case, it is necessary to make a detailed statement on how
those words and phrases will affect the bill as a whole; but when the entire bill itself is
copied verbatim in the conference report, that is not necessary. So when the reason
for the Rule does not exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the ruling was
appealed, it was upheld by viva voce and when a division of the House was called, it was sustained
by a vote of 48 to 5. (Id., p. 4058)
Nor is there any doubt about the power of a conference committee to insert new provisions as long
as these are germane to the subject of the conference. As this Court held in Philippine Judges
Association v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the jurisdiction
of the conference committee is not limited to resolving differences between the Senate and the
House. It may propose an entirely new provision. What is important is that its report is subsequently
approved by the respective houses of Congress. This Court ruled that it would not entertain
allegations that, because new provisions had been added by the conference committee, there was
thereby a violation of the constitutional injunction that "upon the last reading of a bill, no
amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners' charges that
an amendment was made upon the last reading of the bill that eventually became
R.A. No. 7354 and that copiesthereof in its final form were not distributed among the
members of each House. Both the enrolled bill and the legislative journals certify that
the measure was duly enacted i.e., in accordance with Article VI, Sec. 26 (2) of the
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Constitution. We are bound by such official assurances from a coordinate department

of the government, to which we owe, at the very least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the Philippines in a
1979 study:
Conference committees may be of two types: free or instructed. These committees
may be given instructions by their parent bodies or they may be left without
instructions. Normally the conference committees are without instructions, and this is
why they are often critically referred to as "the little legislatures." Once bills have
been sent to them, the conferees have almost unlimited authority to change the
clauses of the bills and in fact sometimes introduce new measures that were not in
the original legislation. No minutes are kept, and members' activities on conference
committees are difficult to determine. One congressman known for his idealism put it
this way: "I killed a bill on export incentives for my interest group [copra] in the
conference committee but I could not have done so anywhere else." The conference
committee submits a report to both houses, and usually it is accepted. If the report is
not accepted, then the committee is discharged and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND
LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We cite it only
to say that conference committees here are no different from their counterparts in the United States
whose vast powers we noted in Philippine Judges Association v. Prado, supra. At all events, under
Art. VI, 16(3) each house has the power "to determine the rules of its proceedings," including those
of its committees. Any meaningful change in the method and procedures of Congress or its
committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, 26 (1)
of the Constitution which provides that "Every bill passed by Congress shall embrace only one
subject which shall be expressed in the title thereof." PAL contends that the amendment of its
franchise by the withdrawal of its exemption from the VAT is not expressed in the title of the law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all
other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature, or
description, imposed, levied, established, assessed or collected by any municipal, city, provincial or
national authority or government agency, now or in the future."
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PAL was exempted from the payment of the VAT along with other entities by 103 of the National
Internal Revenue Code, which provides as follows:
103. Exempt transactions. The following shall be exempt from the value-added
tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements to
which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending
103, as follows:
103. Exempt transactions. The following shall be exempt from the value-added
tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX
BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY]
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED AND FOR OTHER PURPOSES," Congress thereby clearly expresses its intention
to amend any provision of the NIRC which stands in the way of accomplishing the purpose of the
law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific
reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional
requirement, since it is already stated in the title that the law seeks to amend the pertinent
provisions of the NIRC, among which is 103(q), in order to widen the base of the VAT. Actually, it is
the bill which becomes a law that is required to express in its title the subject of legislation. The titles
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of H. No. 11197 and S. No. 1630 in fact specifically referred to 103 of the NIRC as among the
provisions sought to be amended. We are satisfied that sufficient notice had been given of the
pendency of these bills in Congress before they were enacted into what is now R.A. No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was
rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION,
DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE
INDUSTRY AND FOR OTHER PURPOSES CONNECTED THEREWITH. It contained a provision repealing
all franking privileges. It was contended that the withdrawal of franking privileges was not expressed
in the title of the law. In holding that there was sufficient description of the subject of the law in its
title, including the repeal of franking privileges, this Court held:
To require every end and means necessary for the accomplishment of the general
objectives of the statute to be expressed in its title would not only be unreasonable
but would actually render legislation impossible. [Cooley, Constitutional Limitations,
8th Ed., p. 297] As has been correctly explained:
The details of a legislative act need not be specifically stated in its
title, but matter germane to the subject as expressed in the title, and
adopted to the accomplishment of the object in view, may properly
be included in the act. Thus, it is proper to create in the same act the
machinery by which the act is to be enforced, to prescribe the
penalties for its infraction, and to remove obstacles in the way of its
execution. If such matters are properly connected with the subject as
expressed in the title, it is unnecessary that they should also have
special mention in the title. (Southern Pac. Co. v. Bartine, 170 Fed.
725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the
press is not exempt from the taxing power of the State and that what the constitutional guarantee of
free press prohibits are laws which single out the press or target a group belonging to the press for
special treatment or which in any way discriminate against the press on the basis of the content of
the publication, and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is averred,
"even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional."
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With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The
reason is simple: by granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to
which other businesses have long ago been subject. It is thus different from the tax involved in the
cases invoked by the PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660
(1936) was found to be discriminatory because it was laid on the gross advertising receipts only of
newspapers whose weekly circulation was over 20,000, with the result that the tax applied only to 13
out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long who
controlled the state legislature which enacted the license tax. The censorial motivation for the law
was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575,
75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have been
made liable for the sales tax or, in lieu thereof, for the use tax on the privilege of using, storing or
consuming tangible goods, the press was not. Instead, the press was exempted from both taxes. It
was, however, later made to pay a specialuse tax on the cost of paper and ink which made these
items "the only items subject to the use tax that were component of goods to be sold at retail." The
U.S. Supreme Court held that the differential treatment of the press "suggests that the goal of
regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is constitutionally
suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely
and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously
granted to PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone
Authority, and many more are likewise totally withdrawn, in addition to exemptions which are
partially withdrawn, in an effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An
enumeration of some of these transactions will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are
granted, in some cases, to encourage agricultural production and, in other cases, for the personal
benefit of the end-user rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
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seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services
rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 5860)
The PPI asserts that it does not really matter that the law does not discriminate against the press
because
"even
nondiscriminatory
taxation
on
constitutionally
guaranteed
freedom
is
unconstitutional." PPI cites in support of this assertion the following statement in Murdock
v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):

The fact that the ordinance is "nondiscriminatory" is immaterial. The protection
afforded by the First Amendment is not so restricted. A license tax certainly does not
acquire constitutional validity because it classifies the privileges protected by the First
Amendment along with the wares and merchandise of hucksters and peddlers and
treats them all alike. Such equality in treatment does not save the ordinance.
Freedom of press, freedom of speech, freedom of religion are in preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the
exercise of its right. Hence, although its application to others, such those selling goods, is valid, its
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application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with
the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put
it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing to
exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386
(1957) which invalidated a city ordinance requiring a business license fee on those engaged in the
sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by
the American Bible Society without restraining the free exercise of its right to propagate.
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.
Additionally, the 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. Granting that to be the case, 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.
On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by 7
of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration and
enforcement of provisions such as those relating to accounting in 108 of the NIRC. That the PBS
distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the payment
of this fee because it also sells some copies. At any rate whether the PBS is liable for the VAT must be
decided in concrete cases, in the event it is assessed this tax by the Commissioner of Internal
Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on
taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies
transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes
should be uniform and equitable and that Congress shall "evolve a progressive system of taxation."
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With respect to the first contention, it is claimed that the application of the tax to existing contracts
of the sale of real property by installment or on deferred payment basis would result in substantial
increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it
is pointed out, is something that the buyer did not anticipate at the time he entered into the
contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous
sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an
increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of
the Constitution. Even though such taxation may affect particular contracts, as it may increase the
debt of one person and lessen the security of another, or may impose additional burdens upon one
class and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal
sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not
only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22
SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the
possible exercise of the rightful authority of the government and no obligation of contract can
extend to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be
exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods
and services was already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of
R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these
transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a
difference between the "homeless poor" and the "homeless less poor" in the example given by
petitioner, because the second group or middle class can afford to rent houses in the meantime that
they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is
inherent in the power to tax that the 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.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955).Accord,
City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
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Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1)
which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same
class be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or
ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A.
No. 7716 merely expands the base of the tax. The validity of the original VAT Law was questioned
in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on
grounds similar to those made in these cases, namely, that the law was "oppressive, discriminatory,
unjust and regressive in violation of Art. VI, 28(1) of the Constitution." (At 382) Rejecting the
challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. .
..
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 engaged 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, so
that the costs of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the
Philippines, Inc. (CUP), while petitioner Juan T. David argues that 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.
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
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preferred [and] as much as possible, indirect taxes should be minimized." (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress is
not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are
the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII,
17(1) of the 1973 Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are also
regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted from
the VAT:
(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services
rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
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(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 5860)

On the other hand, the transactions which are subject to the VAT are those which involve goods and
services which are used or availed of mainly by higher income groups. These include real properties
held primarily for sale to customers or for lease in the ordinary course of trade or business, the right
or privilege to use patent, copyright, and other similar property or right, the right or privilege to use
industrial, commercial or scientific equipment, motion picture films, tapes and discs, radio, television,
satellite transmission and cable television time, hotels, restaurants and similar places, securities,
lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services
of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations by
tendering issues not at retail but at wholesale and in the abstract. There is no fully developed record
which can impart to adjudication the impact of actuality. There is no factual foundation to show in
the concrete the application of the law to actual contracts and exemplify its effect on property rights.
For the fact is that petitioner's members have not even been assessed the VAT. Petitioner's case is
not made concrete by a series of hypothetical questions asked which are no different from those
dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here, does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a
provision as void on its face, he has not made out a case. This is merely to adhere to
the authoritative doctrine that where the due process and equal protection clauses
are invoked, considering that they are not fixed rules but rather broad standards,
there is a need for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case,
however. Enforcement of the law may give rise to such a case. A test case, provided it is an actual
case and not an abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues.
Otherwise, adjudication would be no different from the giving of advisory opinion that does not
really settle legal issues.
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We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the government." This duty can only arise if an actual case or
controversy is before us. Under Art . VIII, 5 our jurisdiction is defined in terms of "cases" and all that
Art. VIII, 1, 2 can plausibly mean is that in the exercise of that jurisdiction we have the judicial
power to determine questions of grave abuse of discretion by any branch or instrumentality of the
government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a
court to hear and decide cases pending between parties who have the right to sue and be sued in
the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from
legislative and executive power. This power cannot be directly appropriated until it is apportioned
among several courts either by the Constitution, as in the case of Art. VIII, 5, or by statute, as in the
case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P. Blg.
129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all others."
(United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its jurisdiction, this
Court cannot inquire into any allegation of grave abuse of discretion by the other departments of the
government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of
the Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a
definite policy of granting tax exemption to cooperatives that the present Constitution embodies
provisions on cooperatives. To subject cooperatives to the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting
cooperatives from the payment of income taxes and sales taxes but in 1984, because of the crisis
which menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986,
P.D. No. 2008 again granted cooperatives exemption from income and sales taxes until December
31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally in 1987 the
framers of the Constitution "repudiated the previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated revocation of the tax exemption to
cooperatives and instead upheld the policy of strengthening the cooperatives by way of the grant of
tax exemptions," by providing the following in Art. XII:
1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.
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The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective organizations, shall be encouraged
to broaden the base of their ownership.
15. The Congress shall create an agency to promote the viability and growth of
cooperatives as instruments for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out
cooperatives by withdrawing their exemption from income and sales taxes under P.D. No. 175, 5.
What P.D. No. 1955, 1 did was to withdraw the exemptions and preferential treatments theretofore
granted to private business enterprises in general, in view of the economic crisis which then beset
the nation. It is true that after P.D. No. 2008, 2 had restored the tax exemptions of cooperatives in
1986, the exemption was again repealed by E.O. No. 93, 1, but then again cooperatives were not the
only ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all,
including government and private entities. In the second place, the Constitution does not really
require that cooperatives be granted tax exemptions in order to promote their growth and viability.
Hence, there is no basis for petitioner's assertion that the government's policy toward cooperatives
had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put
an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter
of policy cooperatives should be granted tax exemptions, but that is left to the discretion of
Congress. If Congress does not grant exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt
from taxation. Such theory is contrary to the Constitution under which only the following are exempt
from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, 28 (3), and nonstock, non-profit educational institutions by reason of Art. XIV, 4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the
equal protection of the law because electric cooperatives are exempted from the VAT. The
classification between electric and other cooperatives (farmers cooperatives, producers cooperatives,
marketing cooperatives, etc.) apparently rests on a congressional determination that there is greater
need to provide cheaper electric power to as many people as possible, especially those living in the
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rural areas, than there is to provide them with other necessities in life. We cannot say that such
classification is unreasonable.
We have carefully read the various arguments raised against the constitutional validity of R.A. No.
7716. We have in fact taken the extraordinary step of enjoining its enforcement pending resolution
of these cases. We have now come to the conclusion that the law suffers from none of the infirmities
attributed to it by petitioners and that its enactment by the other branches of the government does
not constitute a grave abuse of discretion. Any question as to its necessity, desirability or expediency
must be addressed to Congress as the body which is electorally responsible, remembering that, as
Justice Holmes has said, "legislators are the ultimate guardians of the liberties and welfare of the
people in quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194
U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No. 115543 does in
arguing that we should enforce the public accountability of legislators, that those who took part in
passing the law in question by voting for it in Congress should later thrust to the courts the burden
of reviewing measures in the flush of enactment. This Court does not sit as a third branch of the
legislature, much less exercise a veto power over legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining
order previously issued is hereby lifted.
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C.
DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA vs. HON. BIENVENIDO TAN, as
Commissioner of Internal Revenue, G.R. No. 81311 June 30, 1988
These four (4) petitions, which have been consolidated because of the similarity of the main issues
involved therein, seek to nullify Executive Order No. 273 (EO 273, for short), issued by the President
of the Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain
sections of the National Internal Revenue Code and adopted the value-added tax (VAT, for short), for
being unconstitutional in that its enactment is not alledgedly 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 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,
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he contends, are merely asking for an advisory opinion from the Court, there being no justiciable
controversy for resolution.
Objections to taxpayers' suit for lack of sufficient personality standing, or interest are, however, in the
main procedural matters. Considering the importance to the public of the cases at bar, and in
keeping with the Court's duty, under the 1987 Constitution, to determine wether or not the other
branches of government have kept themselves within the limits of the Constitution and the laws and
that they have not abused the discretion given to them, the Court has brushed aside technicalities of
procedure and has taken cognizance of these petitions.
But, before resolving the issues raised, a brief look into the tax law in question is in order.
The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every
seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his
purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the
gross selling price of goods or gross receipts realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and
producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it is
principally aimed to rationalize the system of taxing goods and services; simplify tax administration;
and make the tax system more equitable, to enable the country to attain economic recovery.
The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As
pointed out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273,
was essentially a single stage value added tax system computed under the "cost subtraction method"
or "cost deduction method" and was imposed only on original sale, barter or exchange of articles by
manufacturers, producers, or importers. Subsequent sales of such articles were not subject to sales
tax. However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second
sale, which was reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect
1 January 1986. Reduced sales taxes were imposed not only on the second sale, but
on every subsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless
zero-rated or exempt.
Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no
authority to issue EO 273 on 25 July 1987.
The contention is without merit.
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:
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Sec. 1. Until a legislature is elected and convened under a new Constitution, the
President shall continue to exercise legislative powers.
On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the
Republic of the Philippines which was ratified in a plebiscite conducted on 2 February 1987. Article
XVIII, sec. 6 of said Constitution, hereafter referred to as the 1987 Constitution, provides:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the
first Congress is convened.
It should be noted that, under both the Provisional and the 1987 Constitutions, the President is
vested with legislative powers until a legislature under a new Constitution is convened. The first
Congress, created and elected under the 1987 Constitution, was convened on 27 July 1987. Hence,
the enactment of EO 273 on 25 July 1987, two (2) days before Congress convened on 27 July 1987,
was within the President's constitutional power and authority to legislate.
Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27
July 1987). He contends that the word "convene" is synonymous with "the date when the elected
members of Congress assumed office."
The contention is without merit. The word "convene" which has been interpreted to mean "to call
together, cause to assemble, or convoke," 1 is clearly different from assumption of office by
the individual members of Congress or their taking the oath of office. As an example, we call to mind
the interim National Assembly created under the 1973 Constitution, which had not been "convened"
but some members of the body, more particularly the delegates to the 1971 Constitutional
Convention who had opted to serve therein by voting affirmatively for the approval of said
Constitution, had taken their oath of office.
To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene"
a bit too far. It would also defeat the purpose of the framers of the 1987 Constitutional and render
meaningless some other provisions of said Constitution. For example, the provisions of Art. VI, sec.
15, requiring Congress to conveneonce every year on the fourth Monday of July for its regular
session would be a contrariety, since Congress would already be deemed to be in session after the
individual members have taken their oath of office. A portion of the provisions of Art. VII, sec. 10,
requiring Congress to convene for the purpose of enacting a law calling for a special election to elect
a President and Vice-President in case a vacancy occurs in said offices, would also be a surplusage.
The portion of Art. VII, sec. 11, third paragraph, requiring Congress to convene, if not in session, to
decide a conflict between the President and the Cabinet as to whether or not the President and the
Cabinet as to whether or not the President can re-assume the powers and duties of his office, would
also be redundant. The same is true with the portion of Art. VII, sec. 18, which requires Congress to
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convene within twenty-four (24) hours following the declaration of martial law or the suspension of
the privilage of the writ of habeas corpus.
The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the
framers of said Constitution had intended to terminate the exercise of legislative powers by the
President at the beginning of the term of office of the members of Congress, they should have so
stated (but did not) in clear and unequivocal terms. The Court has not power to re-write the
Constitution and give it a meaning different from that intended.
The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in
grave abuse of discretion amounting to lack or excess of jurisdiction. "Grave abuse of discretion" has
been defined, as follows:
Grave abuse of discretion" implies such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction (Abad Santos vs. Province of Tarlac,
38 Off. Gaz. 834), or, in other words, where the power is exercised in an arbitrary or
despotic manner by reason of passion or personal hostility, and it must be so patent
and gross as to amount to an evasion of positive duty or to a virtual refusal to
perform the duty enjoined or to act at all in contemplation of law. (Tavera-Luna, Inc.
vs. Nable, 38 Off. Gaz. 62). 2
Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary
or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study
of the VAT had been extensively discussed by this framers and other government agencies involved
in its implementation, even under the past administration. As the Solicitor General correctly sated.
"The signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The
legislative process started long before the signing when the data were gathered, proposals were
weighed and the final wordings of the measure were drafted, revised and finalized. Certainly, it
cannot be said that the President made a jump, so to speak, on the Congress, two days before it
convened." 3
Next, the 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
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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. 4
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, 5 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. 6
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
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Internal Revenue Code, unduly discriminates against customs brokers. The contested provision
states:
Sec. 103. Exempt transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx
(r) Service performed in the exercise of profession or calling (except customs brokers) subject
to the occupation tax under the Local Tax Code, and professional services performed by
registered general professional partnerships;
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. Pertinent provisions of Sec. 102 read:
Sec. 102. Value-added tax on sale of services. There shall be levied, assessed and
collected, a value-added tax equivalent to 10% percent of gross receipts derived by
any person engaged in the sale of services. The phrase sale of services" means the
performance of all kinds of services for others for a fee, remuneration or
consideration, including those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and immigration brokers; lessors
of personal property; lessors or distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or repacking goods for others; and
similar services regardless of whether or not the performance thereof call for the
exercise or use of the physical or mental faculties: ...
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.
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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 timehonored 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.
WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.
G.R. No. 3473
March 22, 1907
J. CASANOVAS, plaintiff-appellant,
vs.
JNO. S. HORD, defendant-appellee.
The plaintiff brought this action against the defendant, the Collector of Internal Revenue, to recover
the sum of P9,600, paid by him under protest as taxes on certain mining claims owned by him in the
Province of Ambos Camarines. Judgment was rendered in the court below in favor of the defendant,
and from that judgment the plaintiff appealed.
There is no dispute about the facts.
In January, 1897, the Spanish Government, in accordance with the provisions of the royal decree of
the 14th of May, 1867, granted to the plaintiff certain mines in the said Province of Ambos
Camarines, of which mines the plaintiff is now the owner.
That there were valid perfected mining concessions granted prior to the 11th of April, 1899, is
conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall
within the provisions of section 134 of Act No. 1189, known as the Internal Revenue Act. That section
is as follows:
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SEC. 134. On all valid perfected mining concessions granted prior to April eleventh, eighteen
hundred and ninety-nine, there shall be levied and collected on the after January first,
nineteen hundred and five, the following taxes:
2. (a) On each claim containing an area of sixty thousand square meters, an annual tax of one
hundred pesos; (b) and at the same rate proportionately on each claim containing an area in
excess of, or less than, sixty thousand square meters.
3. On the gross output of each an ad valorem tax equal to three per centum of the actual
market value of such output.
The defendant accordingly imposed upon these properties the tax mentioned in section 134, which
tax, as has before been stated, plaintiff paid under protest.
The only question in the case is whether this section 134 is void or valid.
I. It is claimed by the plaintiff that it is void because it comes within the provision of section 5 of the
act of Congress of July 1, 19021 (32 U.S. Stat. L., 691), which provides "that no law impairing the
obligation of contracts shall be enacted." The royal decree of the 14th of May, 1867, provided,
among other things, as follows:
ART. 76. On each pertenencia minera (mining claim) of the area prescribed in the first
paragraph of article 13 (sixty thousand square meters) there shall be paid annually a fixed tax
of forty escudos (about P20.00). The pertenencia referred to in the second paragraph of the
same article, though of greater area than the others (one hundred and fifty thousand square
meters), shall pay only twenty escudos (about P10.00).
ART. 78. Pertenencia of iron mines and mines of combustible minerals shall be exempt from
the annual tax for a period of thirty years from the date of publication of this decree.
ART. 80. A further tax of three per centum on the gross earnings shall be paid without
deduction of costs of any kind whatsoever. All substances enumerated in section one shall be
exempt from said tax of three per centum for a period of thirty years.
ART. 81. No other taxes than those herein mentioned shall be imposed upon mining and
metallurgical industries.
The royal decree and regulation for its enforcement provided that the deeds granted by the
Government should be in a particular form, which form was inserted in the regulations. It must be
presumed that the deeds granted to the plaintiff were made as provided by law, and, in fact, one of
such concessions was exhibited during the argument in this court, and was found to be in exact
conformity with the form prescribed by law. The deed is as follows:
Don Camilo Garcia de Polavieja, Marquez de Polavieja, Teniente General de los Ejercitos
Nacionales, Caballero Gran Cruz de la Real y Militar Orden de San Hermenegildo, de la Real y
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distinguida de Isabel la Catolica, de la del Merito Militar Roja, de la de la Corona de Italia,

Comendador de Carlos Tercero, Bennemerito de la Patria en grado eminente, condecorado
con varias cruses de distincion por meritos de guerra, Capitan General y Gobernador General
de Filipinas.
Whereas I have granted to Don Joaquin Casanovas y Llovet and to Don Martin Buck the
concession of a gold mine entitled "Nueva California Segunda" in the jurisdiction of Paracale,
Province of Ambos Camarines: Now, therefore, in the name of His Majesty the King (whom
God preserve), and pursuant to the provisions of article 37 of the royal decree of May 14,
1867, regulating mining in these Islands, I issue, this fifth day of November, eighteen
hundred and ninety-six, this title deed to four pertenencias, comprising an area of two
hundred and forty thousand square meters, as shown in the attached sketch map drafted by
the engineer Don Enrique Abella y Casariego, and dated at Manila December sixteenth of the
said year, subject to the following general terms and conditions:
1. That the mine shall be worked in conformity with the rules in mining, the grantee and his
laborers to be governed by the police rules established by existing regulations.
2. That the grantee shall be liable for all damages to third parties that may be caused by his
operations.
3. That the grantee shall likewise indemnify his neighbors for any damage they may suffer by
reason of water accumulated on his works, if, upon being requested, he fail to drain the same
within the time indicated.
4. That he shall contribute for the drainage of the adjacent mines and for the general
galleries for drainage or haulage in proportion to the benefit he derives therefrom, whenever,
by authority of the Governor-General, such works shall be opened for a group
of pertenencias or for the entire mining locality in which the mine is situated.
5. That he shall commence work on the mine immediately upon receipt of this concession
unless prevented by force majeure.
6. That he shall keep the mine in active operation by employing at the rate of at least four
laborers for eachpertenencia for at least six months of each year.
7. That he shall strengthen the walls of the mine within the time indicated whenever, by
reason of mismanagement of the work, it threatens to cave in, unless he be prevented
by force majeure.
8. That he shall not render further profitable development of the mine difficult or impossible
by avaricious operation.
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9. That he shall not suspend the operation of the mine with the intention of abandoning the
same without first informing the Governor of his intention, in which case he must leave the
mine in a good state of timbering.
10. That he shall pay taxes on the mine and its output as prescribed in the royal decree.
11. Finally, that he shall comply with all the requirements contained in the royal decree and in
the regulations for concessions of the same nature as the present.
Without special conditions.
Now, therefore, by virtue of this title deed, I grant to Don Joaquin Casanovas y Llovet and to
Don Martin Buck the ownership of the said mine for an unlimited period of time so long as
they shall comply with the foregoing terms and conditions, to the end that they may develop
the same and make free use and disposition of the output thereof, with the right to alienate
the said mine subject to the provisions of existing laws, and to enjoy all the rights and
benefits conceded to such grantees by the royal decree and by the mining regulations. And
for the prompt fulfillment and observance of the said conditions, both on the part of the said
grantees and by all authorities, courts, corporations, and private persons whom it may
concern, I have ordered this title deed to be issued given under my hand and the proper
seal and countersigned by the undersigned Director-General of Civil Administration.
It seems very clear to us that this deed constituted a contract between the Spanish Government and
the plaintiff, the obligation of which contract was impaired by the enactment of section 134 of the
Internal Revenue Law above cited, thereby infringing the provisions above quoted from section 5 of
the act of Congress of July 1, 1902. This conclusion seems necessarily to result from the decisions of
the Supreme Court of the United States in similar cases. In the case of McGee vs. Mathis (4 Wallace,
143), it appeared that the State of Arkansas, by an act of the legislature of 1851, provided for the sale
of certain swamp lands granted to it by the United States; for the issue of transferable scrip
receivable for any lands not already taken up at the time of selection by the holder; for contracts for
the making of levees and drains, and for the payment of contractors in scrip and otherwise. In the
fourteenth section of this act it was provided that
To encourage by all just means the progress and completion of the reclaiming of such lands
by offering inducements to purchasers and contractors to take up said lands, all said swamp
and overflowed lands shall be exempt from taxation for the term of ten years or until they
shall be reclaimed.
In 1855 this section was repealed and provision was made by law for the taxation of swamp and
overflowed lands, sold or to be sold, precisely as other lands. McGee, before this appeal, had become
the owner by transfer from contractors of a large amount of scrip issued under the Act of 1851, and
with this scrip, after the repeal, took up and paid for many sections and parts of sections of the
granted lands. Taxes were levied by the State on the lands so taken up by McGee. The Supreme
Court held that these taxes could not be collected. The Court said at page 156:
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It seems quite clear that the Act of 1851 authorizing the issue of land scrip constituted a
contract between the State and the holders of the land scrip issued under the act.
In the case of the Home of the Friendless vs. Rouse (8 Wallace, 430), it appeared that on the 3d day
of February, 1853, the legislature of Missouri passed on act to incorporate the Home of the
Friendless in the city of St. Louis. Section 1 of the act provided that
All property of said corporation shall be exempt from taxation.
The court held that the State had no power afterwards to pass laws providing for the levying of taxes
upon this institution. The Court said among other things at page 438:
The validity of this contract is questioned at the bar on the ground that the legislature had
no authority to grant away the power of taxation. The answer to this position is, that the
question is no longer open for argument here, for it is settled by the repeated adjudications
of this court, that a State may be contract based on a consideration exempt the property of
an individual or corporation from taxation, either for a specified period or permanently. And
it is equally well settled that the exemption is presumed to be on sufficient consideration,
and binds the State if the charter containing it is accepted.
In the case of The Asylum vs. The City of New Orleans (105 U.S., 362), it appears that St. Ariva's
Asylum was incorporated by an act of the legislature of Louisiana, approved April 29, 1853. The law
incorporating it provided that it should enjoy the same exemption from taxation which was enjoyed
by the Orphan Boys' Asylum of New Orleans. The law relating to the last named institution provided
(page 364):
That, from and after the passage of this act, all the property, real and personal, belonging to
the Orphan Boys' Asylum of New Orleans be, and the same is hereby exempted from all
taxation, either by the State, parish, or city in which it is situated, any law to the contrary
notwithstanding.
It was held that the State had no power by subsequent legislation to impose taxes upon the property
of this institution.
That the doctrine announced in these cases is still maintained in that court is apparent from the case
of Powersvs. The Detroit, Grand Haven and Milwaukee Railway which was decided on the 16th of
April, 1906, and reported in 201 U. S., 543. Section 9 of the act of the legislature of Michigan,
incorporating the railway company, provided:
Said company shall, on or before the 1st day of July, pay to the State treasurer, an annual tax
of one per cent on the capital stock of said company, pain in, which tax shall be in lieu of all
other taxation.
The court said at page 556:
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It has often been decided by this court, so often that a citation on authorities in unnecessary,
that the legislature of a State may, in the absence of special restrictions in its constitution,
make a valid contract with a corporation in respect to taxation, and that such contract can be
enforced against the State at the instance of the corporation.
The case at bar falls within the cases hereinbefore cited. It is to be distinguished from the case of the
Metropolitan Street Railway Company vs. The New York State Board of Tax Commissioners (199 U.S.,
1). In that case it was provided by various acts of the legislature, that the companies therein referred
to, should pay annually to the city of New York, a fixed amount or percentage, varying from 2 to 8
per cent of their gross earnings additional taxes was sustained by the court. It was sustained on the
ground that the prior legislation did not expressly say that the taxes thus provided for should be in
lieu of all other taxes. The court said at page 37:
Applying these well-established rules to the several contracts, it will be perceived that there
was no express relinquishment of the right of taxation. The plaintiff in error must rely upon
some implication, and not upon any direct stipulation. In each contract there was a grant of
privileges, but the grant was specifically or privileges in respect to the construction, operation
and maintenance of the street railroad. These were all that in terms were granted. As
consideration for this grant, the grantees were to pay something, and such payment is
nowhere said to be in lieu of, or as an equivalent or substitute of taxes. All that can be
extracted from the language used, was a grant of privileges and a payment therefor. Other
words must be written into the contract before there can be found any relinquishment of the
power of taxation.
But in the case at bar, there is found not only the provisions for the payment of certain taxes
annually, but there is also found the provision contained in article 81, above quoted, which expressly
declares that no other taxes shall be imposed upon these mines.
The present case is to be distinguished also from that class of cases of which Grands Lodge vs. The
City of New Orleans (166 U.S., 143) is a type, and which includes Salt Company vs. East Saginaw (13
Wall., 373) and Welchvs. Cook (97 U.S., 541). In these cases the exemption was a mere bounty and
did not form a part of any contract.
The fact that this concession was made by the Government of Spain, and not by the Government of
the United States, is not important. (Trustees of Dartmouth College vs. Woodward, 4 Wheaton, 518.)
Our conclusion is that the concessions granted by the Government of Spain to the plaintiff,
constitute contracts between the parties; that section 134 of the Internal Revenue Law impairs the
obligation of these contracts, and is therefore void as to them.
II. We think that this section is also void because in conflict with section 60 of the act of Congress of
July 1, 1902. This section is as follows:
That nothing in this Act shall be construed to effect the rights of any person, partnership, or
corporation, having a valid, perfected mining concession granted prior to April eleventh,
Page 348 of 455
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eighteen hundred and ninety-nine, but all such concessions shall be conducted under the
provisions of the law in force at the time they were granted, subject at all times to
cancellation by reason of illegality in the procedure by which they were obtained, or for
failure to comply with the conditions prescribed as requisite to their retention in the laws
under which they were granted: Provided, That the owner or owners of every such
concession shall cause the corners made by its boundaries to be distinctly marked with
permanent monuments within six months after this act has been promulgated in the
Philippine Islands, and that any concessions, the boundaries of which are not so marked
within this period shall be free and open to explorations and purchase under the provisions
of this act.2
This section seems to indicate that concessions, like those in question, can be canceled only by
reason of illegality in the procedure by which they were obtained, or for failure to comply with the
conditions prescribed as requisite for their retention in the laws under which they were granted.
There is nothing in the section which indicates that they can be canceled for failure to comply with
the conditions prescribed by subsequent legislation. In fact, the real intention of the act seems to be
that such concession should be subject to the former legislation and not to any subsequent
legislation. There is no claim in this case that there was any illegality in the procedure by which these
concessions were obtained, nor is there any claim that the plaintiff has not complied with the
conditions prescribed in the said royal decree of 1867.
III. In view of the result at which we have arrived, it is not necessary to consider the further claim
made by the plaintiff that the taxes imposed by article 134 above quoted, are in violation of the part
of section 5 of the act of July 1, 1902, which declares "that the rule of taxation in said Islands shall be
uniform."
The judgment of the court below is reversed, and judgment is ordered in favor of the plaintiff and
against the defendant for P9,600, with interest thereon, at 6 per cent, from the 21st day of February,
1906, and the costs of the Court of First Instance. No costs will be allowed to either party in this
court.
After the expiration of twenty days let judgment be entered in accordance herewith and ten days
thereafter let the case be remanded to the court from whence it came for proper action. So ordered.
G.R. No. L-60126 September 25, 1985
CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.
This is about the liability of petitioner Cagayan Electric Power & Light Co., Inc. for income tax
amounting to P75,149.73 for the more than seven-month period of the year 1969 in addition to
franchise tax.
Page 349 of 455
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The petitioner is the holder of a legislative franchise, Republic Act No. 3247, under which its payment
of 3% tax on its gross earnings from the sale of electric current is "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" (Sec. 3).
On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by making liable for
income tax all corporate taxpayers not specifically exempt under paragraph (c) (1) of said section and
section 27 of the Tax Code notwithstanding the "provisions of existing special or general laws to the
contrary". Thus, franchise companies were subjected to income tax in addition to franchise tax.
However, in petitioner's case, its franchise was amended by Republic Act No. 6020, effective August
4, 1969, by authorizing the petitioner to furnish electricity to the municipalities of Villanueva and
Jasaan, Misamis Oriental in addition to Cagayan de Oro City and the municipalities of Tagoloan and
Opol. The amendment reenacted the tax exemption in its original charter or neutralized the
modification made by Republic Act No. 5431 more than a year before.
By reason of the amendment to section 24 of the Tax Code, the Commissioner of Internal Revenue in
a demand letter dated February 15, 1973 required the petitioner to pay deficiency income taxes
for 1968-to 1971. The petitioner contested the assessments. The Commissioner cancelled the
assessments for 1970 and 1971 but insisted on those for 1968 and 1969.
The petitioner filed a petition for review with the Tax Court, which on February 26, 1982 held the
petitioner liable only for the income tax for the period from January 1 to August 3, 1969 or before
the passage of Republic Act No. 6020 which reiterated its tax exemption. The petitioner appealed to
this Court.
It contends that the Tax Court erred (1) in not holding that the franchise tax paid by the petitioner is
a commutative tax which already includes the income tax; (2) in holding that Republic Act No. 5431
as amended, altered or repealed petitioner's franchise; (3) in holding that petitioner's franchise is a
contract which can be impaired by an implied repeal and (4) in not holding that section 24(d) of the
Tax Code should be construed strictly against the Government.
We hold that Congress could impair petitioner's legislative franchise by making it liable for income
tax from which heretofore it was exempted by virtue of the exemption provided for in section 3 of its
franchise.
The Constitution provides that a franchise is subject to amendment, alteration or repeal by the
Congress when the public interest so requires (Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV,
1973 Constitution),
Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject to the provisions
of the Constitution and to the terms and conditions established in Act No. 3636 whose section 12
provides that the franchise is subject to amendment, alteration or repeal by Congress.
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Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income tax all
corporate taxpayers not expressly exempted therein and in section 27 of the Code, had the effect
of withdrawing petitioner's exemption from income tax.
The Tax Court acted correctly in holding that the exemption was restored by the subsequent
enactment on August 4, 1969 of Republic Act No. 6020 which reenacted the said tax exemption.
Hence, the petitioner is liable only for the income tax for the period from January 1 to August 3, 1969
when its tax exemption was modified by Republic Act No. 5431.
It is relevant to note that franchise companies, like the Philippine Long Distance Telephone
Company, have been paying income tax in addition to the franchise tax.
However, it cannot be denied that the said 1969 assessment appears to be highly controversial. The
Commissioner at the outset was not certain as to petitioner's income tax liability. It had reason not to
pay income tax because of the tax exemption in its franchise.
For this reason, it should be liable only for tax proper and should not be held liable for the surcharge
and interest. (Advertising Associates, Inc. vs. Commissioner of Internal Revenue and Court of Tax
Appeals, G. R. No. 59758, December 26, 1984,133 SCRA 765; Imus Electric Co., Inc. vs. Commissioner
of Internal Revenue, 125 Phil. 1024; C.M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L28383, June 22, 1976, 71 SCRA 511.)
WHEREFORE, the judgment of the Tax Court is affirmed with the modification that the petitioner is
liable only for the tax proper and that it should not pay the delinquency penalties. No costs.
No. L-39086. June 15, 1988.*
ABRA VALLEY COLLEGE, INC. represented by PEDRO V. BORGONIA, petitioner, vs. HON. JUAN P.
AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra;
GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE,
respondents.
Constitutional Law; Taxation; Test of exemption from taxation.The test of exemption from taxation
is the use of the property for purposes mentioned in the Constitution.
Same; Same; Same; As held in YMCA of Manila vs. Collector of Internal Revenue, the keeping of a
lodging and a boarding house and a restaurant for its members do not constitute business in the
ordinary acceptance of the word.As early as 1916, in YMCA of Manila vs. Collector of Internal
Revenue, 33 Phil. 217 [1916], this Court ruled that while it may be true that the YMCA keeps a
lodging and a boarding house and maintains a restaurant for its members, still these do not
constitute business in the ordinary acceptance of the word, but an institution used exclusively for
religious, charitable and educational purposes, and as such, it is entitled to be exempted from
taxation.
Page 351 of 455
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Same; Same; Same; In Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte, the Court
included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a
cemetery.In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352
[1972], this Court included in the exemption a vegetable garden in an adjacent lot and another lot
formerly used as a cemetery. It was clarified that the term used exclusively considers incidental use
also. Thus, the exemption from payment of land tax in favor of the convent includes, not only the
land actually occupied by the building but also the adjacent garden devoted to the incidental use of
the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of
lodging place, also qualifies for exemption because this constitutes incidental use in religious
functions.
Same; Same; Same; Phrase exclusively used for educational purposes clarified.The phrase
exclusively used for educational purposes was further clarified by this Court in the cases of Herrera
vs. Quezon City Board of Assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal
Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thusMoreover, the exemption in
favor of property used exclusively for charitable or educational purposes is not limited to property
actually indispensable therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which
are incidental to and reasonably necessary for the accomplishment of said purposes, such as in the
case of hospitals, a school for training nurses, a nurses home, property use to provide housing
facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns, and residents (84 CJS 6621), such as athletic fields
including a firm used for the inmates of the institution.
Same; Same; Same; Same; The exemption extends to facilities which are incidental to and reasonably
necessary for the accomplishment of the main purpose the lease of the first floor to the Northern
Marketing Corporation cannot by any stretch of the imagination be considered incidental to the
purposes of education; Case at bar.It must be stressed however, that while this Court allows a
more liberal and non-restrictive interpretation of the phrase exclusively used for educational
purposes as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution,
reasonable emphasis has always been made that exemption extends to facilities which are incidental
to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use
of the school building or lot for commercial purposes is neither contemplated by law, nor by
jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for
residential purposes of the Director and his family, may find justification under the concept of
incidental use, which is complimentary to the main or primary pur-poseeducational, the lease of
the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the
imagination be considered incidental to the purposes of education.
Same; Same; Same; Same; Same; Trial Court correct in imposing the tax not because the second floor
is being used by the Director and his family for residential purposes but because the first floor is
being used for commercial purposes.Under the 1935 Constitution, the trial court correctly arrived
Page 352 of 455
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at the conclusion that the school building as well as the lot where it is built, should be taxed, not
because the second floor of the same is being used by the Director and his family for residential
purposes, but because the first floor thereof is being used for commercial purposes. However, since
only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be
returned to the school involved.
Same; Same; Appeal; Fact of lease raised for the first time on appeal; Court is clothed with ample
authority to review palpable errors not assigned as such if it finds that their consideration is
necessary in arriving at a just decision.Indeed it is axiomatic that facts not raised in the lower court
cannot be taken up for the first time on appeal. Nonetheless, as an exception to the rule, this Court
has held that although a factual issue is not squarely raised below, still in the interest of substantial
justice, this Court is not prevented from considering a pivotal factual matter. The Supreme Court is
clothed with ample authority to review palpable errors not assigned as such if it finds that their
consideration is necessary in arriving at a just decision.
[Abra Valley College, Inc. vs. Aquino, 162 SCRA 106(1988)]
PARAS, J.:
This is a petition for review on certiorari of the decision * of the defunct Court of First Instance of
Abra, Branch I, dated June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior
College, Inc., represented by Pedro V. Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer
of Abra, Gaspar V. Bosque as Municipal Treasurer of Bangued, Abra and Paterno Millare, defendants,"
the decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, the Court hereby declares:
That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the
Provincial Treasurer of said province against the lot and building of the Abra Valley
Junior College, Inc., represented by Director Pedro Borgonia located at Bangued,
Abra, is valid;
That since the school is not exempt from paying taxes, it should therefore pay all
back taxes in the amount of P5,140.31 and back taxes and penalties from the
promulgation of this decision;
That the amount deposited by the plaintaff him the sum of P60,000.00 before the
trial, be confiscated to apply for the payment of the back taxes and for the
redemption of the property in question, if the amount is less than P6,000.00, the
remainder must be returned to the Director of Pedro Borgonia, who represents the
plaintiff herein;
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That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before
the trial must be returned to said Municipal Treasurer of Bangued, Abra;
And finally the case is hereby ordered dismissed with costs against the plaintiff.
SO ORDERED. (Rollo, pp. 22-23)
Petitioner, an educational corporation and institution of higher learning duly incorporated with the
Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the
respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quo to annul
and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building located at
Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said
"Notice of Seizure" of the college lot and building covered by Original Certificate of Title No. Q-83
duly registered in the name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal
Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes
thereon. The "Notice of Sale" was caused to be served upon the petitioner by the respondent
treasurers on July 8, 1972 for the sale at public auction of said college lot and building, which sale
was held on the same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra, offered the
highest bid of P6,000.00 which was duly accepted. The certificate of sale was correspondingly issued
to him.
On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a motion
to dismiss the complaint.
On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then
Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs
of Patemo Millare; Rollo, pp. 98-100) to the complaint. This was followed by an amended answer
(Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972.
On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp.
106-108).
On October 12, 1972, with the aforesaid sale of the school premises at public auction, the
respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered
(Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial and municipal treasurers to deliver to
the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, petitioner,
through Director Borgonia, deposited with the trial court the sum of P6,000.00 evidenced by PNB
Check No. 904369.
On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial
court in its questioned decision. Said Stipulations reads:
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STIPULATION OF FACTS
COME NOW the parties, assisted by counsels, and to this Honorable Court
respectfully enter into the following agreed stipulation of facts:
1. That the personal circumstances of the parties as stated in paragraph 1 of the
complaint is admitted; but the particular person of Mr. Armin M. Cariaga is to be
substituted, however, by anyone who is actually holding the position of Provincial
Treasurer of the Province of Abra;
2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and
buildings thereon located in Bangued, Abra under Original Certificate of Title No. 083;
3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra
caused to be served upon the Abra Valley Junior College, Inc. a Notice of Seizure on
the property of said school under Original Certificate of Title No. 0-83 for the
satisfaction of real property taxes thereon, amounting to P5,140.31; the Notice of
Seizure being the one attached to the complaint as Exhibit A;
4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc.
was sold at public auction for the satisfaction of the unpaid real property taxes
thereon and the same was sold to defendant Paterno Millare who offered the highest
bid of P6,000.00 and a Certificate of Sale in his favor was issued by the defendant
Municipal Treasurer.
5. That all other matters not particularly and specially covered by this stipulation of
facts will be the subject of evidence by the parties.
WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit
this stipulation of facts on the point agreed upon by the parties.
Bangued, Abra, April 12, 1973.
Sgd. Agripino Brillantes
Typ AGRIPINO BRILLANTES
Attorney for Plaintiff
Sgd. Loreto Roldan
Typ LORETO ROLDAN
Provincial Fiscal
Page 355 of 455
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Counsel for Defendants

Provincial Treasurer of
Abra and the Municipal
Treasurer of Bangued, Abra
Sgd. Demetrio V. Pre
Typ. DEMETRIO V. PRE
Attorney for Defendant
Paterno Millare (Rollo, pp. 17-18)
Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the
school is recognized by the government and is offering Primary, High School and College Courses,
and has a school population of more than one thousand students all in all; (b) that it is located right
in the heart of the town of Bangued, a few meters from the plaza and about 120 meters from the
Court of First Instance building; (c) that the elementary pupils are housed in a two-storey building
across the street; (d) that the high school and college students are housed in the main building; (e)
that the Director with his family is in the second floor of the main building; and (f) that the annual
gross income of the school reaches more than one hundred thousand pesos.
From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is
whether or not the lot and building in question are used exclusively for educational purposes. (Rollo,
p. 20)
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero,
filed a Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on
May 7, 1974, wherein they opined "that based on the evidence, the laws applicable, court decisions
and jurisprudence, the school building and school lot used for educational purposes of the Abra
Valley College, Inc., are exempted from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo,
pp. 24-49; 44 and 49).
Nonetheless, the trial court disagreed because of the use of the second floor by the Director of
petitioner school for residential purposes. He thus ruled for the government and rendered the
assailed decision.
After having been granted by the trial court ten (10) days from August 6, 1974 within which to
perfect its appeal (Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner
instead availed of the instant petition for review on certiorari with prayer for preliminary injunction
before this Court, which petition was filed on August 17, 1974 (Rollo, p.2).
In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition
(Rollo, p. 58). Respondents were required to answer said petition (Rollo, p. 74).
Page 356 of 455
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Petitioner raised the following assignments of error:

I
THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE LOT
AND BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.
II
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE
PETITIONER ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE
COLLEGE PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.
III
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE
PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY
P5,140.31 AS REALTY TAXES.
IV
THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN
THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the
Petitioner, pp. 1-2)
The main issue in this case is the proper interpretation of the phrase "used exclusively for
educational purposes."
Petitioner contends that the primary use of the lot and building for educational purposes, and not
the incidental use thereof, determines and exemption from property taxes under Section 22 (3),
Article VI of the 1935 Constitution. Hence, the seizure and sale of subject college lot and building,
which are contrary thereto as well as to the provision of Commonwealth Act No. 470, otherwise
known as the Assessment Law, are without legal basis and therefore void.
On the other hand, private respondents maintain that the college lot and building in question which
were subjected to seizure and sale to answer for the unpaid tax are used: (1) for the educational
purposes of the college; (2) as the permanent residence of the President and Director thereof, Mr.
Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for commercial
purposes because the ground floor of the college building is being used and rented by a commercial
establishment, the Northern Marketing Corporation (See photograph attached as Annex "8"
(Comment; Rollo, p. 90]).
Page 357 of 455
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Due to its time frame, the constitutional provision which finds application in the case at bar is Section
22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly grants
exemption from realty taxes for "Cemeteries, churches and parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or
educational purposes ...
Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act
No. 409, otherwise known as the Assessment Law, provides:
The following are exempted from real property tax under the Assessment Law:
xxx xxx xxx
(c) churches and parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious, charitable, scientific or
educational purposes.
xxx xxx xxx
In this regard petitioner argues that the primary use of the school lot and building is the basic and
controlling guide, norm and standard to determine tax exemption, and not the mere incidental use
thereof.
As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court
ruled that while it may be true that the YMCA keeps a lodging and a boarding house and maintains a
restaurant for its members, still these do not constitute business in the ordinary acceptance of the
word, but an institution used exclusively for religious, charitable and educational purposes, and as
such, it is entitled to be exempted from taxation.
In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this
Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly used
as a cemetery. It was clarified that the term "used exclusively" considers incidental use also. Thus, the
exemption from payment of land tax in favor of the convent includes, not only the land actually
occupied by the building but also the adjacent garden devoted to the incidental use of the parish
priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place,
also qualifies for exemption because this constitutes incidental use in religious functions.
The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases
of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of
Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus
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Moreover, the exemption in favor of property used exclusively for charitable or

educational purposes is 'not limited to property actually indispensable' therefor
(Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to
and reasonably necessary for the accomplishment of said purposes, such as in the
case of hospitals, "a school for training nurses, a nurses' home, property use to
provide housing facilities for interns, resident doctors, superintendents, and other
members of the hospital staff, and recreational facilities for student nurses, interns,
and residents' (84 CJS 6621), such as "Athletic fields" including "a firm used for the
inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430).
The test of exemption from taxation is the use of the property for purposes mentioned in the
Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).
It must be stressed however, that while this Court allows a more liberal and non-restrictive
interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI,
Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been
made that exemption extends to facilities which are incidental to and reasonably necessary for the
accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for
commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the
second floor of the main building in the case at bar for residential purposes of the Director and his
family, may find justification under the concept of incidental use, which is complimentary to the main
or primary purposeeducational, the lease of the first floor thereof to the Northern Marketing
Corporation cannot by any stretch of the imagination be considered incidental to the purpose of
education.
It will be noted however that the aforementioned lease appears to have been raised for the first time
in this Court. That the matter was not taken up in the to court is really apparent in the decision of
respondent Judge. No mention thereof was made in the stipulation of facts, not even in the
description of the school building by the trial judge, both embodied in the decision nor as one of the
issues to resolve in order to determine whether or not said properly may be exempted from payment
of real estate taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was not
disputed even after it was raised in this Court.
Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on
appeal. Nonetheless, as an exception to the rule, this Court has held that although a factual issue is
not squarely raised below, still in the interest of substantial justice, this Court is not prevented from
considering a pivotal factual matter. "The Supreme Court is clothed with ample authority to review
palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a
just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).
Page 359 of 455
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Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school
building as well as the lot where it is built, should be taxed, not because the second floor of the same
is being used by the Director and his family for residential purposes, but because the first floor
thereof is being used for commercial purposes. However, since only a portion is used for purposes of
commerce, it is only fair that half of the assessed tax be returned to the school involved.
PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby
AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner.
No. L-19201. June 16, 1965.
REV. FR. CASIMIRO LLADOC, petitioner, vs. The COMMISSIONER OF INTERNAL REVENUE and The
COURT OF TAX APPEALS, respondents.
Taxation; Constitutional exemption for religious purpose refers only to property taxes.Section
22(3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches and
parsonages or convents, appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious purposes. The exemption is only from the payment of taxes assessed on such
properties enumerated, as property taxes, as contra-distinguished from excise taxes.
Same: Same; Gift tax; Imposition of gift tax on property used for religious purposes not violation of
Constitution.A gift tax is not a property tax, but an excise tax imposed on the transfer of property
by way of gift inter vivos, the imposition of which on property used exclusively for religious purposes,
does not constitute an impairment of the Constitution.
Same; Same; Parties; Head of diocese real party in interest in gift tax on church property.The head
of the diocese and not the parish priest is the real party in interest in the imposition of a donees tax
on property donated to the church for religious purposes. [Lladoc vs. Commissioner of Internal
Revenue, 14 SCRA 292(1965)]
PAREDES, J.:
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr.
Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner,
for the construction of a new Catholic Church in the locality. The total amount was actually spent for
the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29,
1960, the respondent Commissioner of Internal Revenue issued an assessment for donee's gift tax
against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest. The tax
amounted to P1,370.00 including surcharges, interests of 1% monthly from May 15, 1958 to June 15,
1960, and the compromise for the late filing of the return.
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Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and
the motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The
petitioner appealed to the Court of Tax Appeals on November 2, 1960. In the petition for review, the
Rev. Fr. Casimiro Lladoc claimed, among others, that at the time of the donation, he was not the
parish priest in Victorias; that there is no legal entity or juridical person known as the "Catholic Parish
Priest of Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also
asserted that the assessment of the gift tax, even against the Roman Catholic Church, would not be
valid, for such would be a clear violation of the provisions of the Constitution.
After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below:
... . Parish priests of the Roman Catholic Church under canon laws are similarly situated as its
Archbishops and Bishops with respect to the properties of the church within their parish.
They are the guardians, superintendents or administrators of these properties, with the right
of succession and may sue and be sued.
xxx
xxx
xxx
The petitioner impugns the, fairness of the assessment with the argument that he should not
be held liable for gift taxes on donation which he did not receive personally since he was not
yet the parish priest of Victorias in the year 1957 when said donation was given. It is
intimated that if someone has to pay at all, it should be petitioner's predecessor, the Rev. Fr.
Crispin Ruiz, who received the donation in behalf of the Catholic parish of Victorias or the
Roman Catholic Church. Following petitioner's line of thinking, we should be equally unfair to
hold that the assessment now in question should have been addressed to, and collected
from, the Rev. Fr. Crispin Ruiz to be paid from income derived from his present parish where
ever it may be. It does not seem right to indirectly burden the present parishioners of Rev. Fr.
Ruiz for donee's gift tax on a donation to which they were not benefited.
xxx
xxx
xxx
We saw no legal basis then as we see none now, to include within the Constitutional
exemption, taxes which partake of the nature of an excise upon the use made of the
properties or upon the exercise of the privilege of receiving the properties. (Phipps vs.
Commissioner of Internal Revenue, 91 F [2d] 627; 1938, 302 U.S. 742.)
It is a cardinal rule in taxation that exemptions from payment thereof are highly disfavored
by law, and the party claiming exemption must justify his claim by a clear, positive, or express
grant of such privilege by law. (Collector vs. Manila Jockey Club, G.R. No. L-8755, March 23,
1956; 53 O.G. 3762.)
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The phrase "exempt from taxation" as employed in Section 22(3), Article VI of the
Constitution of the Philippines, should not be interpreted to mean exemption from all kinds
of taxes. Statutes exempting charitable and religious property from taxation should be
construed fairly though strictly and in such manner as to give effect to the main intent of the
lawmakers. (Roman Catholic Church vs. Hastrings 5 Phil. 701.)
xxx
xxx
xxx
WHEREFORE, in view of the foregoing considerations, the decision of the respondent

Commissioner of Internal Revenue appealed from, is hereby affirmed except with regard to
the imposition of the compromise penalty in the amount of P20.00 (Collector of Internal
Revenue v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and the petitioner, the Rev. Fr. Casimiro
Lladoc is hereby ordered to pay to the respondent the amount of P900.00 as donee's gift tax,
plus the surcharge of five per centum (5%) as ad valorem penalty under Section 119 (c) of the
Tax Code, and one per centum (1%) monthly interest from May 15, 1958 to the date of actual
payment. The surcharge of 25% provided in Section 120 for failure to file a return may not be
imposed as the failure to file a return was not due to willful neglect.( ... ) No costs.
The above judgment is now before us on appeal, petitioner assigning two (2) errors allegedly
committed by the Tax Court, all of which converge on the singular issue of whether or not petitioner
should be liable for the assessed donee's gift tax on the P10,000.00 donated for the construction of
the Victorias Parish Church.
Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation
cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious purposes. The exemption is only from the payment of
taxes assessed on such properties enumerated, as property taxes, as contra distinguished from excise
taxes. In the present case, what the Collector assessed was a donee's gift tax; the assessment was not
on the properties themselves. It did not rest upon general ownership; it was an excise upon the use
made of the properties, upon the exercise of the privilege of receiving the properties (Phipps vs.
Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting provisions of the
section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of
property by way of gift inter vivos, the imposition of which on property used exclusively for religious
purposes, does not constitute an impairment of the Constitution. As well observed by the learned
respondent Court, the phrase "exempt from taxation," as employed in the Constitution (supra)
should not be interpreted to mean exemption from all kinds of taxes. And there being no clear,
positive or express grant of such privilege by law, in favor of petitioner, the exemption herein must
be denied.
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The next issue which readily presents itself, in view of petitioner's thesis, and Our finding that a tax
liability exists, is, who should be called upon to pay the gift tax? Petitioner postulates that he should
not be liable, because at the time of the donation he was not the priest of Victorias. We note the
merit of the above claim, and in order to put things in their proper light, this Court, in its Resolution
of March 15, 1965, ordered the parties to show cause why the Head of the Diocese to which the
parish of Victorias pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it
appearing that the Head of such Diocese is the real party in interest. The Solicitor General, in
representation of the Commissioner of Internal Revenue, interposed no objection to such a
substitution. Counsel for the petitioner did not also offer objection thereto.
On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present whatever legal
issues and/or defenses he might wish to raise, to which resolution counsel for petitioner, who also
appeared as counsel for the Head of the Diocese, the Roman Catholic Bishop of Bacolod, manifested
that it was submitting itself to the jurisdiction and orders of this Court and that it was presenting, by
reference, the brief of petitioner Rev. Fr. Casimiro Lladoc as its own and for all purposes.
In view here of and considering that as heretofore stated, the assessment at bar had been properly
made and the imposition of the tax is not a violation of the constitutional provision exempting
churches, parsonages or convents, etc. (Art VI, sec. 22 [3], Constitution), the Head of the Diocese, to
which the parish Victorias Pertains, is liable for the payment thereof.
The decision appealed from should be, as it is hereby affirmed insofar as tax liability is concerned; it
is modified, in the sense that petitioner herein is not personally liable for the said gift tax, and that
the Head of the Diocese, herein substitute petitioner, should pay, as he is presently ordered to pay,
the said gift tax, without special, pronouncement as to costs.
G.R. No. L-7988
January 19, 1916
THE YOUNG MEN'S CHRISTIAN ASSOCIATION OF MANILA, plaintiff-appellant,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
The question at issue in this case is whether or not the building and grounds of the Young Men's
Christian Association of Manila are subject to taxation, under section 48 of the charter of the city of
Manila quoted in the footnote [syllabus].
The city of Manila, contending that the property is taxable, assessed it and levied a tax thereon. It
was paid under protest and this action begun to recover it on the ground that the property was
exempt from taxation under the charter of the city of Manila. The decision was for the city and the
association appealed.
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The Young Men's Christian Association came to the Philippine with the army of occupation in 1898.
When the large body of troops in Manila was removed to permanent quarters at Fort William
McKinley in February, 1905, an independent association for Manila was organized under the
direction of the Army and navy departments. Shortly after the organization of the association the
directors made a formal request to the international committee of the Young Men's Christian
Association in New York City for the assistance and cooperation of its foreign department. I response
to this request Mr. John R. Mott, general secretary of the foreign department, visited Manila in
January 1907. After a conference with the directors and interested friends it was decided to conduct
a campaign to secure funds for an adequate and permanent association. In the name of the
international committee and friends in America Mr. Mott guaranteed P170,000 for the construction
of a building on condition that friend in the Philippines secure the site and adequately furnish the
building. The campaign for funds was begun here on February 15, 1907, and, by the 15th of March
following, P83,000 was subscribed, nearly one thousand different persons contributing. Thereupon
the Young Men's Christian Association of Manila was incorporated under the law of the Philippine
Islands and received its character in June, 1907.
A site for the new building was selected on Calle Concepcion, Ermita, and the building contract was
let on the 8th of January following. The cornerstone was laid with appropriate ceremonies on July 10,
1908, and the building was formally dedicated on October 20, 1909.
The building is composed of three parts. The main structure, located in the center, is three stories
high and includes a reception hall, social hall and game rooms, lecture room, library, reading room
and rooming apartments. The small building lying to the left of the principal structure, as one faces
the front from Called Concepcion, is the kitchen and servant's quarters. The large wing to the right is
known as the athletic building, where the bowling alleys, swimming pool, locker rooms and
gymnasium-auditorium are located. The construction is of reinforced concrete with steel trussed roof
covered with interlocking red tiles.
The main or central portion of the building is 150 by 45 feet and stands 20 meters back from the
sidewalk. An iron canopy, suspended by brackets, projects over the driveway which lies in front and
shelters the main entrance. A wide arched doorway opens into a large reception room, on the left of
which is the public office and the secretary's private office, while on the right is the reading and
writing rooms, and beyond that the library, each about 30 feet square. From the reception room, on
the left, a broad concrete stairway leads to the second floor.
Passing out of the rear of the reception hall one enters upon a veranda some 15 feet in width
running the full length of the main structure which looks out on the tennis courts and affords an
excellent place for lounging, games and general social purposes. To the left of the entrance hall and
also opening upon the veranda are two large rooms of about the same size as those on the right of
the reception hall, the first being the billiard room and the other the restaurant. The athletic building
is entered from the rear veranda. It is a two story wing 68 by 85 feet. Passing from the veranda into
the athletic hall one finds first, on the left, the toilet room, and beyond this, to the rear, the shower
baths and locker rooms. The swimming pool is in the center of the athletic wing and is 60 by 19 feet
in size, lined with cement. To the right of the swimming pool are the bowling alleys. A wide stairways
leads to the second floor. Above the swimming-pool and bowling alley is a large room 50 by 85 feet
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which is the gymnasium and also the auditorium when occasion requires. About one-third of the
roof converting the athletic wing is used as a roof garden.
The second and third floors of the main building are given over almost wholly to rooming
apartments and baths. On the second floor over the entrance hall is a members' parlor, from which a
small balcony projects over the main entrance. The remainder of the second floor and all to the third
are composed of the living rooms. These apartments, of which there are 14 on the second and 20 on
the third floor are approximately 18 by 14 feet each. They provide accommodations for 64 men.
The purposes of the association, as set forth in its charter and constitution, are:
To develop the Christian character and usefulness of its members, to improve the spiritual,
intellectual, social and physical condition of young men, and to acquire, hold, mortgage, and
dispose of the necessary lands, buildings and personal property for the use of said
corporation exclusively for religious, charitable and educational purposes, and not for
investment or profit.
The purposes of this association shall be exclusively religious, charitable and educational, in
developing the Christian character and usefulness of its members and in improving the
spiritual, mental, social and physical condition of young men.
Speaking generally, the association claims exemption from taxation on the ground that it is a
religious, charitable and educational institution combined. That it has an educational department is
not denied. It is undisputed that the aim of this department is to furnish, at much less than cost,
instruction in subjects that will greatly increase the mental efficiency and wage-earning capacity of
young men, prepare them in special lines of business and offer them special lines of study. Attention
is given to subjects included in civil service and consular examinations both here and in the United
States. The courses offer commercial subjects, as well as many others, and include stenography and
typewriting, bookkeeping, arithmetic, English composition, foreign languages, including elementary
and advanced Spanish and Tagalog, special courses in Philippine history, public speaking, surveying,
horticulture, tropical dependencies, and the group of subjects required for entrance into the consular
services, such as political economy, American and modern history. Courses are also offered in law,
social, ethics, political economy and other subjects.
The institution has also its religious department. In that department there are, generally speaking,
three main lines of work Bible study, religious meetings and special classes. Course are offered in
the Life of Christ and the Old Testament and in the larger social significance of the teachings of
Jesus. Meetings are held on Sunday afternoons and several times during the week and courses are
offered in the study of missions, in the method of teaching the Bible and kindred subjects.
The atmosphere of the Young Men's Christian Association is distinctly religious and there is constant
effort on the part of the officials to create a religious spirit; and to that end there is continuous
pressure to induce members to attend not only the religious services of the association but also
those of one or another of the churches of Manila. While the association is nonsectarian, it is
preeminently religious; and the fundamental basis and groundwork is the Christian religion. All of the
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officials of the association are devoted Christians, members of a church, and have dedicated their
lives to the spread of the Christian principles and building of Christian character.
The institution also has charitable features. It makes no profit on any of its activities. The professors
and instructors in all departments serve without pay and freely give of their time and ability to
further the purposes of the institution. The chief secretary and his assistant receive no salary from the
institution. Whatever they are paid comes from the United States. In estimating the cost of
instruction in the various departments, or of the other things for which pay is received, no account is
taken of the interest on the money invested in the grounds and building, of deterioration in value
resulting from the lapse of time, or of the fact that the professors and instructors and certain officials
receive no pay. We have, then, a building and grounds, professors and instructors, and certain
institution officials, furnished free of charge, and which makes no profit even on that basis. This, it
would seem, would lend some color to the claim that the association takes on some of the aspect of
a charitable institution. While it appears that the association is not exclusively religious or charitable
or educational, it is demonstrated that it is a happy combination of all three, giving to its
membership the religious opportunities of the church, the educational opportunities of the school
and the blessings of charity where needed without the recipient feeling or even knowing that he is
the object of charity.
It is claimed, however, that the institution is run as a business in that it keeps a lodging and boarding
house. It may be admitted that there are 64 persons occupying rooms in the main building as
lodgers or roomers and that they take their meals at the restaurant below. These facts, however, are
far from constituting a business in ordinary acceptation of the word. In the first place, no profit is
realized by the association in any sense. In the second place, it is undoubted, as it is undisputed, that
the purpose of the association is not, primarily, to obtain the money which comes from the lodgers
and boarders. The real purpose is to keep the membership continually within the sphere of influence
of the institution; and thereby to prevent, as far as possible, the opportunities which vice president to
young men in foreign countries who lack home or other similar influences. We regard this feature of
the institution not as a business or means of making money, but, rather, as a very efficient means of
maintaining the influence of the institution over its membership. As we held in the case of the
Columbia Club, religious and moral teachings do not always stop with the spoken word; but to be
effective in the highest degree they must follow the young man through as many moments of his life
as possible. To this end the feature of the Young Men's Christian Association to which objection is
made lends itself with great effect; and we are, accordingly, forced to regards this activity of the
institution not as a business but as a method by which the institution maintains its influence and
conserves the benefits which its organization was designed to confer.
As we have seen in the description already given of the association building and grounds, no part is
occupied for any but institutional purposes. From end to end the building and grounds are devoted
exclusively to the purposes stated in the constitution of the association. The library and reading
rooms, the game and lounging halls, the lecture rooms, the auditorium, the baths, pools, devices for
physical development, and the grounds, are all dedicated exclusively to the objects and purpose of
the association the building of Christian character and the creation of moral sentiment and fiber in
men. It is the belief of the Young Men's Christian Association that a Christian man, a man of moral
sentiment and firm moral fiber, is yet a better man for being also all-round man one who is sound
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not only according to Christian principles and the highest moral conceptions, but physically and
mentally; whose body and mind act in harmony and within the limits which the rights of others set;
who are gentleman in physical and mental struggles, as well as in religious service; who have selfrespect and self-restraint; who can hit hard and still kindly; who can lose without envy; who can
congratulate his conqueror with sincerity; who can vie without temper, contend without malice,
concede without regret; who can win and still be generous, in short, one who fights hard but
square. To the production of such men the association lends all its efforts, husbands all its resources.
We are aware that there are many decisions holding that institutions of this character are not exempt
from taxation; but, on investigation, we find that the majority of them are based on statutes much
narrower than the one under consider and that in all probability the decisions would have been
otherwise if the court had been passing on a statute similar to ours. On the other hand, there are
many decisions of the courts in the United States founded on statutes like the Philippine statute
which hold that associations of this class are exempt from taxation. We have examined all of the
decisions, both for and against, with care and deliberation, and we are convinced that the weight of
authority sustains the positions we take in this case.
There is no doubt about the correctness of the contention that an institution must devote itself
exclusively to one or the other of the purpose mentioned in the statute before it can be exempt from
taxation; but the statute does not say that it must be devoted exclusively to any one of the purposes
therein mentioned. It may be a combination of two or three or more of those purposes and still be
entitled to exempt. The Young Men's Christian Association of Manila cannot be said to be an
institution used exclusively for religious purposes, or an institution used exclusively for charitable
purposes, or an institution devoted exclusively to educational purposes; but we believe it can be
truthfully said that it is an institution used exclusively for all three purposes, and that, as such, it is
entitled to be exempted from taxation.
The judgment appealed from is reversed and the cause remanded with instructions to enter a
judgment against the city of Manila and in favor of the Young Men's Christian Association of Manila
in the sum of P6,221.35. Without costs in this instance. So ordered.
[No. 27588. December 31, 1927]
THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA, as representative of the Roman Catholic
Apostolic Church, plaintiff and appellant, vs. THE PROVINCIAL BOARD OF ILOCOS NORTE ET AL.,
defendants and appellants.
1.LAND TAX; EXEMPTION; CONVENT; VEGETABLE GARDEN.The exemption from the payment of
the land tax in favor of the convent includes not only the land actually occupied by the building, but
also the adjacent ground or vegetable garden destined to the incidental use of the parish priest in
his ordinary life.
2.ID. ; ID. : CEMETERY NOT USED AS SUCH.The lot which was f ormerly a cemetery and which is no
longer used as such, but is not used for commercial purposes, serving solely as a sort of lodging
place for those who participate in the religious festivities, is also exempt from the land tax, because
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this constitutes an incidental use in religious functions. [Bishop of Nueva, Segovia, vs. Prov. Board of
Ilocos Norte, 51 Phil. 352(1927)]
AVANCEA, J.:
The plaintiff, the Roman Catholic Apostolic Church, represented by the Bishop of Nueva Segovia,
possesses and is the owner of a parcel of land in the municipality of San Nicolas, Ilocos Norte, all
four sides of which face on public streets. On the south side is a part of the churchyard, the convent
and an adjacent lot used for a vegetable garden, containing an area off 1,624 square meters, in
which there is a stable and a well for the use of the convent. In the center is the remainder of the
churchyard and the church. On the north is an old cemetery with two of its walls still standing, and a
portion where formerly stood a tower, the base of which still be seen, containing a total area of 8,955
square meters.
As required by the defendants, on July 3, 1925 the plaintiff paid, under protest, the land tax on the
lot adjoining the convent and the lot which formerly was the cemetery with the portion where the
tower stood.
The plaintiff filed this action for the recovery of the sum paid by to the defendants by way of land
tax, alleging that the collection of this tax is illegal. The lower court absolved the defendants from the
complaint in regard to the lot adjoining convent and declared that the tax collected on the lot, which
formerly was the cemetery and on the portion where the lower stood, was illegal. Both parties
appealed from this judgment.
The exemption in favor of the convent in the payment of the land tax (sec. 344 [c] Administrative
Code) refers to the home of the parties who presides over the church and who has to take care of
himself in order to discharge his duties. In therefore must, in the sense, include not only the land
actually occupied by the church, but also the adjacent ground destined to the ordinary incidental
uses of man. Except in large cities where the density of the population and the development of
commerce require the use of larger tracts of land for buildings, a vegetable garden belongs to a
house and, in the case of a convent, it use is limited to the necessities of the priest, which comes
under the exemption.
In regard to the lot which formerly was the cemetery, while it is no longer used as such, neither is it
used for commercial purposes and, according to the evidence, is now being used as a lodging house
by the people who participate in religious festivities, which constitutes an incidental use in religious
functions, which also comes within the exemption.
The judgment appealed from is reversed in all it parts and it is held that both lots are exempt from
land tax and the defendants are ordered to refund to plaintiff whatever was paid as such tax, without
any special pronouncement as to costs. So ordered.
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No. L-15270. September 30, 1961.

JOSE V. HERRERA and ESTER OCHANGCO HERRERA, petitioners, vs. THE QUEZON CITY BOARD OF
ASSESSMENT APPEALS, respondent.
Taxation; Real estate taxes; Charitable hospitals and educational institutions; When benevolent
character of hospitals not detracted by admission of pay patients.The admission of paypatients
does not detract from the charitable character of a hospital, if all of its funds are devoted exclusively
to the maintenance of the institution as a public charity (84 C.J.S., 617; see, also, 51 Am. Jur. 607;
Cooley on Taxation, Vol. 2, p. 1562; 144 A.L.R., 1489-1492). In other words, where rendering charity
is its primary object, and the funds derived from payments made by patients able to pay are devoted
to the benevolent purposes of the institution, the mere fact that a profit has been made will not
deprive the hospital of its benevolent character (Prairie Du Chian Sanitarium Co. vs. City of Prairie
Du Chian, 242 Wis. 262, 7 NW [2d] 832, 144 A.L.R. 1480). The fact, therefore, that in the case at bar,
St. Catherines Hospital, which is a charitable institution, admits pay-patients, does not bar it from
claiming that it is devoted exclusively to benevolent purposes, it being admitted that the income
derived from paypatients is devoted to the improvement of the charity wards, which represent
almost two-thirds (2/3) of the bed capacity of the hospital, aside from out-charity patients who
come only for consultation.
Same; Extent of exemption.The exemption in favor of property used exclusively for charitable or
educational purposes is not limited to property actually indispensable therefor (Cooley on Taxation,
Vol. 2, p. 1430), but extends to facilities which are incidental to and reasonably necessary for the
accomplishment of said purposes, such as, in the case of hospitals, a school for training nurses, a
nurses home, property used to provide housing facilities for interns, resident doctors,
superintendents, and other members of the hospital staff, and recreational facilities for student
nurses, interns and residents (84 C.J.S., 621), such as athletic fields, including a farm used for the
inmates of the institution (Cooley on Taxation, Vol. 2, p. 1430).
Same; Same; Lands, buildings and improvements beyond the taxing power irrespective of profits.
The existence of St. Catherines School of Midwifery, with an enrollment of about 200 students, who
practice partly in St. Catherines Hospital and partly in St. Marys Hospital, which, likewise, belongs to
petitioners, does not, and cannot affect the exemption to which St. Catherines Hospital is entitled
under the Constitution. The fact that the size of the enrollment and the students, aside from the
amount they paid for board and lodging, warrant the belief that a substantial profit is derived from
the operation of the said school, is immaterial to the issue of whether or not real estate taxes should
be paid, because all lands, buildings and improvements used exclusively for religious, charitable or
educational purposes shall be exempt from taxation, pursuant to the Constitution, regardless of
whether or not material profits are derived from the operation of the institutions in question. In other
words, Congress may, if it deems fit to do so, impose taxes upon such profits, but said lands,
buildings and improvements are beyond its taxing power.
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Same; Same; Factors that do not affect the charitable character of a hospital.The fact that a garage
located in the hospital was being used in the operation of the school of midwifery because the
students enrolled therein were entitled to transportation and that the hospital directress who
received no compensation, and her family, resided in the building, were incidental to the operation
of the hospital, and, accordingly, did not affect the charitable character of the hospital and the
educational nature of the school. [Herrera vs. Quezon City Board of Assessment Appeals, 3 SCRA
186(1961)]
CONCEPCION, J.:
Appeal, by petitioners Jose V. Herrera and Ester Ochangco Herrera, from a decision of the Court of
Tax Appeals affirming that of the Board of Assessment Appeals of Quezon City, which held that
certain properties of said petitioners are subject to assessment for purposes of real estate tax.
The facts and the issue are set forth in the aforementioned decision of the Court of Tax Appeals,
from which we quote:
On July 24, 1952, the Director of the Bureau of Hospitals authorized the petitioners to
establish and operate the "St. Catherine's Hospital", located at 58 D. Tuazon, Sta. Mesa
Heights, Quezon City (Exhibit "F-1", p. 7, BIR rec.). On or about January 3, 1953, the
petitioners sent a letter to the Quezon City Assessor requesting exemption from payment of
real estate tax on the lot, building and other improvements comprising the hospital stating
that the same was established for charitable and humanitarian purposes and not for
commercial gain (Exhibit "F-2", pp. 8-9, BIR rec.). After an inspection of the premises in
question and after a careful study of the case, the exemption from real property taxes was
granted effective the years 1953, 1954 and 1955.
Subsequently, however, in a letter dated August 10, 1955 (Exhibit "E", p. 65, CTA rec.) the
Quezon City Assessor notified the petitioners that the aforesaid properties were re-classified
from exempt to "taxable" and thus assessed for real property taxes effective 1956, enclosing
therewith copies of Tax Declarations Nos. 19321 to 19322 covering the said properties. The
petitioners appealed the assessment to the Quezon City Board of Assessment Appeals,
which, in a decision dated March 31, 1956 and received by the former on May 17, 1956,
affirmed the decision of the City Assessor. A motion for reconsideration thereof was denied
on March 8, 1957. From this decision, the petitioners instituted the instant appeal.1awphl.nt
The building involved in this case is principally used as a hospital. It is mainly a surgical and
orthopedic hospital with emphasis on obstetrical cases, the latter constituting 90% of the
total number of cases registered therein. The hospital has thirty-two (32) beds, of which
twenty (20) are for charity-patients and twelve (12) for pay-patients. From the evidence
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presented by petitioners, it is made to appear that there are two kinds of charity patients
(a) those who come for consultation only ("out-charity patients"); and (b) those who remain
in the hospital for treatment ("lying-in-patients"). The out-charity patients are given free
consultation and prescription, although sometimes they are furnished with free medicines
which are not costly like aspirin, sulfatiazole, etc. The charity lying-in-patients are given free
medical service and medicine although the food served to the pay-patients is very much
better than that given to the former. Although no condition is imposed by the hospital on
the admission of charity lying-in-patients, they however, usually give donations to the
hospital. On the other hand, the pay-patients are required to pay for hospital services
ranging from the minimum charge of P5.00 to the maximum of P40.00 for each day of stay in
the hospital. The income realized from pay-patients is spent for the improvement of the
charity wards. The hospital personnel is composed of three nurses, two graduate midwives, a
resident physician receiving a salary of P170.00 a month and the petitioner, Dr. Ester
Ochangco Herrera, as directress. As such directress, the latter does not receive any salary.
Petitioners also operate within the premises of the hospital the "St. Catherine's School of
Midwifery" which was granted government recognition by the Secretary of Education on
February 1, 1955 (Exhibit "F-3", p. 10, BIR rec.) This school has an enrollment of about two
hundred students. The students are charged a matriculation fee of P300.00 for 1- years,
plus P50.00 a month for board and lodging, which includes transportation to the St. Mary's
Hospital. The students practice in the St. Catherine's Hospital, as well as in the St. Mary's
Hospital, which is also owned by the petitioners. A separate set of accounting books is
maintained by the school for midwifery distinct from that kept by the hospital. The
petitioners alleged that the accounts of the school are not included in Exhibits "A", "A-1", "A2", "B", "B-1", "B-2", "C", "C-1" and "C-2" which relate to the hospital only. However, the
petitioners have refused to submit a separate statement of accounts of the school. A brief
tabulation indicating the amount of income of the hospital for the years 1954, 1955 and
1956, and its operational expenses, is as follows:
1954
Income
Expenses
P
Charity
Pay Ward
Ward
P14,779.50
Deficit
5,280.04 P1,303.80
P10,803.26
P16,083.30
(Exhibits "A", "A-1" and "A-2")
Page 371 of 455
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1955
Income
Expenses
P
Charity
Ward
Pay Ward
P17,433.30
Deficit
6,859.32
14,038.92
P3,464.94
P20,898.24
(Exhibits "B", "B-1" and "B-2")
1956
Income
Expenses
P
Charity
Pay Ward
Ward
P21,467.40
Deficit
5,559.89 P 341.53
16,249.04
P21,809.93
(Exhibits "C", "C-1" and "C-2")

Aside from the St. Catherine and St. Mary hospitals, the petitioners declared that they also own lands
and coconut plantations in Quezon Province, and other real estate in the City of Manila consisting of
apartments for rent. The petitioner, Jose V. Herrera, is an architect, actively engaged in the practice of
his profession, with office at Tuason Building, Escolta, Manila. He was formerly Chairman, Board of
Examiners for Architects and Chairman, Board of Architects connected with the United Nations. He
was also connected with the Allied Technologists which constructed the Veterans Hospital in Quezon
City.
The only issue raised, is whether or not the lot, building and other improvements occupied by the St.
Catherine Hospital are exempt from the real property tax. The resolution of this question boils down
to the corollary issue as to whether or not the said properties are used exclusively for charitable or
educational purposes. (Petitioners' brief, pp. 24-29).
The Court of Tax Appeals decided the issue in the negative, upon the ground that the St. Catherine's
Hospital "has a pay ward for ... pay-patients, who are charged for the use of the private rooms,
operating room, laboratory room, delivery room, etc., like other hospitals operated for profit" and
that "petitioners and their family occupy a portion of the building for their residence." With respect
to petitioners' claim for exemption based upon the operation of the school of midwifery, the Court
conceded that "the proposition might be proper if the property used for the school of midwifery
Page 372 of 455
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were separate and distinct from the hospital." It added, however, that, "in the instant case, the
portions of the building used for classrooms of the school of midwifery have not been shown to be
exclusively for school purposes"; that said portions "rather ... have a dual use, i.e., for classroom and
for hospital use, the latter not being a purpose that renders the property tax exempt;" that part of
the building and lot in question "is used as a hospital, part as residence of the petitioners, part as
garage, part as dormitory and part as school"; and that "the portion dedicated to educational and
charitable purposes can not be identified from those destined to other uses; and the building is itself
an indivisible unit of property."
It should be noted, however, that, according to the very statement of facts made in the decision
appealed from, of the thirty-two (32) beds in the hospital, twenty (20) are for charity-patients; that
"the income realized from pay-patients is spent for improvement of the charity wards;" and that
"petitioners, Dr. Ester Ochangco Herrera, as directress" of said hospital, "does not receive any salary,"
although its resident physician gets a monthly salary of P170.00. It is well settled, in this connection,
that the admission of pay-patients does not detract from the charitable character of a hospital, if all
its funds are devoted "exclusively to the maintenance of the institution" as a "public charity" (84
C.J.S., 617; see, also, 51 Am. Jur. 607; Cooley on Taxation, Vol. 2, p. 1562; 144 A.L.R., 1489-1492). "In
other words, where rendering charity is its primary object, and the funds derived from payments
made by patients able to pay are devoted to the benevolent purposes of the institution, the mere
fact that a profit has been made will not deprive the hospital of its benevolent character" (Prairie Du
Chien Sanitarium Co. vs. City of Prairie Du Chien, 242 Wis. 262, 7 NW [2d] 832, 144 A.L.R. 1480).
Thus, we have held that the U.S.T. Hospital was not established for profit-making purposes, although
it had 140 paying beds maintained only to partly finance the expenses of the free wards, containing
203 beds for charity patients (U.S.T. Hospital Employees Association vs. Sto. Tomas University
Hospital, L-6988, May 24, 1954), that St. Paul's Hospital of Iloilo, a corporation organized for
"charitable educational and religious purposes" can not be considered as engaged in business
merely because its pharmacy department charges paying patients the cost of their medicine, plus
10% thereof, to partly offset the cost of medicines supplied free of charge to charity patients
(Collector of Internal Revenue vs. St. Paul's Hospital of Iloilo, L-12127, May 25, 1959), and that the
amendment of the original articles of incorporation of the University of Visayas to convert it from a
non-stock to a stock corporation and the increase of its assets from P9,000 to P50,000, distributed
among the members of the original non-stock corporation in terms of shares of stock, as well as the
subsequent move of its board of trustees to double the stock dividends of the corporation, in view of
a gain of P200,000.00 in property, besides good-will, which was not carried out, does not justify the
inference that the corporation has become one for business and profit, none of its profits having
inured to the benefit of any stockholder or individual (Collector of Internal Revenue vs. University of
Visayas, L-13554, February 28, 1961).
Page 373 of 455
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Moreover, the exemption in favor of property used exclusively for charitable or educational purposes
is "not limited to property actually indispensable" therefor (Cooley on Taxation, Vol. 2, p. 1430), but
extends to facilities which are "incidental to and reasonably necessary for" the accomplishment of
said purposes, such as, in the case of hospitals, "a school for training nurses, a nurses' home,
property use to provide housing facilities for interns, resident doctors, superintendents, and other
members of the hospital staff, and recreational facilities for student nurses, interns and residents" (84
C.J.S., 621), such as "athletic fields," including "a farm used for the inmates of the institution" (Cooley
on Taxation, Vol. 2, p. 1430).
Within the purview of the Constitutional exemption from taxation, the St. Catherine's Hospital is,
therefore, a charitable institution, and the fact that it admits pay-patients does not bar it from
claiming that it is devoted exclusively to benevolent purposes, it being admitted that the income
derived from pay-patients is devoted to the improvement of the charity wards, which represent
almost two-thirds (2/3) of the bed capacity of the hospital, aside from "out-charity patients" who
come only for consultation.
Again, the existence of "St. Catherine's School of Midwifery", with an enrollment of about 200
students, who practice partly in St. Catherine's Hospital and partly in St. Mary's Hospital, which,
likewise, belongs to petitioners herein, does not, and cannot, affect the exemption to which St.
Catherine's Hospital is entitled under our fundamental law. On the contrary, it furnishes another
ground for exemption. Seemingly, the Court of Tax Appeals was impressed by the fact that the size
of said enrollment and the matriculation fee charged from the students of midwifery, aside from the
amount they paid for board and lodging, including transportation to St. Mary's Hospital, warrants the
belief that petitioners derive a substantial profit from the operation of the school aforementioned.
Such factor is, however, immaterial to the issue in the case at bar, for "all lands, building and
improvements used exclusively for religious, charitable or educational purposes shall be exempt from
taxation," pursuant to the Constitution, regardless of whether or not material profits are derived from
the operation of the institutions in question. In other words, Congress may, if it deems fit to do so,
impose taxes upon such "profits", but said "lands, buildings and improvements" are beyond its taxing
power.
Similarly, the garage in the building above referred to which was obviously essential to the
operation of the school of midwifery, for the students therein enrolled practiced, not only in St.
Catherine's Hospital, but, also, in St. Mary's Hospital, and were entitled to transportation thereto
for Mrs. Herrera received no compensation as directress of St. Catherine's Hospital were incidental
to the operation of the latter and of said school, and, accordingly, did not affect the charitable
character of said hospital and the educational nature of said school.
WHEREFORE, the decision of the Court of Tax Appeals, as well as that of the Assessment Board of
Appeals of Quezon City, are hereby reversed and set aside, and another one entered declaring that
Page 374 of 455
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the lot, building and improvements constituting the St. Catherine's Hospital are exempt from
taxation under the provisions of the Constitution, without special pronouncement as to costs. It is so
ordered.
G.R. No. L-19445
August 31, 1965

vs.
BISHOP OF THE MISSIONARY DISTRICT OF THE PHILIPPINE ISLANDS OF THE PROTESTANT
EPISCOPAL CHURCH IN THE U.S.A. and THE COURT OF TAX APPEALS, respondents.
This is an appeal taken from the Commissioner of Internal Revenue from a decision of the Court of
Tax Appeals ordering him to refund to the Bishop of the Missionary District of the Philippines Islands
of the Protestant Episcopal in the U.S.A. the sum of P118,847 which the latter had paid by way of
compensating tax.
Respondent Bishop of the Missionary District of the Philippines Islands of the Protestant, Episcopal
Church in the U.S.A. is a corporation sole duly registered with the Securities and Exchange
Commission. He is in charge of the administration of the temporalities and the management of the
estates and properties in the Philippines of the Domestic and Foreign Missionary Society of the
Protestant Episcopal Church in the United States (hereinafter referred to as Missionary Society). On
the other hand, the Missionary District of the Philippine Islands of the Protestant Episcopal Church
the U.S.A. (hereinafter referred to as Missionary District) is a duly incorporated and established
religious society. It owns and operates the St. Luke's Hospital in Quezon City, the Brent Hospital in
Zamboanga City and the St. Stephen's High School in Manila.
On different dates in 1957, 1958 and 1959, the Missionary District in the Philippines received from
the Missionary Society in the United States various shipments of materials, supplies, equipment and
other articles intended for use in the construction and operation of the new St. Luke's Hospital in
Quezon City and the Brent Hospital and St. Stephen's High School. The Missionary District also
received from a certain William Minnis of Canada a stove for the use of the Brent Hospital.
On these shipments, the Commissioner of Internal Revenue levied and collected the total amount of
P118,847 as compensating tax.
The Bishop of the Missionary District filed claims for refund of the amount he had paid on the
ground that under Republic Act No. 1916, the materials and articles received by him were exempt
from the payment of compensating tax. As the two-year period for recovery of tax was about to
expire, the Bishop of the Missionary District filed a petition for review in the Court of Tax Appeals,
without awaiting action on his claim for refund. Subsequently, he also filed two supplemental
petitions for review covering other shipments received by him and on which he had paid
compensating taxes.
On August 21, 1959, the petitioner, the Commissioner of Internal Revenue denied respondent's claim
for refund on the ground that St. Luke's Hospital was not a charitable institution and, therefore, was
Page 375 of 455
TAXATION LAW REVIEW

not exempt under the law. This is also the position he maintained in his answer to the first
supplemental petition for review in the Tax Court.
After trial, the Tax Court rendered a decision holding the shipments exempt from taxation ordering
the petitioner to refund to the respondent the amount of P118,847. It denied a motion for
reconsideration of its decision, prompting petitioner to interpose this appeal.
Petitioner makes the following assignment of errors:
1. The shipments cannot be considered donations because the Missionary District is merely a branch
of the Missionary Society. The two hold identical interests.
2. The Tax Court's holding that the real donors are the people who contributed money to the
Missionary Society in America is based on the uncorroborated testimony of Robert Meyer, Treasurer
of the Missionary District in the Philippines, who did not have personal knowledge of the alleged
contribution. The alleged contributors were not even identified.
3. The St. Luke's Hospital is not a charitable institution and, therefore, is not exempt from taxation
because its admits pay patients. The Secretary of Finance states in his Dept. Order No. 18 that
hospitals admitting pay patients and charity patients are not charitable institutions.
This order was issued pursuant to the power given him by the last proviso of Republic Act No. 1916
which provides:
SECTION 1. The provisions of existing laws to the contrary notwithstanding, all donations in
any form and all articles imported into the Philippines, consigned to a duly incorporated or
established international civic organization, religious or charitable society or institution for
civic, religious or charitable purposes shall be exempt from the payment of all taxes and
duties upon proof satisfactory to the Commissioner of Customs and/or Collector of Internal
Revenue that such donations in any form and articles so imported are donations for its use or
for free distribution and not for barter, sale or hire: Provided, however, That in case such are
subsequently conveyed or transferred to other parties for a consideration, taxes and duties
shall be collected thereon at double the rate provided under existing laws payable by the
transferor: Provided, further, That rules and regulation, shall be promulgated by the
Department of Finance for the implementation of this Act.
This Court has already held that the following requisites must concur in order that a taxpayer may
claim exemption under the law (1) the imported articles must have been donated; (2) the donee must
be a duly incorporated or established international civic organization, religious or charitable society,
or institution for civic religious or charitable purposes; and (3) the articles so imported must have
been donated for the use of the organization, society or institution or for free distribution and not
for barter, sale or hire. (Commissioner v. Church of Jesus Christ "New Jerusalem," G.R. No. L-15772,
Oct. 31, 1961)
Page 376 of 455
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In this appeal, the petitioner contends that the importations in question cannot be considered
"donations" because the Missionary Society, which made the shipments, and the Missionary District
in the Philippines are not different persons but rather are one and the same, the latter being a mere
branch of the former.
It should be enough to point out that by stipulation of the parties, the respondent Bishop is
admitted to be a corporation sole duly registered with the Securities and Exchange Commission and
that the Missionary District is a "duly incorporated and established religious society." They are,
therefore, entities separate and distinct from the Missionary Society whose address is at 281 Fourth
South, New York 10, N.Y., U.S.A. The fact that the Missionary District, of which respondent is the
Bishop, is a branch of the Missionary Society is of no moment. For that matter, so is the Roman
Catholic Church in the Philippines a branch of the Universal Roman Catholic Apostolic Church, but
it is a branch only in religious matters, in matters of faith and dogma. In other respects, it is
independent. (Roman Catholic Apostolic Administrator v. Land Registration Commissioner, G.R. No.
L-8451, December 20, 1957)
The Tax Court's finding that the materials and supplies were purchased by the Missionary Society
with money obtained from contributions from other people who should be considered the real
donors is also assailed as being based on the uncorroborated testimony of Robert Meyer, Treasurer
of the Missionary District, who it is said, did not have personal knowledge of the matter testified to
by him. This is not so. As respondent points out, the various deeds of donation state in paragraph 3
that the "Missionary Society is a non-profit organization and derives its support from voluntary
contributions."
Petitioner's other point is that St. Luke's Hospital is not a charitable institution considering that it
admits paying patients. Indeed, it was on this ground that petitioner denied respondent's claim for
refund. It is argued that pursuant to the last proviso of Republic Act No. 1916, the Secretary of
Finance issued Department Order No. 18 on October 20, 1958, stating that
Hospitals that admit pay patients and charity patients ... are not charitable institutions for
purposes of Republic Act No 1916.
Again, it should be enough to point out that the admission of pay patients does not detract from the
charitable character of a hospital, if, as in the case of St. Luke's Hospital, its funds are devoted
exclusively to the Maintenance of the institution (Cf., e.g., Herrera v. Quezon City Board of
Assessment Appeals, G.R. No. 15270, September 30, 1961). The Secretary of Finance cannot limit or
otherwise qualify the enjoyment of this exemption granted under Republic Act No. 1916 in
implementing the law.
WHEREFORE, the decision appealed from is hereby affirmed with costs.
No. L-49336. August 31, 1981.*
THE PROVINCE OF ABRA, represented by LADISLAO ANCHETA, Provincial Assessor, petitioner, vs.
HONORABLE HAROLD M. HERNANDO, in his capacity as Presiding Judge of Branch I, Court of First
Page 377 of 455
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Instance Abra; THE ROMAN CATHOLIC BISHOP OF BANGUED, INC., represented by Bishop Odilo
Etspueler and Reverend Felipe Flores, respondents.
Taxation; Constitutional Law; To be exempt from realty taxation there must be proof that the
property of a religious institution is actually and directly being used for religious purposes.
Respondent Judge would not have erred so grievously had he merely compared the provisions of the
present Constitution with that appearing in the 1935 Charter on the tax exemption of lands,
buildings, and improvements. There is a marked difference. Under the 1935 Constitution:
Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable, or educational purposes shall be exempt
from taxation. The present Constitution added charitable institutions, mosques, and non-profit
cemeteries and required that for the exemption of lands, buildings, and improvements, they
should not only be exclusively but also actually and directly used for religious or charitable
purposes. The Constitution is worded differently. The change should not be ignored. It must be duly
taken into consideration. Reliance on past decisions would have sufficed were the words actually as
well as directly not added. There must be proof therefore of the actual and direct use of the lands,
buildings, and improvements for religious or charitable purposes to be exempt from taxation.
Same; Due Process; A judge errs in relying solely on the allegation of the petitioner below that its
lands are devoted to religious purposes without holding a hearing.Petitioner Province of Abra is
therefore fully justified in invoking the protection of procedural due process. If there is any case
where proof is necessary to demonstrate that there is compliance with the constitutional provision
that allows an exemption, this is it. Instead, respondent Judge accepted at its face the allegation of
private respondent. All that was alleged in the petition for declaratory relief filed by private
respondents, after mentioning certain parcels of land owned by it, are that they are used actually,
directly and exclusively as sources of support of the parish priest and his helpers and also of private
respondent Bishop. In the motion to dismiss filed on behalf of petitioner Province of Abra, the
objection was based primarily on the lack of jurisdiction, as the validity of a tax assessment may be
questioned before the Local Board of Assessment Appeals and not with a court. There was also
mention of a lack of a cause of action, but only because, in its view, declaratory relief is not proper,
as there had been breach or violation of the right of government to assess and collect taxes on such
property. It clearly appears, therefore, that in failing to accord a hearing to petitioner Province of
Abra and deciding the case immediately in favor of private respondent, respondent Judge failed to
abide by the constitutional command of procedural due process.
Aquino, J., concurring in the result:
Taxation; Jurisdiction; The trial court should resolve the jurisdictional issue raised by the provincial
assessor.I concur in the result. The trial court should resolve the jurisdictional issue raised by the
provincial assessor. [Province of Abra vs. Hernando, 107 SCRA 104(1981)]
Page 378 of 455
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FERNANDO, C.J.:
On the face of this certiorari and mandamus petition filed by the Province of Abra, 1 it clearly appears
that the actuation of respondent Judge Harold M. Hernando of the Court of First Instance of Abra
left much to be desired. First, there was a denial of a motion to dismiss 2 an action for declaratory
relief by private respondent Roman Catholic Bishop of Bangued desirous of being exempted from a
real estate tax followed by a summary judgment 3 granting such exemption, without even hearing
the side of petitioner. In the rather vigorous language of the Acting Provincial Fiscal, as counsel for
petitioner, respondent Judge "virtually ignored the pertinent provisions of the Rules of Court; ...
wantonly violated the rights of petitioner to due process, by giving due course to the petition of
private respondent for declaratory relief, and thereafter without allowing petitioner to answer and
without any hearing, adjudged the case; all in total disregard of basic laws of procedure and basic
provisions of due process in the constitution, thereby indicating a failure to grasp and understand
the law, which goes into the competence of the Honorable Presiding Judge." 4
It was the submission of counsel that an action for declaratory relief would be proper only before a
breach or violation of any statute, executive order or regulation. 5 Moreover, there being a tax
assessment made by the Provincial Assessor on the properties of respondent Roman Catholic Bishop,
petitioner failed to exhaust the administrative remedies available under Presidential Decree No. 464
before filing such court action. Further, it was pointed out to respondent Judge that he failed to
abide by the pertinent provision of such Presidential Decree which provides as follows: "No court
shall entertain any suit assailing the validity of a tax assessed under this Code until the taxpayer, shall
have paid, under protest, the tax assessed against him nor shall any court declare any tax invalid by
reason of irregularities or informalities in the proceedings of the officers charged with the
assessment or collection of taxes, or of failure to perform their duties within this time herein
specified for their performance unless such irregularities, informalities or failure shall have impaired
the substantial rights of the taxpayer; nor shall any court declare any portion of the tax assessed
under the provisions of this Code invalid except upon condition that the taxpayer shall pay the just
amount of the tax, as determined by the court in the pending proceeding." 6
When asked to comment, respondent Judge began with the allegation that there "is no question that
the real properties sought to be taxed by the Province of Abra are properties of the respondent
Roman Catholic Bishop of Bangued, Inc." 7 The very next sentence assumed the very point it asked
when he categorically stated: "Likewise, there is no dispute that the properties including their
procedure are actually, directly and exclusively used by the Roman Catholic Bishop of Bangued, Inc.
for religious or charitable purposes." 8 For him then: "The proper remedy of the petitioner is appeal
and not this special civil action." 9 A more exhaustive comment was submitted by private respondent
Roman Catholic Bishop of Bangued, Inc. It was, however, unable to lessen the force of the objection
raised by petitioner Province of Abra, especially the due process aspect. it is to be admitted that his
opposition to the petition, pressed with vigor, ostensibly finds a semblance of support from the
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authorities cited. It is thus impressed with a scholarly aspect. It suffers, however, from the grave
infirmity of stating that only a pure question of law is presented when a claim for exemption is made.
The petition must be granted.
1. Respondent Judge would not have erred so grievously had he merely compared the provisions of
the present Constitution with that appearing in the 1935 Charter on the tax exemption of "lands,
buildings, and improvements." There is a marked difference. Under the 1935 Constitution:
"Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings,
and improvements used exclusively for religious, charitable, or educational purposes shall be exempt
from taxation." 10 The present Constitution added "charitable institutions, mosques, and non-profit
cemeteries" and required that for the exemption of ":lands, buildings, and improvements," they
should not only be "exclusively" but also "actually and "directly" used for religious or charitable
purposes. 11 The Constitution is worded differently. The change should not be ignored. It must be
duly taken into consideration. Reliance on past decisions would have sufficed were the words
"actually" as well as "directly" not added. There must be proof therefore of the actual and direct use
of the lands, buildings, and improvements for religious or charitable purposes to be exempt from
taxation. According to Commissioner of Internal Revenue v. Guerrero: 12 "From 1906, in Catholic
Church v. Hastings to 1966, in Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, it has
been the constant and uniform holding that exemption from taxation is not favored and is never
presumed, so that if granted it must be strictly construed against the taxpayer. Affirmatively put, the
law
frowns
on
exemption
construed strictissimi juris."
13
from
taxation,
hence,
an
exempting
provision
should
be
14
In Manila Electric Company v. Vera, a 1975 decision, such principle

was reiterated, reference being made to Republic Flour Mills, Inc. v. Commissioner of Internal
Revenue; 15 Commissioner of Customs v. Philippine Acetylene Co. & CTA; 16and Davao Light and
Power Co., Inc. v. Commissioner of Customs. 17
2. Petitioner Province of Abra is therefore fully justified in invoking the protection of procedural due
process. If there is any case where proof is necessary to demonstrate that there is compliance with
the constitutional provision that allows an exemption, this is it. Instead, respondent Judge accepted
at its face the allegation of private respondent. All that was alleged in the petition for declaratory
relief filed by private respondents, after mentioning certain parcels of land owned by it, are that they
are used "actually, directly and exclusively" as sources of support of the parish priest and his helpers
and also of private respondent Bishop. 18 In the motion to dismiss filed on behalf of petitioner
Province of Abra, the objection was based primarily on the lack of jurisdiction, as the validity of a tax
assessment may be questioned before the Local Board of Assessment Appeals and not with a court.
There was also mention of a lack of a cause of action, but only because, in its view, declaratory relief
is not proper, as there had been breach or violation of the right of government to assess and collect
taxes on such property. It clearly appears, therefore, that in failing to accord a hearing to petitioner
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TAXATION LAW REVIEW

Province of Abra and deciding the case immediately in favor of private respondent, respondent
Judge failed to abide by the constitutional command of procedural due process.
WHEREFORE, the petition is granted and the resolution of June 19, 1978 is set aside. Respondent
Judge, or who ever is acting on his behalf, is ordered to hear the case on the merit. No costs.
No. L-26521. December 28, 1968.
EUSEBIO VILLANUEVA, ET AL., plaintiffs-appellees, vs. CITY OF ILOILO, defendant-appellant.
Municipal corporation; Iloilo City; Local Autonomy Act; Section 2 of Rep. Act No. 2264, construed,
applied, and scope defined; Municipal license tax imposed on tenement houses held valid and
constitutional; "Tenement house" and "municipal license tax" defined; Case at bar.In City of Iloilo v.
Villanueva, et al., L-12695, March 23, 1959, the Supreme Court adopted the definition of a "tenement
house" as "any house or building, or portion thereof, which is rented, leased, or hired out to be
occupied, or is occupied, as the home or residence of three families or more living independently of
each other and doing their cooking in the premises, or by more than two families upon any floor, so
living and cooking, but having a common right in the halls, stairways, yards, water-closets, or privies,
or some of them." Tenement houses, being necessarily offered for rent or lease by their very nature
and essence, therefore constitute a distinct form of business or calling, similar to the hotel or motel
business, or the operation of lodging houses or boarding houses. Tenement houses constitute a
distinct class of property.
A "municipal license tax" means an imposition or exaction on the right to use or dispose of property,
to pursue a business, occupation, or calling, or to exercise a privilege (51 Am. Jur. 59-60; 33 Am. Jur.
325-326).
It is now settled that the provisions of Section 2 of Republic Act No. 2264 confer on local
governments broad taxing authority which extends to almost "everything, excepting those which are
mentioned therein," provided that the tax so levied is "for public purposes, just and uniform," and
does not transgress any constitutional provision or is not repugnant to a controlling, statute (Nin Bay
Mining Co. v. Mun. of Roxas, Prov. of Palawan, L-20125, July 20, 1965). Thus when a tax, levied under
the authority of a city or municipal ordinance, is not within the exceptions and limitations
aforementioned, the same comes within the ambit of the general rule, pursuant to the rules of
expressio unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti.
Under the same provisions of Section 2 of the Local Autonomy Act, local governments may now tax
any taxable subject matter or object not included in the -enumeration of matters removed from the
taxing power of local governments. Prior to the enactment of the Local Autonomy Act the taxes that
could be legally levied by local governments were only those specif ically authorized by law, and
their power to tax was construed in strictissimi juris (Medina v. City of Baguio, L-4060, Aug. 29, 1952;
Page 381 of 455
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Wa Wa Yu v. City of Lipa, L-9167, Sept. 27, 1956; Saldaa v. City of Iloilo, 104 Phil. 28; and the cases
cited therein).
In the case at bar, Ordinance No. 11, series of 1960, of the City of Iloilo, which imposed a municipal
license tax on tenement houses, is valid and constitutional. The tax in question is not a real estate tax.
The tax imposed by the ordinance in question does not possess the attributes of a real estate tax. It
is not a tax on the land on which the tenement houses are erected, although both land and
tenement houses may belong to the same owner. The tax is not a fixed proportion of the assessed
value of the tenement houses, and does not require the intervention of assessors or appraisers. It is
not payable at a designated time or date, and is not enforceable against the tenement houses either
by sale or distraint. Clearly, theref ore, the tax in question is not a real estate tax.
While it is true that the plaintiff s-appellees are taxable under the provisions of the National Internal
Revenue Code as real estate dealers, and still taxable under the ordinance in question, the argument
against double taxation may not be invoked. The same tax may be imposed by the National
Government as well as by the local government. There is nothing inherently obnoxious in the
exaction of license fees or taxes with respect to the same occupation, calling or activity by both the
State and a political subdivision thereof (Punsalan, et al. v. Mun. Board of the City of Manila, et al., L4817, May 26, 1954, 95 Phil. 46).
The contention that the plaintiffs-appellees are double taxed because they are paying the real estate
taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a wellsettled rule that a license tax may be levied upon a business or occupation although the land or
property used in connection therewith is subject to property tax. The State may collect an ad valorem
tax on property used in a calling, and at the same time impose a license tax on that calling, the
imposition of the latter kind of tax being in no sense a double tax (People v. Mendaros, et al., L-6975,
May 27, 1955).
The tax in question is not oppressive. The charter of Iloilo City (C. A. No. 158) empowers its municipal
board to "fix penalties for violations of ordinances, which shall not exceed a f ine of two hundred
pesos or six months' imprisonment, or both such fine and imprisonment for each offense" (Cf.
Punsalan, et al. v. Mun. Board of Manila, supra). The f act that the owners of other classes of
buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no
argument at all against uniformity and equality of the tax imposition. Neither is the rule of -equality
and uniformity violated by the fact that tenement taxes are not imposed in other cities, for the same
rule does not require that taxes for the same purpose should be imposed in different territorial
subdivisions at the same time (51 Am. Jur. 203). So long as the burden of the tax falls equally and
impartially on all owners or operations of tenement houses similarly classified or situated, equality
and uniformity of taxation is accomplished (84 C.J.S. 77). The plaintiffs-appellees, as owners of
tenement houses in the City of Iloilo, have not shown that the tax burden is not equally or uniformly
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distributed among them, to overthrow the presumption that tax statutes are intended to operate
uniformly and equally (84 C.J.S. 81).
Same; Double taxation; When permissible and when prohibited; Equality and uniformity of
taxation.In order to constitute double taxation in the objectionable or prohibited sense the same
property must be taxed twice when it should be taxed but once; both taxes must be imposed on the
same property or subject-matter, for the same purpose, by the same State, Government, or taxing
authority, within the same jurisdiction or taxing district, during the same taxing period, and they
must be the same kind or character of tax (84 C.J.S. 131-132). It has been shown that a real estate tax
and the tenement tax imposed by the ordinance, although imposed by the same taxing authority, are
not of the same kind or character.
At all events, there is no constitutional prohibition against double taxation in the Philippines
(Manufacturers' Life Ins. Co. v. Meer, L-2910, June 29, 1951; City of Manila v. Interisland Gas Service,
L-8799, Aug. 31, 1956; Commissioner of Internal Revenue v. Hawaiian-Philippine Co., L-16315, May
30, 1964; Pepsi-Cola Bottling Co. of the Philippines v. City of Butuan, et al., L-22814, Aug. 28, 1968).
Taxes are uniform and equal when imposed upon all property of the same class or character within
the taxing authority (51 Am. Jur. 203). The fact that the owners of other classes of buildings in the
City do not pay the taxes imposed by the ordinance in question is no argument at all against
uniformity and equality of the tax imposition. [Villanueva vs. City of Iloilo, 26 SCRA 578(1968)]
CASTRO, J.:
Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo
declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License
Tax On Persons Engaged In The Business Of Operating Tenement Houses," and ordering the City to
refund to the plaintiffs-appellees the sums of collected from them under the said ordinance.
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax
fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or
wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00
per apartment; (3) tenement house, partly or wholly engaged in business in any other streets, P12.00
per apartment. The validity and constitutionality of this ordinance were challenged by the spouses
Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34
apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695,
March 23, 1959, declared the ordinance ultra vires, "it not appearing that the power to tax owners of
tenement houses is one among those clearly and expressly granted to the City of Iloilo by its
Charter."
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On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of
Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or
power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted
Ordinance 11, series of 1960, hereunder quoted in full:
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE
BUSINESS OF OPERATING TENEMENT HOUSES
Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of
Republic Act No. 2264, otherwise known as the Autonomy Law of Local Government, that:
Section 1. A municipal license tax is hereby imposed on tenement houses in accordance
with the schedule of payment herein provided.
Section 2. Tenement house as contemplated in this ordinance shall mean any building or
dwelling for renting space divided into separate apartments or accessorias.
Section 3. The municipal license tax provided in Section 1 hereof shall be as follows:
I. Tenement houses:
(a) Apartment house made of strong materials
P20.00 per door p.a.
(b) Apartment house made of mixed materials
II Rooming house of strong materials
Rooming house of mixed materials
P5.00 per door p.a.
III. Tenement house partly or wholly engaged in or dedicated to business

in the following streets: J.M. Basa, Iznart, Aldeguer, Guanco and Ledesma
from Plazoleto Gay to Valeria. St.
IV. Tenement house partly or wholly engaged in or dedicated to business

in any other street
V. Tenement houses at the streets surrounding the super market as soon

as said place is declared commercial
Section 4. All ordinances or parts thereof inconsistent herewith are hereby amended.
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Section 5. Any person found violating this ordinance shall be punished with a fine note
exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6) months
or both at the discretion of the Court.
Section 6 This ordinance shall take effect upon approval. ENACTED, January 15, 1960.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five
tenement houses, aggregately containing 43 apartments, while the other appellees and the same
Remedios S. Villanueva are owners of ten apartments. Each of the appellees' apartments has a door
leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as
a store, while the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva
owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon
City, which cities, according to him, do not impose tenement or apartment taxes.
By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva
and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees
Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of
P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended
complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that
Ordinance 11, series of 1960, be declared "invalid for being beyond the powers of the Municipal
Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to
uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the
Constitution," and that the City be ordered to refund the amounts collected from them under the
said ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the
grounds that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the
same is "oppressive and unreasonable," for the reason that it penalizes owners of tenement houses
who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates
the rule of uniformity of taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double
taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?
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3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal
clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?
1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:
SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities,
municipalities and municipal districts shall have authority to impose municipal license taxes
or fees upon persons engaged in any occupation or business, or exercising privileges in
chartered cities, municipalities or municipal districts by requiring them to secure licences at
rates fixed by the municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to collect fees and
charges for services rendered by the city, municipality or municipal district; to regulate and
impose reasonable fees for services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or municipal district and otherwise
to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That
municipalities and municipal districts shall, in no case, impose any percentage tax on sales or
other taxes in any form based thereon nor impose taxes on articles subject to specific tax,
except gasoline, under the provisions of the National Internal Revenue Code; Provided,
however, That no city, municipality or municipal district may levy or impose any of the
following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and publication of any
newspaper, magazine, review or bulletin appearing at regular intervals and having fixed
prices for for subscription and sale, and which is not published primarily for the purpose of
publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric
light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
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(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned by the national
government, tonnage, and all other kinds of customs fees, charges and duties;
(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign
insurance companies.
A tax ordinance shall go into effect on the fifteenth day after its passage, unless the
ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall
have authority to suspend the effectivity of any ordinance within one hundred and twenty
days after its passage, if, in his opinion, the tax or fee therein levied or imposed is unjust,
excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority
the effectivity of such ordinance shall be suspended.
In such event, the municipal board or city council in the case of cities and the municipal
council or municipal district council in the case of municipalities or municipal districts may
appeal the decision of the Secretary of Finance to the court during the pendency of which
case the tax levied shall be considered as paid under protest.
It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments
broad taxing authority which extends to almost "everything, excepting those which are mentioned
therein," provided that the tax so levied is "for public purposes, just and uniform," and does not
transgress any constitutional provision or is not repugnant to a controlling statute.2 Thus, when a tax,
levied under the authority of a city or municipal ordinance, is not within the exceptions and
limitations aforementioned, the same comes within the ambit of the general rule, pursuant to the
rules of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti.
Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in
section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature of
the tax. The appellees strongly maintain that it is a "property tax" or "real estate tax," 3 and not a "tax
on persons engaged in any occupation or business or exercising privileges," or a license tax, or a
privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license
tax on persons engaged in the business ofoperating tenement houses," while section 1 thereof states
that a "municipal license tax is hereby imposed on tenement houses." It is the phraseology of section
1 on which the appellees base their contention that the tax involved is a real estate tax which,
according to them, makes the ordinance ultra vires as it imposes a levy "in excess of the one per
centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158."5.
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It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax.
Obviously, the appellees confuse the tax with the real estate tax within the meaning of the
Assessment Law,6 which, although not applicable to the City of Iloilo, has counterpart provisions in
the Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or
other improvements thereon, not specially exempted,8 and is payable regardless of whether the
property is used or not, although the value may vary in accordance with such factor.9 The tax is
usually single or indivisible, although the land and building or improvements erected thereon are
assessed separately, except when the land and building or improvements belong to separate
owners.10 It is a fixed proportion11 of the assessed value of the property taxed, and requires,
therefore, the intervention of assessors.12 It is collected or payable at appointed times,13 and it
constitutes a superior lien on and is enforceable against the property14 subject to such taxation, and
not by imprisonment of the owner.
The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a
tax on the land on which the tenement houses are erected, although both land and tenement houses
may belong to the same owner. The tax is not a fixed proportion of the assessed value of the
tenement houses, and does not require the intervention of assessors or appraisers. It is not payable
at a designated time or date, and is not enforceable against the tenement houses either by sale or
distraint. Clearly, therefore, the tax in question is not a real estate tax.
"The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court
looks less to its words and more to the context, subject-matter, consequence and effect. Accordingly,
what is within the spirit is within the ordinance although it is not within the letter thereof, while that
which is in the letter, although not within the spirit, is not within the ordinance." 15 It is within neither
the letter nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise
the subject-matter would have been not merely tenement houses. On the contrary, it is plain from
the context of the ordinance that the intention is to impose a license tax on the operation of
tenement houses, which is a form of business or calling. The ordinance, in both its title and body,
particularly sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which,
by itself, means an "imposition or exaction on the right to use or dispose of property, to pursue a
business, occupation, or calling, or to exercise a privilege."16.
"The character of a tax is not to be fixed by any isolated words that may beemployed in the
statute creating it, but such words must be taken in the connection in which they are used
and the true character is to be deduced from the nature and essence of the subject."17 The
subject-matter of the ordinance is tenement houses whose nature and essence are expressly
set forth in section 2 which defines a tenement house as "any building or dwelling for renting
space divided into separate apartments or accessorias." The Supreme Court, in City of Iloilo
vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959, adopted the definition of a
tenement house18 as "any house or building, or portion thereof, which is rented, leased,
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or hired out to be occupied, or is occupied, as the home or residence of three families or

more living independently of each other and doing their cooking in the premises or by more
than two families upon any floor, so living and cooking, but having a common right in the
halls, stairways, yards, water-closets, or privies, or some of them." Tenement houses, being
necessarily offered for rent or lease by their very nature and essence, therefore constitute
a distinct form of business or calling, similar to the hotel or motel business, or the operation
of lodging houses or boarding houses. This is precisely one of the reasons why this Court, in
the said case of City of Iloilo vs. Remedios Sian Villanueva, et al., supra, declared Ordinance
86 ultra vires, because, although the municipal board of Iloilo City is empowered, under sec.
21, par. j of its Charter, "to tax, fix the license fee for, and regulate hotels, restaurants,
refreshment parlors, cafes, lodging houses, boarding houses, livery garages, public
warehouses, pawnshops, theaters, cinematographs," tenement houses, which constitute a
different business enterprise,19 are not mentioned in the aforestated section of the City
Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:.
"And it not appearing that the power to tax owners of tenement houses is one among those
clearly and expressly granted to the City of Iloilo by its Charter, the exercise of such power
cannot be assumed and hence the ordinance in question is ultra vires insofar as it taxes a
tenement house such as those belonging to defendants." .

The lower court has interchangeably denominated the tax in question as a tenement tax or an
apartment tax. Called by either name, it is not among the exceptions listed in section 2 of the Local
Autonomy Act. On the other hand, the imposition by the ordinance of a license tax on persons
engaged in the business of operating tenement houses finds authority in section 2 of the Local
Autonomy Act which provides that chartered cities have the authority to impose municipal license
taxes or fees upon persons engaged in any occupation or business, or exercising privileges within
their respective territories, and "otherwise to levy for public purposes, just and uniform taxes,
licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not only double taxation but treble at
that," because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A)
(3) (s) of the National Internal Revenue Code, besides the tenement tax under the said ordinance."
Obviously, what the trial court refers to as "income taxes" are the fixed taxes on business and
occupation provided for in section 182, Title V, of the National Internal Revenue Code, by virtue of
which persons engaged in "leasing or renting property, whether on their account as principals or as
owners of rental property or properties," are considered "real estate dealers" and are taxed according
to the amount of their annual income.20.
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National
Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the
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argument against double taxation may not be invoked. The same tax may be imposed by the
national government as well as by the local government. There is nothing inherently obnoxious in
the exaction of license fees or taxes with respect to the same occupation, calling or activity by both
the State and a political subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate
taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a wellsettled rule that a license tax may be levied upon a business or occupation although the land or
property used in connection therewith is subject to property tax. The State may collect an ad valorem
tax on property used in a calling, and at the same time impose a license tax on that calling, the
imposition of the latter kind of tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or prohibited sense the same
property must be taxed twice when it should be taxed but once; both taxes must be imposed
on the same property or subject-matter, for the same purpose, by the same State,
Government, or taxing authority, within the same jurisdiction or taxing district, during the
same taxing period, and they must be the same kind or character of tax."23 It has been shown
that a real estate tax and the tenement tax imposed by the ordinance, although imposed by
the sametaxing authority, are not of the same kind or character.
At all events, there is no constitutional prohibition against double taxation in the Philippines.24 It is
something not favored, but is permissible, provided some other constitutional requirement is not
thereby violated, such as the requirement that taxes must be uniform."25.
3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not
only oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months
or both, if the owner or owners of the tenement buildings divided into apartments do not pay the
tenement or apartment tax fixed in said ordinance," but also unconstitutional as it subjects the
owners of tenement houses to criminal prosecution for non-payment of an obligation which is purely
sum of money." The lower court apparently had in mind, when it made the above ruling, the
provision of the Constitution that "no person shall be imprisoned for a debt or non-payment of a
poll tax."26 It is elementary, however, that "a tax is not a debt in the sense of an obligation incurred
by contract, express or implied, and therefore is not within the meaning of constitutional or statutory
provisions abolishing or prohibiting imprisonment for debt, and a statute or ordinance which
punishes the non-payment thereof by fine or imprisonment is not, in conflict with that
prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount upon all
persons, or upon all persons of a certain class, resident within a specified territory, without regard to
their property or the occupations in which they may be engaged.28 Therefore, the tax in question is
not oppressive in the manner the lower court puts it. On the other hand, the charter of Iloilo
City29 empowers its municipal board to "fix penalties for violations of ordinances, which shall not
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exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and
imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court
overruled the pronouncement of the lower court declaring illegal and void an ordinance imposing an
occupation tax on persons exercising various professions in the City of Manilabecause it imposed a
penalty of fine and imprisonment for its violation.30.
4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.
"... because while the owners of the other buildings only pay real estate tax and income taxes
the ordinance imposes aside from these two taxes an apartment or tenement tax. It should
be noted that in the assessment of real estate tax all parts of the building or buildings are
included so that the corresponding real estate tax could be properly imposed. If aside from
the real estate tax the owner or owners of the tenement buildings should pay apartment
taxes as required in the ordinance then it will violate the rule of uniformity of taxation.".
Complementing the above ruling of the lower court, the appellees argue that there is "lack of
uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out
to pay taxes on their tenement houses, while citizens of other cities, where their councils do not
enact a similar tax ordinance, are permitted to escape such imposition." .
It is our view that both assertions are undeserving of extended attention. This Court has already ruled
that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are
uniform and equal when imposed upon all property of the same class or character within the taxing
authority."31 The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do
not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and
equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that
tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the
same purpose should be imposed in different territorial subdivisions at the same time. 32 So long as
the burden of the tax falls equally and impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity of taxation is accomplished.33 The plaintiffsappellees, as owners of tenement houses in the City of Iloilo, have not shown that the tax burden is
not equally or uniformly distributed among them, to overthrow the presumption that tax statutes are
intended to operate uniformly and equally.34.
5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a
mere reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L12695, supra, as ultra vires, the decision in that case should be accorded the effect of res judicata in
the present case or should constitute estoppel by judgment. To dispose of this contention, it suffices
to say that there is no identity of subject-matter in that case andthis case because the subject-matter
in L-12695 was an ordinance which dealt not only with tenement houses but also warehouses, and
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the said ordinance was enacted pursuant to the provisions of the City charter, while the ordinance in
the case at bar was enacted pursuant to the provisions of the Local Autonomy Act. There is likewise
no identity of cause of action in the two cases because the main issue in L-12695 was whether the
City of Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of
1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore was not
available for consideration in the decision in L-12695 which was promulgated on March 23, 1959.
Moreover, under the provisions of section 2 of the Local Autonomy Act, local governments may now
tax any taxable subject-matter or object not included in the enumeration of matters removed from
the taxing power of local governments.Prior to the enactment of the Local Autonomy Act the taxes
that could be legally levied by local governments were only those specifically authorized by law, and
their power to tax was construed instrictissimi juris. 35.
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the
complaint is hereby dismissed. No pronouncement as to costs.
G.R. No. 128315. June 29, 1999.*
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PASCOR REALTY AND DEVELOPMENT
CORPORATION, ROGELIO A. DIO and VIRGINIA S. DIO, respondents.
Courts; Taxation; National Internal Revenue Code; Section 203 of the NIRC provides that internal
revenue taxes must be assessed within three years from the last day within which to file the return.
The issuance of an assessment is vital in determining the period of limitation regarding its proper
issuance and the period within which to protest it. Section 203 of the NIRC provides that internal
Section 222, on the other hand, specifies a period of ten years in case a fraudulent return with intent
to evade was submitted or in case of failure to file a return. Also, Section 228 of the same law states
that said assessment may be protested only within thirty days from receipt thereof. Necessarily, the
taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion
would arise regarding the period within which to make an assessment or to protest the same, or
whether interest and penalty may accrue thereon.
Same; Same; Same; Assessment is deemed made only when the collector of internal revenue
releases, mails or sends such notice to the taxpayer.It should also be stressed that the said
document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when
the collector of internal revenue releases, mails or sends such notice to the taxpayer. In the present
case, the revenue officers Affidavit merely contained a computation of respondents tax liability. It
did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not
to the taxpayers.
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Same; Same; Same; Section 222 of the NIRC specifically states that in cases of failure to file a return,
proceedings in court may be commenced without an assessment.Private respondents maintain
that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because
Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is
submitted or in cases of failure to file a return such as this case, proceedings in court may be
commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates
that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi,
petitioner therein sought the dismissal of the criminal Complaints for being premature, since his
protest to the CTA had not yet been resolved. The Court held that such protests could not stop or
suspend the criminal action which was independent of the resolution of the protest in the CTA. This
was because the commissioner of internal revenue had, in such tax evasion cases, discretion on
whether to issue an assessment or to file a criminal case against the taxpayer or to do both.
Same; Same; Same; Section 222 states that an assessment is not necessary before a criminal charge
can be filed.Private respondents insist that Section 222 should be read in relation to Section 255 of
the NIRC, which penalizes failure to file a return. They add that a tax assessment should precede a
criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not
necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to
show that they are entitled to an exception. Moreover, the criminal charge need only be supported
by a prima facie showing of failure to file a required return. This fact need not be proven by an
assessment.
Same; Same; Same; A criminal complaint is instituted not to demand payment, but to penalize the
taxpayer for violation of the Tax Code.The issuance of an assessment must be distinguished from
the filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment
notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and
documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an
assessment signed by him or her is then sent to the taxpayer informing the latter specifically and
clearly that an assessment has been made against him or her. In contrast, the criminal charge need
not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is
notified that a criminal case had been filed against him, not that the commissioner has issued an
assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but
to penalize the taxpayer for violation of the Tax Code.
[Commissioner of Internal Revenue vs. Pascor Realtyand Development Corporation, 309 SCRA
402(1999)]
PANGANIBAN, J.:
Page 393 of 455
TAXATION LAW REVIEW

An assessment contains not only a computation of tax liabilities, but also a demand for payment
within a prescribed period. It also signals the time when penalties and protests begin to accrue
against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process
requires that it must be served on and received by the taxpayer. Accordingly, an affidavit, which was
executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal
complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court
of Tax Appeals.

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying for
the nullification of the October 30, 1996 Decision 1 of the Court of Appeals 2 in CA-GR SP No. 40853,
which effectively affirmed the January 25, 1996 Resolution 3 of the Court of Tax Appeals 4 CTA Case
No. 5271. The CTA disposed as follows:
WHEREFORE,
finding
[the
herein
petitioner's]
"Motion
to
Dismiss"
as
UNMERITORIOUS, the same is hereby DENIED. [The CIR] is hereby given a period of
thirty (30) days from receipt hereof to file her answer.
Petitioner also seeks to nullify the February 13, 1997 Resolution 5 of the Court of Appeals denying
reconsideration.
The Facts
As found by the Court of Appeals, the undisputed facts of the case are as follows:
It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner
Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and
Emmanuel M. Savellano to examine the books of accounts and other accounting
records of Pascor Realty and Development Corporation. (PRDC) for the years ending
1986, 1987 and 1988. The said examination resulted in a recommendation for the
issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the
years 1986 and 1987, respectively.
On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint
before the Department of Justice against the PRDC, its President Rogelio A. Dio, and
its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount of
P10,513,671 .00. Private respondents PRDC, et. al. filed an Urgent Request for
Reconsideration/Reinvestigation disputing the tax assessment and tax liability.
Page 394 of 455
TAXATION LAW REVIEW

On March 23, 1995, private respondents received a subpoena from the DOJ in
connection with the criminal complaint filed by the Commissioner of Internal
Revenue (BIR) against them.1wphi1.nt
In a letter dated May 17, 1995, the CIR denied the urgent request for
reconsideration/reinvestigation of the private respondents on the ground that no
formal assessment of the has as yet been issued by the Commissioner.
Private respondents then elevated the Decision of the CIR dated May 17, 1995 to the
Court of Tax Appeals on a petition for review docketed as CTA Case No. 5271 on July
21, 1995. On September 6, 1995, the CIR filed a Motion to Dismiss the petition on the
ground that the CTA has no jurisdiction over the subject matter of the petition, as
there was no formal assessment issued against the petitioners. The CTA denied the
said motion to dismiss in a Resolution dated January 25, 1996 and ordered the CIR to
file an answer within thirty (30) days from receipt of said resolution. The CIR received
the resolution on January 31, 1996 but did not file an answer nor did she move to
reconsider the resolution.
Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that:
Respondent Court of Tax Appeals acted with grave abuse of
discretion and without jurisdiction in considering the affidavit/report
of the revenue officer and the indorsement of said report to the
secretary of justice as assessment which may be appealed to the
Court of Tax Appeals;
Respondent Court Tax Appeals acted with grave abuse of discretion
in considering the denial by petitioner of private respondents' Motion
for Reconsideration as [a] final decision which may be appealed to
the Court of Tax Appeals.
In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals stated:
We agree with petitioners' contentions, that the criminal complaint
for tax evasion is the assessment issued, and that the letter denial of
May 17, 1995 is the decision properly appealable to [u]s.
Respondent's ground of denial, therefore, that there was no formal
assessment issued, is untenable.
It is the Court's honest belief, that the criminal case for tax evasion is already
anassessment. The complaint, more particularly, the Joint Affidavit of Revenue
Page 395 of 455
TAXATION LAW REVIEW

Examiners Lagmay and Savellano attached thereto, contains the details of the
assessment like the kind and amount of tax due, and the period covered:
Petitioners are right, in claiming that the provisions of Republic Act No. 1125, relating
to exclusive appellate jurisdiction of this Court, do not, make any mention of "formal
assessment." The law merely states, that this Court has exclusive appellate jurisdiction
over decisions of the Commissioner of Internal Revenue on disputed assessments,
and other matters arising under the National Internal Revenue Code, other law or
part administered by the Bureau of Internal Revenue Code.
As far as this Court is concerned, the amount and kind of tax due, and the period
covered, are sufficient details needed for an "assessment." These details are more
than complete, compared to the following definitions of the term as quoted
hereunder. Thus:
Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) 386, 387,
163 Tenn. 332. (Words and Phrases, Permanent Edition, Vol. 4, p. 446).
The word assessment when used in connection with taxation, may have more than
one meaning.The ultimate purpose of an assessment to such a connection is to
ascertain the amount that each taxpayer is to pay. More commonly, the word
"assessment" means the official valuation of a taxpayer's property for purpose of
taxation. State v. New York, N.H. and H.R. Co. 22 A. 765, 768, 60 Conn. 326, 325. ( Ibid.
p. 445)
From the above, it can be gleaned that an assessment simply states how much tax is
due from a taxpayer. Thus, based on these definitions, the details of the tax as given
in the Joint Affidavit of respondent's examiners, which was attached to the tax
evasion complaint, more than suffice to qualify as an assessment. Therefore, this
assessment having been disputed by petitioners, and there being a denial of their
letter disputing such assessment, this Court unquestionably acquired jurisdiction over
the instant petition for review. 6
As earlier observed, the Court of Appeals sustained the CTA and dismissed the petition.
Hence, this recourse to this Court. 7
Ruling of the Court of Appeals

The Court of Appeals held that the tax court committed no grave abuse of discretion in ruling that
the Criminal Complaint for tax evasion filed by the Commissioner of Internal Revenue with the
Page 396 of 455
TAXATION LAW REVIEW

Department of Justice constituted an "assessment" of the tax due, and that the said assessment
could be the subject of a protest. By definition, an assessment is simply the statement of the details
and the amount of tax due from a taxpayer. Based on this definition, the details of the tax contained
in the BIR examiners' Joint Affidavit, 8 which was attached to the criminal Complaint, constituted an
assessment. Since the assailed Order of the CTA was merely interlocutory and devoid of grave abuse
of discretion, a petition for certiorari did not lie.
Issues
Petitioners submit for the consideration of this Court following issues:
(1) Whether or not the criminal complaint for tax evasion can be
construed as an assessment.
(2) Whether or not an assessment is necessary before criminal
charges for tax evasion may be instituted.
(3) Whether or not the CTA can take cognizance of the case in the
absence of an assessment. 9
In the main, the Court will resolve whether the revenue officers' Affidavit-Report, which was attached
to criminal revenue Complaint filed the Department of Justice, constituted an assessment that could
be questioned before the Court of Tax Appeals.
The Court's Ruling

Main Issue: Assessment

Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in
any way be construed as a formal assessment of private respondents' tax liabilities. This position is
based on Section 205 of the National Internal Revenue Code 10 (NIRC), which provides that remedies
for the collection of deficient taxes may be by either civil or criminal action. Likewise, petitioner cites
Section 223(a) of the same Code, which states that in case of failure to file a return, the tax may be
assessed or a proceeding in court may be begun without assessment.
Respondents, on the other hand, maintain that an assessment is not an action or proceeding for the
collection of taxes, but merely a notice that the amount stated therein is due as tax and that the
taxpayer is required to pay the same. Thus, qualifying as an assessment was the BIR examiners' Joint
Affidavit, which contained the details of the supposed taxes due from respondent for taxable years
Page 397 of 455
TAXATION LAW REVIEW

ending 1987 and 1988, and which was attached to the tax evasion Complaint filed with the DOJ.
Consequently, the denial by the BIR of private respondents' request for reinvestigation of the
disputed assessment is properly appealable to the CTA.
We agree with petitioner. Neither the NIRC nor the regulations governing the protest of
assessments 11 provide a specific definition or form of an assessment. However, the NIRC defines the
specific functions and effects of an assessment. To consider the affidavit attached to the Complaint
as a proper assessment is to subvert the nature of an assessment and to set a bad precedent that will
prejudice innocent taxpayers.
True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she
has tax liabilities. But not all documents coming from the BIR containing a computation of the tax
liability can be deemed assessments.
To start with, an assessment must be sent to and received by a taxpayer, and must demand payment
of the taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty,
in addition to the tax due, in case the taxpayer fails to pay deficiency tax within the time prescribed
for its payment in the notice of assessment. Likewise, an interest of 20 percent per annum, or such
higher rates as may be prescribed by rules and regulations, is to be collected form the date
prescribed for its payment until the full payment. 12
The issuance of an assessment is vital in determining, the period of limitation regarding its proper
issuance and the period within which to protest it. Section 203 13 of the NIRC provides that internal
Section 222, 14 on the other hand, specifies a period of ten years in case a fraudulent return with
intent to evade was submitted or in case of failure to file a return. Also, Section 228
15
of the same
law states that said assessment may be protested only within thirty days from receipt thereof.
Necessarily, the taxpayer must be certain that a specific document constitutes an assessment.
Otherwise, confusion would arise regarding the period within which to make an assessment or to
protest the same, or whether interest and penalty may accrue thereon.
It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an
assessment is deemed made only when the collector of internal revenue releases, mails or sends
such notice to the taxpayer. 16
In the present case, the revenue officers' Affidavit merely contained a computation of respondents'
tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice
secretary, not to the taxpayers.
Respondents maintain that an assessment, in relation to taxation, is simply understood' to mean:
Page 398 of 455
TAXATION LAW REVIEW

A notice to the effect that the amount therein stated is due as tax and a demand for
payment thereof. 17
Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for
the proper presentation of tax rolls. 18
Even these definitions fail to advance private respondents' case. That the BIR examiners' Joint
Affidavit attached to the Criminal Complaint contained some details of the tax liabilities of private
respondents does not ipso factomake it an assessment. The purpose of the Joint Affidavit was merely
to support and substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a
notice of the tax due and a demand to the private respondents for payment thereof.
The fact that the Complaint itself was specifically directed and sent to the Department of Justice and
not to private respondents shows that the intent of the commissioner was to file a criminal complaint
for tax evasion, not to issue an assessment. Although the revenue officers recommended the
issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion.
What private respondents received was a notice from the DOJ that a criminal case for tax evasion
had been filed against them, not a notice that the Bureau of Internal Revenue had made an
assessment.
In addition, what private respondents sent to the commissioner was a motion for a reconsideration
of the tax evasion charges filed, not of an assessment, as shown thus:
This is to request for reconsideration of the tax evasion charges against my client, PASCOR Realty
and Development Corporation and for the same to be referred to the Appellate Division in order to
give my client the opportunity of a fair and objective hearing. 19
Additional Issues:
Assessment Not
Necessary Before Filing of
Criminal Complaint
Private respondents maintain that the filing of a criminal complaint must be preceded by an
assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a
false or fraudulent return is submitted or in cases of failure to file a return such as this case,
proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the
same Code clearly mandates that the civil and criminal aspects of the case may be pursued
simultaneously. In Ungab v. Cusi, 20 petitioner therein sought the dismissal of the criminal Complaints
Page 399 of 455
TAXATION LAW REVIEW

for being premature, since his protest to the CTA had not yet been resolved. The Court held that
such protests could not stop or suspend the criminal action which was independent of the resolution
of the protest in the CTA. This was because the commissioner of internal revenue had, in such tax
evasion cases, discretion on whether to issue an assessment or to file a criminal case against the
taxpayer or to do both.
Private respondents insist that Section 222 should be read in relation to Section 255 of the
NLRC, 21 which penalizes failure to file a return. They add that a tax assessment should precede a
criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not
necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to
show that they are entitled to an exception. Moreover, the criminal charge need only be supported
by a prima facie showing of failure to file a required return. This fact need not be proven by an
assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an
assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer
is then given a chance to submit position papers and documents to prove that the assessment is
unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to
the taxpayer informing the latter specifically and clearly that an assessment has been made against
him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed
directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against
him, not that the commissioner has issued an assessment. It must be stressed that a criminal
complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax
Code.
WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET ASIDE.
CTA Case No. 5271 is likewise DISMISSED. No costs.
Page 400 of 455
TAXATION LAW REVIEW

TAX REMEDIES
G.R. No. 108358 January 20, 1995

vs.
THE HON. COURT OF APPEALS, R.O.H. AUTO PRODUCTS PHILIPPINES, INC. and THE HON. COURT
OF TAX APPEALS, respondents.
On 22 August 1986, during the period when the President of the Republic still wielded legislative
powers, Executive Order No. 41 was promulgated declaring a one-time tax amnesty on unpaid
income taxes, later amended to include estate and donor's taxes and taxes on business, for the
taxable years 1981 to 1985.
Availing itself of the amnesty, respondent R.O.H. Auto Products Philippines, Inc., filed, in October
1986 and November 1986, its Tax Amnesty Return No. 34-F-00146-41 and Supplemental Tax
Amnesty Return No. 34-F-00146-64-B, respectively, and paid the corresponding amnesty taxes due.
Prior to this availment, petitioner Commissioner of Internal Revenue, in a communication received by
private respondent on 13 August 1986, assessed the latter deficiency income and business taxes for
its fiscal years ended 30 September 1981 and 30 September 1982 in an aggregate amount of
P1,410,157.71. The taxpayer wrote back to state that since it had been able to avail itself of the tax
amnesty, the deficiency tax notice should forthwith be cancelled and withdrawn. The request was
denied by the Commissioner, in his letter of 22 November 1988, on the ground that Revenue
Memorandum Order No. 4-87, dated 09 February 1987, implementing Executive Order No. 41, had
construed the amnesty coverage to include only assessments issued by the Bureau of Internal
Revenue after the promulgation of the executive order on 22 August 1986 and not to assessments
theretofore made. The invoked provisions of the memorandum order read:
TO: All Internal Revenue Officers and Others Concerned:
1.0. To give effect and substance to the immunity provisions of the tax amnesty
under Executive Order No. 41, as expanded by Executive Order No. 64, the following
instructions are hereby issued:
xxx xxx xxx
1.02. A certification by the Tax Amnesty Implementation Officer of the fact of
availment of the said tax amnesty shall be a sufficient basis for:
xxx xxx xxx
Page 401 of 455
TAXATION LAW REVIEW

1.02.3. In appropriate cases, the cancellation/withdrawal of assessment notices and
letters of demand issued after August 21, 1986 for the collection of income, business,
estate or donor's taxes due during the same taxable years. 1 (Emphasis supplied)
Private respondent appealed the Commissioner's denial to the Court of Tax Appeals. Ruling for the
taxpayer, the tax court said:
Respondent (herein petitioner Commissioner) failed to present any case or law which
proves that an assessment can withstand or negate the force and effects of a tax
amnesty. This burden of proof on the petitioner (herein respondent taxpayer) was
created by the clear and express terms of the executive order's intention qualified
availers of the amnesty may pay an amnesty tax in lieu of said unpaid taxes which are
forgiven (Section 2, Section 5, Executive Order No. 41, as amended). More specifically,
the plain provisions in the statute granting tax amnesty for unpaid taxes for the
period January 1, 1981 to December 31, 1985 shifted the burden of proof on
respondent to show how the issuance of an assessment before the date of the
promulgation of the executive order could have a reasonable relation with the
objective periods of the amnesty, so as to make petitioner still answerable for a tax
liability which, through the statute, should have been erased with the proper
availment of the amnesty.
Additionally, the exceptions enumerated in Section 4 of Executive Order No. 41, as
amended, do not indicate any reference to an assessment or pending investigation
aside from one arising from information furnished by an informer. . . . Thus, we deem
that the rule in Revenue Memorandum Order No. 4-87 promulgating that only
assessments issued after August 21, 1986 shall be abated by the amnesty is beyond
the contemplation of Executive Order No. 41, as amended. 2
On appeal by the Commissioner to the Court of Appeals, the decision of the tax court was affirmed.
The appellate court further observed:
In the instant case, examining carefully the words used in Executive Order No. 41, as
amended, we find nothing which justifies petitioner Commissioner's ground for
denying respondent taxpayer's claim to the benefits of the amnesty law. Section 4 of
the subject law enumerates, in no uncertain terms, taxpayers who may not avail of
the amnesty granted,. . . .
Admittedly, respondent taxpayer does not fall under any of the . . . exceptions. The
added exception urged by petitioner Commissioner based on Revenue Memorandum
Order No. 4-87, further restricting the scope of the amnesty clearly amounts to an act
of administrative legislation quite contrary to the mandate of the law which the
regulation ought to implement.
xxx xxx xxx
Page 402 of 455
TAXATION LAW REVIEW

Lastly, by its very nature, a tax amnesty, being a general pardon or intentional
overlooking by the State of its authority to impose penalties on persons otherwise
guilty of evasion or violation of a revenue or tax law, partakes of an absolute
forgiveness or waiver by the Government of its right to collect what otherwise would
be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who
wish to relent and are willing to reform a chance to do so and thereby become a part
of the new society with a clean slate. (Republic vs. Intermediate Appellate Court. 196
SCRA 335, 340 [1991] citing Commissioner of Internal Revenue vs. Botelho Shipping
Corp., 20 SCRA 487) To follow [the restrictive application of Revenue Memorandum
Order No. 4-87 pressed by petitioner Commissioner would be to work against
the raison d'etre of E.O. 41, as amended, i.e., to raise government revenues by
encouraging taxpayers to declare their untaxed income and pay the tax due thereon.
(E.O. 41, first paragraph)] 3
In this petition for review, the Commissioner raises these related issues:
1. WHETHER OR NOT REVENUE MEMORANDUM ORDER NO. 4-87, PROMULGATED TO
IMPLEMENT E.O. NO. 41, IS VALID;
2. WHETHER OR NOT SAID DEFICIENCY ASSESSMENTS IN QUESTION WERE EXTINGUISHED
BY REASON OR PRIVATE RESPONDENT'S AVAILMENT OF EXECUTIVE ORDER NO. 41 AS
AMENDED BY EXECUTIVE ORDER NO. 64;
3. WHETHER OR NOT PRIVATE RESPONDENT HAS OVERCOME THE PRESUMPTION OF
VALIDITY OF ASSESSMENTS. 4
The authority of the Minister of Finance (now the Secretary of Finance), in conjunction with the
Commissioner of Internal Revenue, to promulgate all needful rules and regulations for the effective
enforcement of internal revenue laws cannot be controverted. Neither can it be disputed that such
rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight
and respect by the courts. Much more fundamental than either of the above, however, is that all such
issuances must not override, but must remain consistent and in harmony with, the law they seek to
apply and implement. Administrative rules and regulations are intended to carry out, neither to
supplant nor to modify, the law.
The real and only issue is whether or not the position taken by the Commissioner coincides with the
meaning and intent of executive Order No. 41.
We agree with both the court of Appeals and court of Tax Appeals that Executive Order No. 41 is
quite explicit and requires hardly anything beyond a simple application of its provisions. It reads:
Sec. 1. Scope of Amnesty. A one-time tax amnesty covering unpaid income taxes
for the years 1981 to 1985 is hereby declared.
Page 403 of 455
TAXATION LAW REVIEW

Sec. 2. Conditions of the Amnesty. A taxpayer who wishes to avail himself of the
tax amnesty shall, on or before October 31, 1986;
a) file a sworn statement declaring his net worth as of December 31,
1985;
b) file a certified true copy of his statement declaring his net worth as
of December 31, 1980 on record with the Bureau of Internal Revenue,
or if no such record exists, file a statement of said net worth
therewith, subject to verification by the Bureau of Internal Revenue;
c) file a return and pay a tax equivalent to ten per cent (10%) of the
increase in net worth from December 31, 1980 to December 31,
1985: Provided, That in no case shall the tax be less than P5,000.00 for
individuals and P10,000.00 for judicial persons.
Sec. 3. Computation of Net Worth. In computing the net worths referred to in
Section 2 hereof, the following rules shall govern:
a) Non-cash assets shall be valued at acquisition cost.
b) Foreign currencies shall be valued at the rates of exchange
prevailing as of the date of the net worth statement.
Sec. 4. Exceptions. The following taxpayers may not avail themselves of the
amnesty herein granted:
a) Those falling under the provisions of Executive Order Nos. 1, 2 and
14;
b) Those with income tax cases already filed in Court as of the
effectivity hereof;
c) Those with criminal cases involving violations of the income tax
already filed in court as of the effectivity filed in court as of the
effectivity hereof;
d) Those that have withholding tax liabilities under the National
Internal Revenue Code, as amended, insofar as the said liabilities are
concerned;
e) Those with tax cases pending investigation by the Bureau of
Internal Revenue as of the effectivity hereof as a result of information
furnished under Section 316 of the National Internal Revenue Code,
as amended;
Page 404 of 455
TAXATION LAW REVIEW

f) Those with pending cases involving unexplained or unlawfully

acquired wealth before the Sandiganbayan;
g) Those liable under Title Seven, Chapter Three (Frauds, Illegal
Exactions and Transactions) and Chapter Four (Malversation of Public
Funds and Property) of the Revised Penal Code, as amended.
xxx xxx xxx
Sec. 9. The Minister of finance, upon the recommendation of the Commissioner of
Internal Revenue, shall promulgate the necessary rules and regulations to implement
this Executive Order.
xxx xxx xxx
Sec. 11. This Executive Order shall take effect immediately.
DONE in the City of Manila, this 22nd day of August in the year of Our Lord, nineteen
hundred and eighty-six.
The period of the amnesty was later extended to 05 December 1986 from 31 October 1986 by
Executive Order No. 54, dated 04 November 1986, and, its coverage expanded, under Executive
Order No. 64, dated 17 November 1986, to include estate and honors taxes and taxes on business.
If, as the Commissioner argues, Executive Order No. 41 had not been intended to include 1981-1985
tax liabilities already assessed (administratively) prior to 22 August 1986, the law could have simply
so provided in its exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the
executive order has been designed to be in the nature of a general grant of tax amnesty subject only
to the cases specifically excepted by it.
It might not be amiss to recall that the taxable periods covered by the amnesty include the years
immediately preceding the 1986 revolution during which time there had been persistent calls, all too
vivid to be easily forgotten, for civil disobedience, most particularly in the payment of taxes, to the
martial law regime. It should be understandable then that those who ultimately took over the reigns
of government following the successful revolution would promptly provide for abroad, and not a
confined, tax amnesty.
Relative to the two other issued raised by the Commissioner, we need only quote from Executive
Order No. 41 itself; thus:
Sec. 6. Immunities and Privileges. Upon full compliance with the conditions of the
tax amnesty and the rules and regulations issued pursuant to this Executive order, the
taxpayer shall enjoy the following immunities and privileges:
Page 405 of 455
TAXATION LAW REVIEW

a) The taxpayer shall be relieved of any income tax liability on any

untaxed income from January 1, 1981 to December 31, 1985,
including increments thereto and penalties on account of the nonpayment of the said tax. Civil, criminal or administrative liability
arising from the non-payment of the said tax, which are actionable
under the National Internal Revenue Code, as amended, are likewise
deemed extinguished.
b) The taxpayer's tax amnesty declaration shall not be admissible in
evidence in all proceedings before judicial, quasi-judicial or
administrative bodies, in which he is a defendant or respondent, and
the same shall not be examined, inquired or looked into by any
person, government official, bureau or office.
c) The books of account and other records of the taxpayer for the
period from January 1, 1981 to December 31, 1985 shall not be
examined for income tax purposes: Provided, That the Commissioner
of Internal Revenue may authorize in writing the examination of the
said books of accounts and other records to verify the validity or
correctness of a claim for grant of any tax refund, tax credit (other
than refund on credit of withheld taxes on wages), tax incentives,
and/or exemptions under existing laws.
There is no pretension that the tax amnesty returns and due payments made by the taxpayer did not
conform with the conditions expressed in the amnesty order.
WHEREFORE, the decision of the court of Appeals, sustaining that of the court of Tax Appeals, is
hereby AFFIRMED in toto. No costs.
G.R. No. L-38540 April 30, 1987
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
THE COURT OF APPEALS, and NIELSON & COMPANY, INC., respondents.
This is a petition for review on certiorari of the decision of the respondent Court of Appeals 1 in CA
G.R. No. 37417-R, dated 3 April 1974, reversing the decision of the then Court of First Instance of
Manila which ordered private respondent Nielson & Co., Inc. to pay the Government the amount of
P11,496.00 as ad valorem tax, occupation fees, additional residence tax and 25% surcharge for late
payment, for the years 1949 to 1952, and costs of suit, and of the resolution of the respondent Court,
dated 31 May 1974, denying petitioner's motion for reconsideration of said decision of 3 April 1974.
In a demand letter, dated 16 July 1955 (Exhibit A), the Commissioner of Internal Revenue assessed
private respondent deficiency taxes for the years 1949 to 1952, totalling P14,449.00, computed as
follows:
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1-1/2% ad valorem tax on P448,000.00..........................P7,320.00

25% surcharge for late payment......................................1,830.00
Occupation fees for the years 1949
to 1952 at P1.00 per ha. per
year on 1, 230 hectares.....................................4,920.00
Additional residence tax on P79,000.00
at P1.00 per every P5,000.00
per year or P75.00 x 4 years................................303.20
25% surcharge for late payment.........................................75.00
TOTAL AMOUNT DUE............................ P14,449.00 2
Petitioner reiterated its demand upon private respondent for payment of said amount, per letters
dated 24 April 1956 (Exhibit D), 19 September 1956 (Exhibit E) and 9 February 1960 (Exhibit F). Private
respondent did not contest the assessment in the Court of Tax Appeals. On the theory that the
assessment had become final and executory, petitioner filed a complaint for collection of the said
amount against private respondent with the Court of First Instance of Manila, where it was docketed
as Civil Case No. 42911. However, for failure to serve summons upon private respondent, the
complaint was dismissed, without prejudice, in the Court's order dated 30 June 1961. On motion, the
order of dismissal was set aside, at the same time giving petitioner sixty (60) days within which to
serve summons upon private respondent.
For failure anew to serve summons, the Court of First Instance of Manila issued an order dated 4
October 1962 dismissing Civil Case No. 42911 without prejudice. The order of dismissal became final
on 5 November 1962.
On 15 November 1962, the complaint against private respondent for collection of the same tax was
refiled, but the same was erroneously docketed as Civil Case No. 42911, the same case previously
dismissed without prejudice. Without correcting this error, another complaint was filed on 26
November 1963, docketed as Civil Case No. 55817, the subject matter of the present appeal.
As herein earlier stated, the Court a quo rendered a decision against the private respondent. On
appeal to the respondent Court of Appeals, the decision was reversed. Petitioner, Republic of the
Philippines, filed a motion for reconsideration which was likewise denied by said Court in a resolution
dated 31 May 1974. Hence, this petition, with the following assignment of errors:
I
Page 407 of 455
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THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE LETTER OF ASSESSMENT DATED JULY
16, 1955, EXHIBIT "A," WAS RECEIVED BY PRIVATE RESPONDENT IN THE ORDINARY COURSE OF THE
MAIL PURSUANT TO SECTION 8, RULE 13 OF THE REVISED RULES OF COURT.
II
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENT FAILED TO REBUT
THE PRESUMPTION THAT THE LETTER ASSESSMENT DATED JULY 16, 1955, HAVING BEEN DULY
DIRECTED AND MAILED WAS RECEIVED IN THE REGULAR COURSE OF THE MAIL AND THAT
OFFICIAL DUTY HAS BEEN REGULARLY PERFORMED.
III
THAT, ASSUMING, WITHOUT ADMITTING, THAT THE LETTER DATED JULY 16, 1955 (EXHIBIT "A")
CANNOT BE CONSIDERED AS AN ASSESSMENT, ON THE THEORY THAT THE SAME HAS NOT BEEN
RECEIVED BY PRIVATE RESPONDENT, THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
LETTER OF THE DEPUTY COLLECTOR (NOW DEPUTY COMMISSIONER) OF INTERNAL REVENUE
DATED SEPTEMBER 19, 1956 (EXHIBIT "E") IS ITSELF AN ASSESSMENT WHICH WAS DULY RECEIVED
BY PRIVATE RESPONDENT.
Relying on the provisions of Section 8, Rule 13 and Section 5, paragraphs m & v. Rule 131 of the
Revised Rules of Court, petitioner claims that the demand letter of 16 July 1955 showed an imprint
indicating that the original thereof was released and mailed on 4 August 1955 by the Chief, Records
Section of the Bureau of Internal Revenue, and that the original letter was not returned to said
Bureau; thus, said demand letter must be considered to have been received by the private
respondent. 3 According to petitioner, if service is made by ordinary mail, unless the actual date of
receipt is shown, service is deemed complete and effective upon the expiration of five (5) days after
mailing. 4 As the letter of demand dated 16 July 1955 was actually mailed to private respondent,
there arises the presumption that the letter was received by private respondent in the absence of
evidence to the contrary. 5 More so, where private respondent did not offer any evidence, except the
self-serving testimony of its witness, that it had not received the original copy of the demand letter
dated 16 July 1955. 6
We do not agree with petitioner's above contentions. As correctly observed by the respondent court
in its appealed decision, while the contention of petitioner is correct that a mailed letter is deemed
received by the addressee in the ordinary course of mail, stilt this is merely a disputable
presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden
upon the party favored by the presumption to prove that the mailed letter was indeed received by
the addressee. Thus:
Appellee contends that per Exhibit A, the notice was released and mailed to the
appellant by the BIR on Aug. 4, 1955 under the signature of the Chief, Records
Section, Office; that since the original thereof was not returned to the appellee, the
presumption is that the appellant received the mailed notice. This is correct, but this
being merely a mere disputable presumption, the same is subject to controversion,
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and a direct denial of the receipt thereof shifts the burden upon the party favored by
the presumption to prove that the mailed letter was received by the addressee. The
appellee, however, argues that since notice was rc-,Ieased and mailed and the fact of
its release was admitted by the appellant the admission is proof that he received the
mailed notice of assessment. We do not think so. It is true the Court a quo made
such a finding of fact, but as pointed out by the appehant in its brief, and as borne
out by the records, no such admission was ever made by the appellant in the answer
or in any other pleading, or in any declaration, oral or documentary before the trial
court. We note that the appellee has not met this challenge, and after a review of the
records, we find appeflant's assertion well-taken. 7
Since petitioner has not adduced proof that private respondent had in fact received the demand
letter of 16 July 1955, it can not be assumed that private respondent received said letter. Records,
however, show that petitioner wrote private respondent a follow-up letter dated 19 September 1956,
reiterating its demand for the payment of taxes as originally demanded in petitioner's letter dated 16
July 1955. This follow-up letter is considered a notice of assessment in itself which was duly received
by private respondent in accordance with its own admission. 8 The aforesaid letter reads:
Septem
ber 19,
1956
Nielson and Company, Inc.
Ayala Boulevard, Manila
Gentlemen:
In reply to you (sic) letter dated June 1, 1956 relative to your pending internal
revenue tax liability involving the amount of P15,649.00 as annual occupation fees, ad
valorem and additional residence taxes, surcharges and penalty, originally demanded
of you on July 16, 1955, I have the honor to inform you that investigation conducted
by an agent of this office show that you and the Hixbar Gold Mining Co., Inc. entered
into an agreement in 1938 whereby you were given full exclusive and irrevocable
control of all the operations, development, processing and marketing of mineral
products from the latter's mines and that au the assessments, taxes and fees of any
nature in connection with the said operation, development, proceeding and
marketing of these products shall be paid by you. In view thereof, and it appearing
that the aforesaid tax liabilities accrued when your contract was in fun force and
effect, you are therefore, the party hable for the payment thereof, notwithstanding
the alleged contract subsequently entered into by you and the Hixbar Gold Mining
Co., Inc. on September 9, 1954.
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It is therefore, again requested that payment of the aforesaid amount of P15,649.00

be made to the City Treasurer, Manila within five (5) days from your receipt hereof so
that this case may be closed.
You are further requested to pay the sum of P150.00 as compromise suggested in
our letter to you dated February 24, 1955, it appearing that the same has not as yet
been paid up to the present.
Very respectfully yours,
JOSE
ARANA
S
Deputy Collector
Internal Revenue 9
of
Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals
within thirty (30) days from receipt of the letter. The taxpayer's failure to appeal in due time, as in the
case at bar, makes the assessment in question final, executory and demandable. Thus, private
respondent is now barred from disputing the correctness of the assessment or from invoking any
defense that would reopen the question of its liability on the merits. 10
In Mamburao Lumber Co. vs. Republic, 11 this Court further said:
In a suit for collection of internal revenue taxes, as in this case, where the assessment has already
become final and executory, the action to collect is akin to an action to enforce a judgment. No
inquiry can be made therein as to the merits of the original case or the justness of the judgment
relied upon. ...
ACCORDINGLY, the appealed decision is hereby reversed. The decision of the Court a quo is hereby
reinstated.
G.R. No. 502
January 29, 1946
BASILIA CABRERA, plaintiff-appellee,

vs.
THE PROVINCIAL TREASURER OF TAYABAS and PEDRO J. CATIGBAC, defendants-appellants.
On October 30, 1940, the provincial treasurer of Tayabas issued a notice for the sale at public auction
of numerous, real properties forfeited for tax delinquency, including a certain parcel of land located
in the barrio of Buenavista, municipality of Candelaria, Province of Tayabas, and assessed in the name
of Nemesio Cabrera, said sale to be held "on December 15, 1940 at 8 a.m. and every day thereafter
at the same place and hour until all the properties shall have been sold to the highest bidder." Copy
of the notice was sent by registered mail to Nemesio Cabrera, but the envelope containing the same
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was returned with the remark "Unclaimed," undoubtedly because Nemesio Cabrera had already died
in 1935. The land was actually sold on May 12, 1941, for the sum of P74.34 to the appellant Pedro J.
Catigbac, in whose favor the final bill of sale was executed on September 23, 1942. Thereafter the
appellee, Basilia Cabrera, filed a complaint in the Court of First Instance of Tayabas against the
provincial treasurer and the appellant, attacking the validity of the tax sale on the grounds that she
was not notified therefore and that although the land had remained in the assessment book in the
name of Nemesio Cabrera, a former owner, she has become its registered owner, since 1934 when a
Torrens title (No. 8167) was issued to her by the register of deeds of Tayabas. From a judgment
favorable to the appellee, the present appeal was taken by Pedro J. Catigbac.
Under the law (Commonwealth Act No. 470, section 35), the provincial treasurer is enjoined to set
forth in the notice, among other particulars, the date of the tax sale. We are of the opinion that this
mandatory requirement was not satisfied in the present case, because the announcement that the
sale would take place on December 15, 1940 and every day thereafter, is as general and indefinite as
a notice for the sale "within this or next year" or "some time within the month of December." In order
to enable a taxpayer to protect his rights, he should at least appraised of the exact date of the
proceeding by which he is to lose his property. When we consider the fact that the sale in favor of
the appellant was executed on May 12, 1941, or nearly five months after December 15, 1940, the
violation of the mandatory requirement becomes more obvious. Indeed, in his motion for
reconsideration (seeRecord on Appeal, pp. 33-41), the appellant had admitted, unknowingly perhaps,
that when he went to the office of the municipal treasurer after reading the notice of sale in
December, 1940, to inquire about the advertised land, he was told to return on May 12, 1941. The
implication that follows is that the tax officials had really adopted the view that they could sell any of
the numerous forfeited lots on any date subsequent to December 15, 1940, without new notice,
thereby making the resulting sale more private than public, likewise in violation of the law. It may be
observed that as regards tax sales, unlike ordinary execution sales, the statute does not expressly
authorize adjournment from day to day. The reminder may, however, be given that the tax officials
will greatly be inconvenienced by following the law strictly, especially when numerous properties are,
as in the present case (132 parcels), to be disposed of for tax delinquency. We will not venture to
disagree, but it is believed that the officials who are ever solicitous in protecting private proprietary
rights, shall have helped, to the same extent, in maintaining the solid foundation of the Government
which they seek to serve and of which they themselves are a part.
What has been said is sufficient to decide this appeal, although it will not altogether be amiss to
refer to details that further support the judgment of the lower court. The appellee was admittedly
not notified of the auction sale, and this also vitiates the proceeding. She is the registered owner of
the land and, since 1934, has become liable for the taxes thereon. For all purposes, she is the
delinquent taxpayer "against whom the taxes were assessed," referred to in section 34 of
Commonwealth Act No. 470. It cannot be Nemesio Cabrera for the latter's obligation to pay taxes
ended where the appellee's liability began. Neither the alleged receipt by the appellee of a copy of
certificate of sale dated May 12, 1941, nor her failure to redeem thereafter, had the effect of
validating the prior tax proceeding. The sale in favor of the appellant cannot bind the appellee, since
the land purportedly conveyed was owned by Nemesio Cabrera, not by the appellee; and, at the time
of the sale, Nemesio Cabrera had no interest whatsoever in the land in question that could have
passed to the appellant.
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The appellee may be criticized for her failure to have the land transferred to her name in the
assessment record. The circumstance, nevertheless, cannot supplant the absence of notice. Of course,
it is the duty of any person acquiring at the time real property to prepare and submit a tax
declaration within sixty days (Commonwealth Act No. 470, section 12), but it is no less true that when
the owner refuses or fails to make the required declaration, the provincial assessor should himself
declare the property in the name of the defaulting owner (Commonwealth Act No. 470, section 14).
In this case there is absolutely no showing that the appellee had deliberately failed to make the
declaration to defraud the tax officials; and it may be remarked that there can be no reason why her
Torrens title, which binds the whole world, cannot at least charge the Government which had issued
it, with notice thereof. A little synchronization between the offices of the register of deeds and of the
provincial assessor, with perhaps very negligible additional clerical work on the part of both, will
surely result in a more efficient enforcement of the tax laws.
Not having appealed, the appellee cannot now pretend that the judgement of the lower court is
erroneous in so far as it failed to award damages in her favor for the sum of P500. While an appellee
can on appeal make a counter-assignment of error, it must be with a view merely to sustaining the
judgement, not to obtaining other affirmative relief.
The appealed judgment is affirmed, with costs of both instances against the appellant. So ordered.
G.R. No. L-4406
October 23, 1908
ANTONIA VALENCIA Y ORUS, plaintiff-appellee,

vs.
JUAN JIMENEZ Y MIJARES and GABRIEL FUSTER Y FUSTER, defendants-appellants.
MEMORANDUM ON MOTION TO DISCONTINUE.
After this case had been finally submitted to this court, and was awaiting decision, a petition was
presented in behalf of the plaintiff, not through her attorneys of record but through a new attorney,
in the following words:
The plaintiff, Doa Antonia Valencia y Orus, through her advocate, appears and respectfully
shows:
For weighty reasons now known to the plaintiff, but whereof she was ignorant when this
action was begun, she can not continue claiming either ownership or possession of the lands
in question in this suit.
Wherefore this plaintiff asks this honorable court to revoke the judgment appealed from in
all its parts, absolving the defendants fully from the demands in this suit, without making any
award of costs.
By the judgment of the court below the plaintiff had been awarded the real property in suit, together
with damages for its detention.
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This motion must be denied, for several reasons.

First. The plaintiff is a resident of Barcelona, Spain, ad she originally authorized the bringing of this
action in correspondence direct between herself and her attorneys, Coudert Brothers of Manila, at
whose request she gave a power of management thereof to one of the assistants in their office, Jose
Moreno Lacalle. As a foundation for the present motion there was filed a later power of attorney
from her to Buenaventura Guamis, revoking the earlier power to Jose Moreno Lacalle, which it fully
recited, and empowering Guamis to revoke in her name the aforesaid antecedent power, and
secondly, "himself or through his substitutes, whom he may name, to appear in legal from before the
Supreme Court of the city of Manila, or any other tribunal which may have cognizance of the case,
and present a fitting instrument in writing discontinuing the action brought nullify the sale of the
lands aforesaid of Manila against Don Juan Jimenez y Mijares and Don Gabriel Fuster y Fuster, with
the power of ratification in the said petition making manifest his wishes to renounce the continuance
of the said suit."
The affidavit of Buenaventura Guamis says:
(4) As appears from the aforesaid document "A," at the foot of the sixth page (the power of
attorney to him), it is the intention and desire of the said Doa Antonia Valencia y Orus to
discontinue this action and renounce the continuation of the same. . . .
(6) By virtue of the powers conferred by the said document "A," this dependent hereby
confers power on Mr. C. W. Ney, practicing lawyer in this capital city, to make in the name
and representation of the said Doa Antonia Valencia y Orus proceedings necessary to
procure the final discontinuance of this action.
It is obvious that the motion does not comply with the power granted by the plaintiff nor fall within
its terms. The notice of motion does not ask for the discontinuance or cessation or abandonment of
the suit, but on the contrary prays for a judgment absolving the defendants of the claim set up in the
complaint, without any costs. Such a judgment would be one upon the merits and would preclude
the plaintiff from any claim which she might hereafter, on fuller devices, see fit to make against these
defendants. Such action, possibly so prejudicial to her interests, her power attorney has not
authorized any person to take in her behalf. The two things, a discontinuance and a judgment of
absolution on the merits, are not only different in degree but in kind, and in the opinion of the
majority of this court the one does not include the other.
Second. If, however, it might be that the motion for a judgment upon the merits could be considered
as including the other kind of relief, that is, a mere discontinuance, on the principle that the greater
includes the less, then the relief asked for can not be granted, because it is tied up with the condition
that there shall be no award of costs. The award of costs is at the disposal of the court, not of the
parties, especially to the prejudice of the defendants, who are third persons, not before us on this
motion and whom we can not presume to accept terms to unfavorable to them in their character as
innocent purchasers.
Page 413 of 455
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Third. By the affidavit of Charles C. Cohn, one of the plaintiffs' original attorneys, it appears that, after
the entry of judgment in this action, the said attorneys caused to be entered upon the records of the
Court of First Instance in which the judgment was rendered a statement of their claim to a lien
thereon, with lawful fees and disbursements in this action, and caused written notice thereof to be
delivered to the adverse party. Under section 37 of the Code of Civil Procedure this sufficed to give
them a lien upon the judgment, inasmuch as the decree was one, in part, for the payment of money.
Their further claim thereon is expressed in that section in the following words:
. . . and shall have the same right and power over such judgments, decrees, and executions to
enforce his client as his client had or may have to the extent that may be necessary for the
payment of his just fees and disbursements.
Under the American practice this clause gives the attorneys an interest in the judgment and power
over it and to enforce it to that of their clients. It must therefore entitle them to carry on the action
for the purpose of securing their proper compensation.
Without passing on the particular steps required to enable the attorneys to carry their lien into effect
or on the reasonableness of the fees claimed by them, or of the contract providing thereof, we only
hold that their lien is alleged to have been properly created so as to give them a right and standing
in the action which prevents its discontinuance against their protest and without a suitable provision
for their protection.
Fourth. The motion is not made by one of the attorneys of record. Certain motions, of their very
nature, maybe made by an attorney who has not appeared in the case, where the interest of the
client is adverse to that of the attorney of record. Of that character is a motion for substitution of
attorneys, but not such a motion as the present one, which go to the merits and final disposition of
the cause and which no one is entitled to make other than the attorney who duly appears of record
in this court. By section 32 of the Code of Civil Procedure the rights is secured to a party to change
attorneys. The method of such change is not indicated. The proper practice in this case on the part of
the plaintiff would have been a motion for a substitution of attorneys, on which the question of their
compensation would naturally have risen and on the determination of which the attorney finally
appearing on record could have moved a discontinuance.
The justice sitting in this case do not all agree on each of the aforesaid grounds, but they are not
unanimously of the opinion that the motion must be denied.
DECISION.
This action was brought in the Court of First Instance of the city of Manila to set aside a sale of real
estate valued at P95,697.10 for unpaid taxes amounting to P2,934.76 to the defendant Jimenez, and
also the transfer of a one-half interest therein by him to the defendant Fuster, on two grounds, first,
that the defendants had secured title under the tax sale by conspiracy with one Vicente Ablaza,
plaintiff's agent, who allowed the property to go to sale while having in his hands ample funds for
the payment of taxes; and, second, that the tax sale was invalid by reason of defects in the
proceedings to impose the tax.
Page 414 of 455
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The first cause of action was opened up, but was not persisted in at the trial and the case comes
before us on the questions only of the irregularity of the proceedings for the sale. The most serious
of these are the following:
(1) The statement of the owner, filed by Ablaza, as her agent, gave her name as "Doa Antonia
Valencia y Orus." In the assessment roll for the year 1901 the name given was "Valencia, Antonio." In
the roll of 1902 it was "Valencia, Antonia," while the tax deed had it "Antonia Valencia."
(2) The correct description given in the owner's filed statement read:
Bounded in front, on entering, 280.55 meters, by Calle de Lemery; on the right, on entering,
142.40 meters, by the property of Don Nicolas del Rosario; on the left on entering, 65.10
meters, by Calle Corcuera, and at the rear, 288.70 meters, by the estuary and canal de le
Reina.
In the roll of 1901 it is stated as
A piece of land improvements, situated blocks 24, 25, 26, and 28 fronting Calle Lemery, solar
de Nicolas del Rosario, izquierda Calle Corcuera and espalda Canal de la Reina.
In the roll 1902:
A piece of land improvements, known as blocks 24, 25, 26, and 28 fronting izquierda Calle
Corcueraespalda Calle de la Reina, Calle Lemery, solar de Nicolas del Rosario.
In the notice of sale under "Description," "Kind of property land and improvement;" "Street and
number," it reads, "Read of Canal de la Reina, left of Corcuera;" "Lots, 24, 25, 26 28;" "Block, ."
The description in the final deed is correct, whereas in the tax certificate it was copied from that in
the notice of sale, and is defective.
The words "Lots" and "Blocks" were proved to refer to a plan made by the assessor and collector and
kept in his office for his own use, but to which individuals might have access, on which it was shown
as lots 24, 25, 16, and part of 28 in block 1. This plan was made after the filing of the declaration by
the property owners but before the assessment.
(3) The amount of the taxes in these several document is set down in columns, the cents being
divided from the dollars, but without any dollar-mark.
(4) That only proof of the fixing of the notices of sale was a recital in the certificate of the city
assessor and collector that the notice was posted "at the main entrance of said municipal building
and at five other public places in the city of Manila," without specifying the places, and also a recital
in the deed that a copy was posted in the proper barrio.
Page 415 of 455
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(5) The tax certificate did not fully recite the proceedings and give the details required by sections 78
and 80 of Act No. 82, but, on the contrary, showed the defects n the description and notice of sale,
whereas the final deed substantially complied with the statute.
The American law does not create a presumption of the regularity of any administrative action which
results in depriving a citizen or taxpayer of his property, but, on the contrary, the due process of law
to be followed in tax proceedings must be established by proof and the general rule is that the
purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all
proceedings leading up to the sale. The difficulty of supplying such proof has frequently lead to the
efforts on the part of legislatures to avoid it by providing by statute that a tax deed shall be deemed
either conclusive or presumptive proof of such regularity.
Those statutes attributing to it a conclusive effect have been held invalid as operating to deprive the
owner of his property without due process of law. But those creating a presumption only have been
sustained as affecting a rule of evidence, changing but the burden of proof. (Turpin vs. Lemon, 187
U.S., 51.)
The tax law applicable to Manila does not attempt to give any special probative effect to the deed of
the assessor and collector, and therefore leaves the purchaser to establish the regularity of all vital
steps in the assessment and sale. By section 84 and 86 of Act No. 82 it is enacted that no tax shall be
declared invalid for irregularities unless they "shall have impaired the substantial rights of the
taxpayer."
The first apparent defect in this assessment is the error in the name of the owner.
In Marx vs. Hanthorn (148 U.S., 172), where it does not even appear that under the law of the State of
Oregon the tax was a personal one, the tax was held bad because the owner's name had been
written in the roll as "Ida F. Hawthorn" instead of "Ida J. Hanthorn."
Under the Municipal Law of the Philippines, sections 74 to 78, the tax is primarily a personal one and
is enforcible against realty only in the event of a deficiency of personality, whereas in the City of
Manila its character is somewhat qualified by the provisions in section 47 of the charter only.
Nevertheless, the requirement of the statute in so imperative that the rule of the Hanthorn case is
manifestly applicable here.
But we deem it unnecessary to take up in detail the several irregularities and to determine the effect
of each one upon the validity of the tax sale. The most vital requisite of such an assessment is that
the property shall be so described as to be easily identified both by the owner and by the persona
desiring to bid therefor. The description prior to those in the deed are all more or less defective, but
those in the assessment roll for 1902 and in the final notice of the tax sale are so confused and
inadequate as not only to fail to give notice to a stranger of the location of the property, but as to
the incapable of verification by a person familiar with it. This is especially true of the description in
the notice of sale, which of all the steps in the procedure is the one calling for a most definite and
intelligible description. It is settled doctrine that, where one sale embraces two different taxes, a vital
defect in either tax invalidates the whole sale, so that, considered apart from the notice of sale, the
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rather understandable description in the roll of 1901 does not cure the vice in that of 1902. We are
satisfied that the failure to adequately describe the property both in the substantials rights of the
taxpayer, "within the meaning of sections 84 and 86 of the Municipal Code, and upon this failure we
are content to rest our judgment, affirming the part of the judgment of the Court of First Instance of
the city of Manila to Juan Jimenez y Mijares, and the deed of the latter to Gabriel Fuster y Fuster,
invalid and awarding to the plaintiff the possession of the property described in the complaint.
The judgment of the Court of First Instance not only awarded the plaintiff the real estate, but also the
rents and profits thereon, both from the time the defendants took possession until the
commencement of the action, and those accrued during the pendency of the action which have been
collected by the defendant Gabriel Fuster y Fuster as receiver. This part of the judgment should be
modified.
By article 451 of the Civil Code, the possessor of property in good faith is entitled to the profits
thereof until his possession is legally interrupted. By article 448, the possessor under claim of
ownership is presumed to have a just title. By article 434, good faith is always presumed, while bad
faith must be affirmatively proved. By article 435, possession acquired in good faith does not lose
that character until the occurrence of something showing that the possessor is not ignorant of the
weakness of his title.
That portion of the present action having been abandoned which involved the direct charge of
conspiracy on the part of the defendants, they are entitled, as the case stands, to the benefit of these
articles of the code unless they can be charged with actual bad faith. Applying the standard of the
Spanish law expressed in these articles, there is not sufficient in the case to establish such a charge
although it is somewhat indicated in the evidence. It may be urged, however, that the tax deed
derives its force from the law under which it is given and must take us an incident its quality and
effects from that law, so that the holder thereof acquires no other status in respect of good faith
than such as the American law attributes to him in that character. The rule of that law is usually
stated to good faith (Cooley on Taxation, pp. 218, 220), qualified, however, in this important
particular, that in respect of improvements he who, without actual knowledge of defects, holds a
deed regular on its face, is considered in good faith and is entitled to rely upon that deed without an
investigation of the proceedings upon which it is founded. But if the deed itself exposes an
irregularity, he must take notice of it. (Madland vs. Benland, 24 Min., 372; O'Mulcahy vs. Florer, 27
Min., 499; Bedell vs. Shaw, 59 N.Y., 46; Lynch vs. Brudie, 63 Pa., 206.) We have to seek the meaning of
the term "good faith" in the cases on the subject of improvements because, in the American system,
it can not arise in connection with rents and profits, which are recoverable by the successful plaintiff
in any event without regard to it.
In the present instance, the final deed is regular on its face, and in the opinion of the majority of the
court, in the absence of actual notice, sufficed to protect the holders thereof, although the
preliminary certificate of sale which they had held and surrendered showed in its recital that the sale
was irregular. Therefore, applying either the Spanish or the American criterions as to good faith, the
plaintiff may not recover the rents and profits down to the time when it is plain that the defendants
were advised of the vice of their title.
Page 417 of 455
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This limit is fixed at the date on which, after being informed by the beginning of an action, they
voluntarily appear therein and assert their claim. (Judgments of the supreme court of Spain of
November 23, 1900, and October 12, 1901.)
The defendants' first pleading in this case, the demurrer, was served on the 16th of May, 1906, and
the plaintiff is entitled to recover the rents and profits from that date until the termination of the
action, and the receiver must account to her therefor.
In conclusion, so much of the judgment of the Court of First Instance as awards to the plaintiff the
possession of the property in suit, declaring void the deed from the city assessor and collector to
Juan Jimenez y Mijares, together with the deed of the latter to the defendant Gabriel Fuster y Fuster,
and also so much thereof as directs the payment to the plaintiff of the rents and profits of the
property from the 16th of May, 1906, and also awards to the defendants the sum of P2,934.76, with
interest from the 17th of December , 1904, to the 26th o f April, 1906, being the amount of the tax
with interest deposited under the statute as a condition to maintain the action, but thereafter
withdrawn under stipulation, is affirmed; but so much of said judgments as directs payment to the
plaintiff of the rents and profits of the real estate prior to the 16th of day of May, 1906, amounting to
P4,337.73, is revoked.
This action is hereby remanded to the Court of First Instance for the purpose of taking such accounts
and conducting such other proceedings herein as may be necessary to carry out the aforesaid
judgment, but without costs of this instance. So ordered.
Nos. L-41919-24. May 30, 1980.*
QUIRICO P. UNGAB, petitioner, vs. HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court
of First Instance, Branch 1, 16TH Judicial District, Davao City, THE COMMISSIONER OF INTERNAL
REVENUE, and JESUS N. ACEBES, in his capacity as State Prosecutor, respondents.
Criminal Procedure; Taxation; National Internal Revenue Code; Preliminary investigation; Authority of
State Prosecutor to investigate and prosecute violations of the National Internal Revenue Code
independently of the City Fiscal; Case at bar.The respondent State Prosecutor, although believing
that he can proceed independently of the City Fiscal in the investigation and prosecution of these
cases, first sought permission from the City Fiscal of Davao City before he started the preliminary
investigation of these cases, and the City Fiscal, after being shown Administrative Order No. 116,
dated December 5, 1974, designating the said State Prosecutor to assist all Provincial and City fiscals
throughout the Philippines in the investigation and prosecution of all violations of the National
Internal Revenue Code, as amended, and other related laws, graciously allowed the respondent State
Prosecutor to conduct the investigation of said cases, and in fact, said investigation was conducted in
the office of the City Fiscal.
Same; Same; Same; Jurisdiction of the Court of First Instance over criminal prosecution for violations
of the National Internal Revenue Code; Computation and assessment of deficiency taxes is not a prePage 418 of 455
TAXATION LAW REVIEW

requisite for criminal prosecution under the Code.What is involved here is not the collection of
taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court
of Tax Appeals, but a criminal prosecution for violations of the National Internal Revenue Code which
is within the recognizance of Courts of First Instance. While there can be no civil action to enforce
collection before the assessment procedures provided in the Code have been followed, there is no
requirement for the precise computation and assessment of the tax before there can be a criminal
prosecution under the Code.
Same; Same; Same; Prescription; Petition for reconsideration of assessment of deficiency taxes
suspends the prescriptive period for the collection of taxes, not the prescriptive period of a criminal
action for violation of law.Besides, it has been ruled that a petition for reconsideration of an
assessment may affect the suspension of the prescriptive period for the collection of taxes, but not
the prescriptive period of a criminal action for violation of law. Obviously, the protest of the
petitioner against the assessment of the District Revenue Officer cannot stop his prosecution for
violation of the National Internal Revenue Code. Accordingly, the respondent Judge did not abuse
his discretion in denying the motion to quash filed by the petitioner. [Ungab vs. Cusi, Jr., 97 SCRA
877(1980)]
CONCEPCION JR., J:
Petition for certiorari and prohibition with preliminary injunction and restraining order to annul and
set aside the informations filed in Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the
Court of First Instance of Davao, all entitled: "People of the Philippines, plaintiff, versus Quirico
Ungab, accused;" and to restrain the respondent Judge from further proceeding with the hearing and
trial of the said cases.
It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia examined the income tax
returns filed by the herein petitioner, Quirico P. Ungab, for the calendar year ending December 31,
1973. In the course of his examination, he discovered that the petitioner failed to report his income
derived from sales of banana saplings. As a result, the BIR District Revenue Officer at Davao City sent
a "Notice of Taxpayer" to the petitioner informing him that there is due from him (petitioner) the
amount of P104,980.81, representing income, business tax and forest charges for the year 1973 and
inviting petitioner to an informal conference where the petitioner, duly assisted by counsel, may
present his objections to the findings of the BIR Examiner. 1 Upon receipt of the notice, the petitioner
wrote the BIR District Revenue Officer protesting the assessment, claiming that he was only a dealer
or agent on commission basis in the banana sapling business and that his income, as reported in his
income tax returns for the said year, was accurately stated. BIR Examiner Ben Garcia, however, was
fully convinced that the petitioner had filed a fraudulent income tax return so that he submitted a
"Fraud Referral Report," to the Tax Fraud Unit of the Bureau of Internal Revenue. After examining the
records of the case, the Special Investigation Division of the Bureau of Internal Revenue found
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sufficient proof that the herein petitioner is guilty of tax evasion for the taxable year 1973 and
recommended his prosecution:
(1) For having filed a false or fraudulent income tax return for 1973 with intent to
evade his just taxes due the government under Section 45 in relation to Section 72 of
the National Internal Revenue Code;
(2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and 1974, or a total
of unpaid fixed taxes of P100.00 plus penalties of 175.00 or a total of P175.00, in
accordance with Section 183 of the National Internal Revenue Code;
(3) For failure to pay the 7% percentage tax, as a producer of banana poles or
saplings, on the total sales of P129,580.35 to the Davao Fruit Corporation, depriving
thereby the government of its due revenue in the amount of P15,872.59, inclusive of
surcharge. 2
In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974, the
Commissioner of Internal Revenue approved the prosecution of the petitioner. 3
Thereafter, State Prosecutor Jesus Acebes who had been designated to assist all Provincial and City
Fiscals throughout the Philippines in the investigation and prosecution, if the evidence warrants, of
all violations of the National Internal Revenue Code, as amended, and other related laws, in
Administrative Order No. 116 dated December 5, 1974, and to whom the case was assigned,
conducted a preliminary investigation of the case, and finding probable cause, filed six (6)
informations against the petitioner with the Court of First Instance of Davao City, to wit:
(1) Criminal Case No. 1960 Violation of Sec. 45, in relation to Sec. 72 of the
National Internal-Revenue Code, for filing a fraudulent income tax return for the
calendar year ending December 31, 1973; 4
(2) Criminal Case No. 1961 Violation of Sec. 182 (a), in relation to Secs. 178, 186,
and 208 of the National Internal Revenue Code, for engaging in business as producer
of saplings, from January, 1973 to December, 1973, without first paying the annual
fixed or privilege tax thereof; 5
(3) Criminal Case No. 1962 Violation of Sec. 183 (a), in relation to Secs. 186 and
209 of the National Internal Revenue Code, for failure to render a true and complete
return on the gross quarterly sales, receipts and earnings in his business as producer
of banana saplings and to pay the percentage tax due thereon, for the quarter
ending December 31, 1973; 6
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return on the gross quarterly sales receipts and earnings in his business as producer
of saplings, and to pay the percentage tax due thereon, for the quarter ending on
March 31, 1973; 7
return on the gross quarterly sales, receipts and earnings in his business as producer
of banana saplings for the quarter ending on June 30, 1973, and to pay the
percentage tax due thereon; 8
return on the gross quarterly sales, receipts and earnings as producer of banana
saplings, for the quarter ending on September 30, 1973, and to pay the percentage
tax due thereon. 9
On September 16, 1975, the petitioner filed a motion to quash the informations upon the grounds
that: (1) the informations are null and void for want of authority on the part of the State Prosecutor
to initiate and prosecute the said cases; and (2) the trial court has no jurisdiction to take cognizance
of the above-entitled cases in view of his pending protest against the assessment made by the BIR
Examiner. 10 However, the trial court denied the motion on October 22, 1975. 11 Whereupon, the
petitioner filed the instant recourse. As prayed for, a temporary restraining order was issued by the
Court, ordering the respondent Judge from further proceeding with the trial and hearing of Criminal
Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First Instance of Davao, all
entitled: "People of the Philippines, plaintiff, versus Quirico Ungab, accused."
The petitioner seeks the annulment of the informations filed against him on the ground that the
respondent State Prosecutor is allegedly without authority to do so. The petitioner argues that while
the respondent State Prosecutor may initiate the investigation of and prosecute crimes and
violations of penal laws when duly authorized, certain requisites, enumerated by this Court in its
decision in the case of Estrella vs. Orendain, 12should be observed before such authority may be
exercised; otherwise, the provisions of the Charter of Davao City on the functions and powers of the
City Fiscal will be meaningless because according to said charter he has charge of the prosecution of
all crimes committed within his jurisdiction; and since "appropriate circumstances are not extant to
warrant the intervention of the State Prosecution to initiate the investigation, sign the informations
and prosecute these cases, said informations are null and void." The ruling adverted to by the
petitioner reads, as follows:
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In view of all the foregoing considerations, it is the ruling of this Court that under
Sections 1679 and 1686 of the Revised Administrative Code, in any instance where a
provincial or city fiscal fails, refuses or is unable, for any reason, to investigate or
prosecute a case and, in the opinion of the Secretary of Justice it is advisable in the
public interest to take a different course of action, the Secretary of Justice may either
appoint as acting provincial or city fiscal to handle the investigation or prosecution
exclusively and only of such case, any practicing attorney or some competent officer
of the Department of Justice or office of any city or provincial fiscal, with complete
authority to act therein in all respects as if he were the provincial or city fiscal himself,
or appoint any lawyer in the government service, temporarily to assist such city of
provincial fiscal in the discharge of his duties, with the same complete authority to
act independently of and for such city or provincial fiscal provided that no such
appointment may be made without first hearing the fiscal concerned and never after
the corresponding information has already been filed with the court by the
corresponding city or provincial fiscal without the conformity of the latter, except
when it can be patently shown to the court having cognizance of the case that said
fiscal is intent on prejudicing the interests of justice. The same sphere of authority is
true with the prosecutor directed and authorized under Section 3 of Republic Act
3783, as amended and/or inserted by Republic Act 5184. The observation in Salcedo
vs. Liwag, supra, regarding the nature of the power of the Secretary of Justice over
fiscals as being purely over administrative matters only was not really necessary, as
indicated in the above relation of the facts and discussion of the legal issues of said
case, for the resolution thereof. In any event, to any extent that the opinion therein
may be inconsistent herewith the same is hereby modified.
The contention is without merit. Contrary to the petitioner's claim, the rule therein established had
not been violated. The respondent State Prosecutor, although believing that he can proceed
independently of the City Fiscal in the investigation and prosecution of these cases, first sought
permission from the City Fiscal of Davao City before he started the preliminary investigation of these
cases, and the City Fiscal, after being shown Administrative Order No. 116, dated December 5, 1974,
designating the said State Prosecutor to assist all Provincial and City fiscals throughout the
Philippines in the investigation and prosecution of all violations of the National Internal Revenue
Code, as amended, and other related laws, graciously allowed the respondent State Prosecutor to
conduct the investigation of said cases, and in fact, said investigation was conducted in the office of
the City Fiscal. 13
The petitioner also claims that the filing of the informations was precipitate and premature since the
Commissioner of Internal Revenue has not yet resolved his protests against the assessment of the
Revenue District Officer; and that he was denied recourse to the Court of Tax Appeals.
Page 422 of 455
TAXATION LAW REVIEW

The contention is without merit. What is involved here is not the collection of taxes where the
assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals,
but a criminal prosecution for violations of the National Internal Revenue Code which is within the
cognizance of courts of first instance. While there can be no civil action to enforce collection before
the assessment procedures provided in the Code have been followed, there is no requirement for the
precise computation and assessment of the tax before there can be a criminal prosecution under the
Code.
The contention is made, and is here rejected, that an assessment of the deficiency tax
due is necessary before the taxpayer can be prosecuted criminally for the charges
preferred. The crime is complete when the violator has, as in this case, knowingly and
willfully filed fraudulent returns with intent to evade and defeat a part or all of the
tax. 14
An assessment of a deficiency is not necessary to a criminal prosecution for willful
attempt to defeat and evade the income tax. A crime is complete when the violator
has knowingly and willfuly filed a fraudulent return with intent to evade and defeat
the tax. The perpetration of the crime is grounded upon knowledge on the part of
the taxpayer that he has made an inaccurate return, and the government's failure to
discover the error and promptly to assess has no connections with the commission of
the crime. 15
Besides, it has been ruled that a petition for reconsideration of an assessment may affect the
suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a
criminal action for violation of law. 16 Obviously, the protest of the petitioner against the assessment
of the District Revenue Officer cannot stop his prosecution for violation of the National Internal
Revenue Code. Accordingly, the respondent Judge did not abuse his discretion in denying the
motion to quash filed by the petitioner.
WHEREFORE, the petition should be, as it is hereby dismissed. The temporary restraining order
heretofore issued is hereby set aside. With costs against the petitioner.
GR. No. L-37061 September 5, 1984
MAMBULAO LUMBER COMPANY, petitioner,
vs.
REPUBLIC OF THE PHILIPPINES, respondent.
Petitioner in this appeal by certiorari, seeks the reversal of the decision of the defunct Court of
Appeals which affirmed the judgment of the then Court of First Instance of Manila ordering
Page 423 of 455
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petitioner to pay respondent the amount of P15,739.80 representing its tax liability not secured by
any bond, with legal interest thereon from August 25, 1961 until fully paid.
Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal Revenue, Regional District No. 6,
Bicol Region, Naga City, conducted an examination of the books of accounts of herein petitioner
Mambulao number Company for the purpose of determining said taxpayer's forest charges and
percentage tax liabilities.
On July 31, 1957, Agent Banzuela submitted his report wherein it was stated among others that
xxx xxx xxx
xxx xxx xxx
xxx xxx xxx
It can be stated in this connection that sometime in the early part of 1949, the
personnel of the local office of the Bureau of Forestry in Daet, Camarines Norte,
manifested under the name of the subject taxpayer 2,052.48 cubic meters of timber,
with the corresponding forest charges in the total amount of P15,443.65 including
surcharges. The Bureau of Forestry then demanded for the payment of said forest
charges on January 15, 1949. However, the subject taxpayer, for one reason or the
other, contested this assessment until this case reached the hands of the Secretary of
Agriculture and Natural Resources, the undersigned cannot therefore include in his
assessment this amount in question, hence, due course is given, recommending that
this bureau take proper action regarding this case.
Consequently, on August 29, 1958, the Acting Commissioner of Internal Revenue addressed a letter
to petitioner, the pertinent portion of which readsMambulao Lumber Company
R-406 Samanillo Building
Escolta, Manila
Gentlemen:
xxx xxx xxx
It was also ascertained that in 1949 you manifested 2,052.48 cubic meters of timber,
the forest charges and surcharges of which in the total amount of P15,443.55 was
demanded of you by the Bureau of Forestry on January 15, 1949. ...
In view thereof there is due from you the amount of P33,595.26 as deficiency sales
tax, forest charges and surcharges, committed as follows:
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Sales Tax x x x
Forest Charges
Forest charges and surcharges for the year 1949 appealed to the Secretary of
Agriculture and Natural Resources P15,443.55
xxx xxx xxx
Total amount due & payable P33,595.26
Demand is hereby made upon you to pay the aforesaid amount of P 33,595.26 to the
City Treasurer of Manila or this office within ten (10) days from receipt hereof so that
this case may be closed.
xxx xxx xxx
Sgd.Melencio Domingo
Acting Commissioner
of Internal Revenue
The aforesaid letter was acknowledged to have been received by petitioner on September 19,
1958. 3 On October 18, 1958, petitioner requested for a reinvestigation of its tax liability.
Subsequently, in a letter dated July 8, 1959, respondent Commissioner of Internal Revenue give
petitioner a period of twenty (20) days from receipt thereof to submit the results of its verification of
payments with a warning that failure to comply therewith would be construed as an abandonment of
the request for reinvestigation.
For failure of petitioner to comply with the above letter-request and/or to pay its tax liability despite
demands for the payment thereof, respondent Commissioner of Internal Revenue filed. a complaint
for collection in the Court of First Instance of Manila on August 25, 1961. 4
After trial, judgment was rendered by the trial court, the dispositive portion of which reads
WHEREFORE, judgment is rendered
(a) Ordering both defendants, jointly and severally, to pay plaintiff the amount of
P1,219.95 plus legal interest thereon from August 25, 1961, the date of the filing of
the original complaint until fully paid, or in case of failure to Pay the said amount,
ordering the forfeiture of GISCOR Bond No. 35 to the amount of P1,219.95; and
(b) Ordering defendant Mambulao Lumber Company to pay the plaintiff the amount
of P15,739.80 representing its tax liability not secured by any bond, with legal interest
thereon from August 25, 1961, until paid.
Page 425 of 455
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With costs against defendants.

From the aforesaid decision, petitioner appealed to the Court of Appeals 5 that portion of the trial
court's decision ordering it to pay the amount of P15,443.55 representing forest charges and
surcharges due for the year 1949.
As herein earlier stated, the then Court of Appeals affirmed the decision of the trial court. Petitioner
filed a motion for reconsideration which was denied by the said court in its Resolution dated June 7,
1973. Hence, the instant appeal, petitioner presenting the lone issue of whether or not the right of
plaintiff (respondent herein) to file a judicial action for the collection of the amount of P15,443.55 as
forest charges and surcharges due from the petitioner Mambulao Lumber Company for the year
1949 has already prescribed.
Relying on the provisions of Section 332 of the National Internal Revenue Code which readsSection 332. Exemptions as to period of limitation of assessment and collection of
taxes
xxx xxx xxx
(c) Where the assessment of any internal revenue tax has been made within the
period of limitation above prescribed such tax may be collected by distraint or levy or
by a proceeding in court, but only if begun (1) within five years after the assessment
of the tax, or (2) prior to the expiration of any period for collection agreed upon in
writing by the Collector of Internal Revenue and the taxpayer before the expiration of
such five-year period. The period so agreed upon may be extended by subsequent
agreements in writing made before the expiration of the period previously agreed
upon.
petitioner argues that counting from January 15, 1949 when the Bureau of Forestry in Daet,
Camarines Norte made an assessment and demand for payment of the amount of P15,443.55 as
forest charges and surcharges for the year 1949, up to the filing of the complaint for collection
before the lower court on August 25, 196 1, more than five (5) years had already elapsed, hence, the
action had clearly prescribed.
Petitioner's aforesaid argument lacks merit. As correctly observed by the trial court and the Court of
Appeals in the appealed decision, the letter of demand of the Acting Commissioner of Internal
Revenue dated August 29, 1958 was the basis of respondent's complaint filed in this case and not
the demand letter of the Bureau of Forestry dated January 15, 1949. This must be so because forest
charges are internal revenue taxes 6 and the sole power and duty to collect the same is lodged with
the Bureau of Internal Revenue 7 and not with the Bureau of Forestry. The computation and/or
assessment of forest charges made by the Bureau of Forestry may or may not be adopted by the
Commissioner of Internal Revenue and such computation made by the Bureau of Forestry is not
appealable to the Court of Tax Appeals. 8 Therefore, for the purpose of computing the five-year
Page 426 of 455
TAXATION LAW REVIEW

period within which to file a complaint for collection, the demand or even the assessment made by
the Bureau of Forestry is immaterial.
In the case at bar, the commencement of the five-year period should be counted from August 29,
1958, the date of the letter of demand of the Acting Commissioner of Internal Revenue 9 to
petitioner Mambulao Lumber Company. It is this demand or assessment that is appealable to the
Court of Tax Appeals. The complaint for collection was filed in the Court of First Instance of Manila
on August 25, 1961, very much within the five-year period prescribed by Section 332 (c) of the Tax
Code. Consequently, the right of the Commissioner of Internal Revenue to collect the forest charges
and surcharges in the amount of P15,443.55 has not prescribed.
Furthermore, it is not disputed that on October 18, 1958, petitioner requested for a reinvestigation of
its tax liability. In reply thereto, respondent in a letter dated July 8, 1959, gave petitioner a period of
twenty (20) days from receipt thereof to submit the results of its verification of payments and failure
to comply therewith would be construed as abandonment of the request for reinvestigation.
Petitioner failed to comply with this requirement. Neither did it appeal to the Court of Tax Appeals
within thirty (30) days from receipt of the letter dated July 8, 1959, as prescribed under Section 11 of
Republic Act No. 1125, thus making the assessment final and executory.
Taxpayer's failure to appeal to the Court of Tax Appeals in due time made the
assessment in question final, executory and demandable. And when the action was
instituted on September 2, 1958 to enforce the deficiency assessment in question, it
was already barred from disputing the correctness of the assessment or invoking any
defense that would reopen the question of its tax liability. Otherwise, the period of
thirty days for appeal to the Court of Tax Appeals would make little sense.
In a proceeding like this the taxpayer's defenses are similar to those of the defendant
in a case for the enforcement of a judgment by judicial action under Section 6 of Rule
39 of the Rules of Court. No inquiry can be made therein as to the merits of the
original case or the justness of the judgment relied upon, other than by evidence of
want of jurisdiction, of collusion between the parties, or of fraud in the party offering
the record with respect to the proceedings. As held by this Court in Insular
Government vs. Nico the taxpayer may raise only the questions whether or not the
Collector of Internal Revenue had jurisdiction to do the particular act, and whether
any fraud was committed in the doing of the act. In that case, Doroteo Nico was fined
by the Collector of Internal Revenue for violation of sub-paragraphs (d), (e) and (g) of
Section 28 as well as Sections 36, 101 and 107 of Act 1189. Under Section 54 of the
same Act, the taxpayer was given the right to appeal from the decision of the
Collector of Internal Revenue to the Court of First Instance within a period of ten days
from notice of imposition of the fine. Nico did not appeal, neither did he pay the fine.
Pursuant to Section 33 of the Act, the Collector of Internal Revenue filed an action in
the Court of First Instance to enforce his decision and collect the fine. The decision of
the Collector of Internal Revenue having become final, this Court, on appeal, allowed
no further inquiry into the merits of the same. 10
Page 427 of 455
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In a suit for collection of internal revenue taxes, as in this case, where the assessment has already
become final and executory, the action to collect is akin to an action to enforce a judgment. No
inquiry can be made therein as to the merits of the original case or the justness of the judgment
relied upon. Petitioner is thus already precluded from raising the defense of prescription.
Where the taxpayer did not contest the deficiency income tax assessed against him,
the same became final and properly collectible by means of an ordinary court action.
The taxpayer cannot dispute an assessment which is being enforced by judicial
action, He should have disputed it before it was brought to court. 11
WHEREFORE, the decision appealed from is hereby AFFIRMED and the petition DISMISSED. No costs.
G.R. No. L-21551
September 30, 1969
FERNANDEZ HERMANOS, INC., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
These four appears involve two decisions of the Court of Tax Appeals determining the taxpayer's
income tax liability for the years 1950 to 1954 and for the year 1957. Both the taxpayer and the
Commissioner of Internal Revenue, as petitioner and respondent in the cases a quo respectively,
appealed from the Tax Court's decisions, insofar as their respective contentions on particular tax
items were therein resolved against them. Since the issues raised are interrelated, the Court resolves
the four appeals in this joint decision.
Cases L-21551 and L-21557

The taxpayer, Fernandez Hermanos, Inc., is a domestic corporation organized for the principal
purpose of engaging in business as an "investment company" with main office at Manila. Upon
verification of the taxpayer's income tax returns for the period in question, the Commissioner of
Internal Revenue assessed against the taxpayer the sums of P13,414.00, P119,613.00, P11,698.00,
P6,887.00 and P14,451.00 as alleged deficiency income taxes for the years 1950, 1951, 1952, 1953
and 1954, respectively. Said assessments were the result of alleged discrepancies found upon the
examination and verification of the taxpayer's income tax returns for the said years, summarized by
the Tax Court in its decision of June 10, 1963 in CTA Case No. 787, as follows:
1. Losses
a. Losses in Mati Lumber Co. (1950)
P 8,050.00
b. Losses in or bad debts of Palawan Manganese Mines, Inc. (1951)
353,134.25
c. Losses in Balamban Coal Mines

1950
8,989.76
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1951
27,732.66
d. Losses in Hacienda Dalupiri

1950
17,418.95
1951
29,125.82
1952
26,744.81
1953
21,932.62
1954
42,938.56
e. Losses in Hacienda Samal

1951
8,380.25
1952
7,621.73
2. Excessive depreciation of Houses

1950
P 8,180.40
1951
8,768.11
1952
18,002.16
1953
13,655.25
1954
29,314.98
3. Taxable increase in net worth

1950
P 30,050.00
1951
1,382.85
4. Gain realized from sale of real property in 1950
P 11,147.2611
The Tax Court sustained the Commissioner's disallowances of Item 1, sub-items (b) and (e)
and Item 2 of the above summary, but overruled the Commissioner's disallowances of all the
remaining items. It therefore modified the deficiency assessments accordingly, found the
total deficiency income taxes due from the taxpayer for the years under review to amount to
P123,436.00 instead of P166,063.00 as originally assessed by the Commissioner, and
rendered the following judgment:
RESUME
1950
P2,748.00
1951
108,724.00
Page 429 of 455
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1952
3,600.00
1953
2,501.00
1954
5,863.00
Total
P123,436.00
WHEREFORE, the decision appealed from is hereby modified, and petitioner is ordered to pay
the sum of P123,436.00 within 30 days from the date this decision becomes final. If the said
amount, or any part thereof, is not paid within said period, there shall be added to the
unpaid amount as surcharge of 5%, plus interest as provided in Section 51 of the National
Internal Revenue Code, as amended. With costs against petitioner. (Pp. 75, 76, Taxpayer's
Brief as appellant)
Both parties have appealed from the respective adverse rulings against them in the Tax Court's
decision. Two main issues are raised by the parties: first, the correctness of the Tax Court's rulings
with respect to the disputed items of disallowances enumerated in the Tax Court's summary
reproduced above, and second, whether or not the government's right to collect the deficiency
income taxes in question has already prescribed.
On the first issue, we will discuss the disputed items of disallowances seriatim.
1. Re allowances/disallowances of losses.
(a) Allowance of losses in Mati Lumber Co. (1950). The Commissioner of Internal Revenue
questions the Tax Court's allowance of the taxpayer's writing off as worthless securities in its 1950
return the sum of P8,050.00 representing the cost of shares of stock of Mati Lumber Co. acquired by
the taxpayer on January 1, 1948, on the ground that the worthlessness of said stock in the year 1950
had not been clearly established. The Commissioner contends that although the said Company was
no longer in operation in 1950, it still had its sawmill and equipment which must be of considerable
value. The Court, however, found that "the company ceased operations in 1949 when its Manager
and owner, a certain Mr. Rocamora, left for Spain ,where he subsequently died. When the company
eased to operate, it had no assets, in other words, completely insolvent. This information as to the
insolvency of the Company reached (the taxpayer) in 1950," when it properly claimed the loss as a
deduction in its 1950 tax return, pursuant to Section 30(d) (4) (b) or Section 30 (e) (3) of the National
Internal Revenue Code. 2
We find no reason to disturb this finding of the Tax Court. There was adequate basis for the writing
off of the stock as worthless securities. Assuming that the Company would later somehow realize
some proceeds from its sawmill and equipment, which were still existing as claimed by the
Commissioner, and that such proceeds would later be distributed to its stockholders such as the
taxpayer, the amount so received by the taxpayer would then properly be reportable as income of
the taxpayer in the year it is received.
(b) Disallowance of losses in or bad debts of Palawan Manganese Mines, Inc. (1951). The taxpayer
appeals from the Tax Court's disallowance of its writing off in 1951 as a loss or bad debt the sum of
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P353,134.25, which it had advanced or loaned to Palawan Manganese Mines, Inc. The Tax Court's
findings on this item follow:
Sometime in 1945, Palawan Manganese Mines, Inc., the controlling stockholders of which are
also the controlling stockholders of petitioner corporation, requested financial help from
petitioner to enable it to resume it mining operations in Coron, Palawan. The request for
financial assistance was readily and unanimously approved by the Board of Directors of
petitioner, and thereafter a memorandum agreement was executed on August 12, 1945,
embodying the terms and conditions under which the financial assistance was to be
extended, the pertinent provisions of which are as follows:
"WHEREAS, the FIRST PARTY, by virtue of its resolution adopted on August 10, 1945,
has agreed to extend to the SECOND PARTY the requested financial help by way of
accommodation advances and for this purpose has authorized its President, Mr.
Ramon J. Fernandez to cause the release of funds to the SECOND PARTY.
"WHEREAS, to compensate the FIRST PARTY for the advances that it has agreed to
extend to the SECOND PARTY, the latter has agreed to pay to the former fifteen per
centum (15%) of its net profits.
"NOW THEREFORE, for and in consideration of the above premises, the parties hereto
have agreed and covenanted that in consideration of the financial help to be
extended by the FIRST PARTY to the SECOND PARTY to enable the latter to resume
its mining operations in Coron, Palawan, the SECOND PARTY has agreed and
undertaken as it hereby agrees and undertakes to pay to the FIRST PARTY fifteen per
centum (15%) of its net profits." (Exh. H-2)
Pursuant to the agreement mentioned above, petitioner gave to Palawan Manganese Mines, Inc.
yearly advances starting from 1945, which advances amounted to P587,308.07 by the end of 1951.
Despite these advances and the resumption of operations by Palawan Manganese Mines, Inc., it
continued to suffer losses. By 1951, petitioner became convinced that those advances could no
longer be recovered. While it continued to give advances, it decided to write off as worthless the
sum of P353,134.25. This amount "was arrived at on the basis of the total of advances made from
1945 to 1949 in the sum of P438,981.39, from which amount the sum of P85,647.14 had to be
deducted, the latter sum representing its pre-war assets. (t.s.n., pp. 136-139, Id)." (Page 4,
Memorandum for Petitioner.) Petitioner decided to maintain the advances given in 1950 and 1951 in
the hope that it might be able to recover the same, as in fact it continued to give advances up to
1952. From these facts, and as admitted by petitioner itself, Palawan Manganese Mines, Inc., was still
in operation when the advances corresponding to the years 1945 to 1949 were written off the books
of petitioner. Under the circumstances, was the sum of P353,134.25 properly claimed by petitioner as
deduction in its income tax return for 1951, either as losses or bad debts?
It will be noted that in giving advances to Palawan Manganese Mine Inc., petitioner did not expect to
be repaid. It is true that some testimonial evidence was presented to show that there was some
agreement that the advances would be repaid, but no documentary evidence was presented to this
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effect. The memorandum agreement signed by the parties appears to be very clear that the
consideration for the advances made by petitioner was 15% of the net profits of Palawan Manganese
Mines, Inc. In other words, if there were no earnings or profits, there was no obligation to repay
those advances. It has been held that the voluntary advances made without expectation of
repayment do not result in deductible losses. 1955 PH Fed. Taxes, Par. 13, 329, citing W. F. Young,
Inc. v. Comm., 120 F 2d. 159, 27 AFTR 395; George B. Markle, 17 TC. 1593.
Is the said amount deductible as a bad debt? As already stated, petitioner gave advances to Palawan
Manganese Mines, Inc., without expectation of repayment. Petitioner could not sue for recovery
under the memorandum agreement because the obligation of Palawan Manganese Mines, Inc. was
to pay petitioner 15% of its net profits, not the advances. No bad debt could arise where there is no
valid and subsisting debt.
Again, assuming that in this case there was a valid and subsisting debt and that the debtor was
incapable of paying the debt in 1951, when petitioner wrote off the advances and deducted the
amount in its return for said year, yet the debt is not deductible in 1951 as a worthless debt. It
appears that the debtor was still in operation in 1951 and 1952, as petitioner continued to give
advances in those years. It has been held that if the debtor corporation, although losing money or
insolvent, was still operating at the end of the taxable year, the debt is not considered worthless and
therefore not deductible. 3
The Tax Court's disallowance of the write-off was proper. The Solicitor General has rightly pointed
out that the taxpayer has taken an "ambiguous position " and "has not definitely taken a stand on
whether the amount involved is claimed as losses or as bad debts but insists that it is either a loss or
a bad debt." 4 We sustain the government's position that the advances made by the taxpayer to its
100% subsidiary, Palawan Manganese Mines, Inc. amounting to P587,308,07 as of 1951 were
investments and not loans. 5 The evidence on record shows that the board of directors of the two
companies since August, 1945, were identical and that the only capital of Palawan Manganese Mines,
Inc. is the amount of P100,000.00 entered in the taxpayer's balance sheet as its investment in its
subsidiary company. 6 This fact explains the liberality with which the taxpayer made such large
advances to the subsidiary, despite the latter's admittedly poor financial condition.
The taxpayer's contention that its advances were loans to its subsidiary as against the Tax Court's
finding that under their memorandum agreement, the taxpayer did not expect to be repaid, since if
the subsidiary had no earnings, there was no obligation to repay those advances, becomes
immaterial, in the light of our resolution of the question. The Tax Court correctly held that the
subsidiary company was still in operation in 1951 and 1952 and the taxpayer continued to give it
advances in those years, and, therefore, the alleged debt or investment could not properly be
considered worthless and deductible in 1951, as claimed by the taxpayer. Furthermore, neither under
Section 30 (d) (2) of our Tax Code providing for deduction by corporations of losses actually
sustained and charged off during the taxable year nor under Section 30 (e) (1) thereof providing for
deduction of bad debts actually ascertained to be worthless and charged off within the taxable year,
can there be a partial writing off of a loss or bad debt, as was sought to be done here by the
taxpayer. For such losses or bad debts must be ascertained to be so and written off during the
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taxable year, are therefore deductible in full or not at all, in the absence of any express provision in
the Tax Code authorizing partial deductions.
The Tax Court held that the taxpayer's loss of its investment in its subsidiary could not be deducted
for the year 1951, as the subsidiary was still in operation in 1951 and 1952. The taxpayer, on the
other hand, claims that its advances were irretrievably lost because of the staggering losses suffered
by its subsidiary in 1951 and that its advances after 1949 were "only limited to the purpose of
salvaging whatever ore was already available, and for the purpose of paying the wages of the
laborers who needed help." 7 The correctness of the Tax Court's ruling in sustaining the disallowance
of the write-off in 1951 of the taxpayer's claimed losses is borne out by subsequent events shown in
Cases L-24972 and L-24978 involving the taxpayer's 1957 income tax liability. (Infra, paragraph 6.) It
will there be seen that by 1956, the obligation of the taxpayer's subsidiary to it had been reduced
from P587,398.97 in 1951 to P442,885.23 in 1956, and that it was only on January 1, 1956 that the
subsidiary decided to cease operations. 8
(c) Disallowance of losses in Balamban Coal Mines (1950 and 1951). The Court sustains the Tax
Court's disallowance of the sums of P8,989.76 and P27,732.66 spent by the taxpayer for the
operation of its Balamban coal mines in Cebu in 1950 and 1951, respectively, and claimed as losses
in the taxpayer's returns for said years. The Tax Court correctly held that the losses "are deductible in
1952, when the mines were abandoned, and not in 1950 and 1951, when they were still in
operation." 9 The taxpayer's claim that these expeditions should be allowed as losses for the
corresponding years that they were incurred, because it made no sales of coal during said years,
since the promised road or outlet through which the coal could be transported from the mines to
the provincial road was not constructed, cannot be sustained. Some definite event must fix the time
when the loss is sustained, and here it was the event of actual abandonment of the mines in 1952.
The Tax Court held that the losses, totalling P36,722.42 were properly deductible in 1952, but the
appealed judgment does not show that the taxpayer was credited therefor in the determination of its
tax liability for said year. This additional deduction of P36,722.42 from the taxpayer's taxable income
in 1952 would result in the elimination of the deficiency tax liability for said year in the sum of
P3,600.00 as determined by the Tax Court in the appealed judgment.
(d) and (e) Allowance of losses in Hacienda Dalupiri (1950 to 1954) and Hacienda Samal (1951-1952).
The Tax Court overruled the Commissioner's disallowance of these items of losses thus:
Petitioner deducted losses in the operation of its Hacienda Dalupiri the sums of P17,418.95 in
1950, P29,125.82 in 1951, P26,744.81 in 1952, P21,932.62 in 1953, and P42,938.56 in 1954.
These deductions were disallowed by respondent on the ground that the farm was operated
solely for pleasure or as a hobby and not for profit. This conclusion is based on the fact that
the farm was operated continuously at a loss.1awphl.nt
From the evidence, we are convinced that the Hacienda Dalupiri was operated by petitioner
for business and not pleasure. It was mainly a cattle farm, although a few race horses were
also raised. It does not appear that the farm was used by petitioner for entertainment, social
activities, or other non-business purposes. Therefore, it is entitled to deduct expenses and
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losses in connection with the operation of said farm. (See 1955 PH Fed. Taxes, Par. 13, 63,
citing G.C.M. 21103, CB 1939-1, p.164)
Section 100 of Revenue Regulations No. 2, otherwise known as the Income Tax Regulations,
authorizes farmers to determine their gross income on the basis of inventories. Said
regulations provide:
"If gross income is ascertained by inventories, no deduction can be made for
livestock or products lost during the year, whether purchased for resale, produced on
the farm, as such losses will be reflected in the inventory by reducing the amount of
livestock or products on hand at the close of the year."
Evidently, petitioner determined its income or losses in the operation of said farm on the
basis of inventories. We quote from the memorandum of counsel for petitioner:
"The Taxpayer deducted from its income tax returns for the years from 1950 to 1954
inclusive, the corresponding yearly losses sustained in the operation of Hacienda
Dalupiri, which losses represent the excess of its yearly expenditures over the
receipts; that is, the losses represent the difference between the sales of livestock and
the actual cash disbursements or expenses." (Pages 21-22, Memorandum for
Petitioner.)
As the Hacienda Dalupiri was operated by petitioner for business and since it sustained
losses in its operation, which losses were determined by means of inventories authorized
under Section 100 of Revenue Regulations No. 2, it was error for respondent to have
disallowed the deduction of said losses. The same is true with respect to loss sustained in the
operation of the Hacienda Samal for the years 1951 and 1952. 10
The Commissioner questions that the losses sustained by the taxpayer were properly based on the
inventory method of accounting. He concedes, however, "that the regulations referred to does not
specify how the inventories are to be made. The Tax Court, however, felt satisfied with the evidence
presented by the taxpayer ... which merely consisted of an alleged physical count of the number of
the livestock in Hacienda Dalupiri for the years involved." 11 The Tax Court was satisfied with the
method adopted by the taxpayer as a farmer breeding livestock, reporting on the basis of receipts
and disbursements. We find no Compelling reason to disturb its findings.
2. Disallowance of excessive depreciation of buildings (1950-1954). During the years 1950 to 1954,
the taxpayer claimed a depreciation allowance for its buildings at the annual rate of 10%. The
Commissioner claimed that the reasonable depreciation rate is only 3% per annum, and, hence,
disallowed as excessive the amount claimed as depreciation allowance in excess of 3% annually. We
sustain the Tax Court's finding that the taxpayer did not submit adequate proof of the correctness of
the taxpayer's claim that the depreciable assets or buildings in question had a useful life only of 10
years so as to justify its 10% depreciation per annum claim, such finding being supported by the
record. The taxpayer's contention that it has many zero or one-peso assets, 12representing very old
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and fully depreciated assets serves but to support the Commissioner's position that a 10% annual
depreciation rate was excessive.
3. Taxable increase in net worth (1950-1951). The Tax Court set aside the Commissioner's
treatment as taxable income of certain increases in the taxpayer's net worth. It found that:
For the year 1950, respondent determined that petitioner had an increase in net worth in the
sum of P30,050.00, and for the year 1951, the sum of P1,382.85. These amounts were treated
by respondent as taxable income of petitioner for said years.
It appears that petitioner had an account with the Manila Insurance Company, the records
bearing on which were lost. When its records were reconstituted the amount of P349,800.00
was set up as its liability to the Manila Insurance Company. It was discovered later that the
correct liability was only 319,750.00, or a difference of P30,050.00, so that the records were
adjusted so as to show the correct liability. The correction or adjustment was made in 1950.
Respondent contends that the reduction of petitioner's liability to Manila Insurance Company
resulted in the increase of petitioner's net worth to the extent of P30,050.00 which is taxable.
This is erroneous. The principle underlying the taxability of an increase in the net worth of a
taxpayer rests on the theory that such an increase in net worth, if unreported and not
explained by the taxpayer, comes from income derived from a taxable source. (See Perez v.
Araneta, G.R. No. L-9193, May 29, 1957; Coll. vs. Reyes, G.R. Nos. L- 11534 & L-11558, Nov.
25, 1958.) In this case, the increase in the net worth of petitioner for 1950 to the extent of
P30,050.00 was not the result of the receipt by it of taxable income. It was merely the
outcome of the correction of an error in the entry in its books relating to its indebtedness to
the Manila Insurance Company. The Income Tax Law imposes a tax on income; it does not tax
any or every increase in net worth whether or not derived from income. Surely, the said sum
of P30,050.00 was not income to petitioner, and it was error for respondent to assess a
deficiency income tax on said amount.
The same holds true in the case of the alleged increase in net worth of petitioner for the year 1951 in
the sum of P1,382.85. It appears that certain items (all amounting to P1,382.85) remained in
petitioner's books as outstanding liabilities of trade creditors. These accounts were discovered in
1951 as having been paid in prior years, so that the necessary adjustments were made to correct the
errors. If there was an increase in net worth of the petitioner, the increase in net worth was not the
result of receipt by petitioner of taxable income." 13 The Commissioner advances no valid grounds in
his brief for contesting the Tax Court's findings. Certainly, these increases in the taxpayer's net worth
were not taxable increases in net worth, as they were not the result of the receipt by it of unreported
or unexplained taxable income, but were shown to be merely the result of the correction of errors in
its entries in its books relating to its indebtednesses to certain creditors, which had been erroneously
overstated or listed as outstanding when they had in fact been duly paid. The Tax Court's action
must be affirmed.
4. Gain realized from sale of real property (1950). We likewise sustain as being in accordance with
the evidence the Tax Court's reversal of the Commissioner's assessment on all alleged unreported
gain in the sum of P11,147.26 in the sale of a certain real property of the taxpayer in 1950. As found
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by the Tax Court, the evidence shows that this property was acquired in 1926 for P11,852.74, and was
sold in 1950 for P60,000.00, apparently, resulting in a gain of P48,147.26. 14 The taxpayer reported in
its return a gain of P37,000.00, or a discrepancy of P11,147.26. 15 It was sufficiently proved from the
taxpayer's books that after acquiring the property, the taxpayer had made improvements totalling
P11,147.26, 16 accounting for the apparent discrepancy in the reported gain. In other words, this
figure added to the original acquisition cost of P11,852.74 results in a total cost of P23,000.00, and
the gain derived from the sale of the property for P60,000.00 was correctly reported by the taxpayer
at P37,000.00.
On the second issue of prescription, the taxpayer's contention that the Commissioner's action to
recover its tax liability should be deemed to have prescribed for failure on the part of the
Commissioner to file a complaint for collection against it in an appropriate civil action, as
contradistinguished from the answer filed by the Commissioner to its petition for review of the
questioned assessments in the case a quo has long been rejected by this Court. This Court has
consistently held that "a judicial action for the collection of a tax is begun by the filing of a complaint
with the proper court of first instance, or where the assessment is appealed to the Court of Tax
Appeals, by filing an answer to the taxpayer's petition for review wherein payment of the tax is
prayed for." 17 This is but logical for where the taxpayer avails of the right to appeal the tax
assessment to the Court of Tax Appeals, the said Court is vested with the authority to pronounce
judgment as to the taxpayer's liability to the exclusion of any other court. In the present case,
regardless of whether the assessments were made on February 24 and 27, 1956, as claimed by the
Commissioner, or on December 27, 1955 as claimed by the taxpayer, the government's right to
collect the taxes due has clearly not prescribed, as the taxpayer's appeal or petition for review was
filed with the Tax Court on May 4, 1960, with the Commissioner filing on May 20, 1960 his Answer
with a prayer for payment of the taxes due, long before the expiration of the five-year period to
effect collection by judicial action counted from the date of assessment.
Cases L-24972 and L-24978

These cases refer to the taxpayer's income tax liability for the year 1957. Upon examination of its
corresponding income tax return, the Commissioner assessed it for deficiency income tax in the
amount of P38,918.76, computed as follows:
Net income per return
P29,178.70
Add: Unallowable deductions:

(1) Net loss claimed on Ha. Dalupiri
89,547.33
(2) Amortization of Contractual right claimed as an

expense under Mines Operations
48,481.62
Net income per investigation
P167,297.65
Tax due thereon
38,818.00
Less: Amount already assessed
5,836.00
18
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Balance
Add:
6-20-62
P32,982.00
1/2% monthly interest from 6-20-59 to
5,936.76
P38,918.76
The Tax Court overruled the Commissioner's disallowance of the taxpayer's losses in the operation of
its Hacienda Dalupiri in the sum of P89,547.33 but sustained the disallowance of the sum of
P48,481.62, which allegedly represented 1/5 of the cost of the "contractual right" over the mines of
its subsidiary, Palawan Manganese Mines, Inc. which the taxpayer had acquired. It found the taxpayer
liable for deficiency income tax for the year 1957 in the amount of P9,696.00, instead of P32,982.00
as originally assessed, and rendered the following judgment:
WHEREFORE, the assessment appealed from is hereby modified. Petitioner is hereby ordered
to pay to respondent the amount of P9,696.00 as deficiency income tax for the year 1957,
plus the corresponding interest provided in Section 51 of the Revenue Code. If the deficiency
tax is not paid in full within thirty (30) days from the date this decision becomes final and
executory, petitioner shall pay a surcharge of five per cent (5%) of the unpaid amount, plus
interest at the rate of one per cent (1%) a month, computed from the date this decision
becomes final until paid, provided that the maximum amount that may be collected as
interest shall not exceed the amount corresponding to a period of three (3) years. Without
pronouncement as to costs. 19
Both parties again appealed from the respective adverse rulings against them in the Tax Court's
decision.
5. Allowance of losses in Hacienda Dalupiri (1957). The Tax Court cited its previous decision
overruling the Commissioner's disallowance of losses suffered by the taxpayer in the operation of its
Hacienda Dalupiri, since it was convinced that the hacienda was operated for business and not for
pleasure. And in this appeal, the Commissioner cites his arguments in his appellant's brief in Case
No. L-21557. The Tax Court, in setting aside the Commissioner's principal objections, which were
directed to the accounting method used by the taxpayer found that:
It is true that petitioner followed the cash basis method of reporting income and expenses in
the operation of the Hacienda Dalupiri and used the accrual method with respect to its mine
operations. This method of accounting, otherwise known as the hybrid method, followed by
petitioner is not without justification.
... A taxpayer may not, ordinarily, combine the cash and accrual bases. The 1954 Code
provisions permit, however, the use of a hybrid method of accounting, combining a
cash and accrual method, under circumstances and requirements to be set out in
Regulations to be issued. Also, if a taxpayer is engaged in more than one trade or
business he may use a different method of accounting for each trade or business.
And a taxpayer may report income from a business on accrual basis and his personal
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income on the cash basis.' (See Mertens, Law of Federal Income Taxation, Zimet &
Stanley Revision, Vol. 2, Sec. 12.08, p. 26.) 20
The Tax Court, having satisfied itself with the adequacy of the taxpayer's accounting method
and procedure as properly reflecting the taxpayer's income or losses, and the Commissioner
having failed to show the contrary, we reiterate our ruling [supra, paragraph 1 (d) and (e)]
that we find no compelling reason to disturb its findings.
6. Disallowance of amortization of alleged "contractual rights." The reasons for sustaining this
disallowance are thus given by the Tax Court:
It appears that the Palawan Manganese Mines, Inc., during a special meeting of its Board of
Directors on January 19, 1956, approved a resolution, the pertinent portions of which read as
follows:
"RESOLVED, as it is hereby resolved, that the corporation's current assets composed
of ores, fuel, and oil, materials and supplies, spare parts and canteen supplies
appearing in the inventory and balance sheet of the Corporation as of December 31,
1955, with an aggregate value of P97,636.98, contractual rights for the operation of
various mining claims in Palawan with a value of P100,000.00, its title on various
mining claims in Palawan with a value of P142,408.10 or a total value of P340,045.02
be, as they are hereby ceded and transferred to Fernandez Hermanos, Inc., as partial
settlement of the indebtedness of the corporation to said Fernandez Hermanos Inc.
in the amount of P442,895.23." (Exh. E, p. 17, CTA rec.)
On March 29, 1956, petitioner's corporation accepted the above offer of transfer, thus:
"WHEREAS, the Palawan Manganese Mines, Inc., due to its yearly substantial losses
has decided to cease operation on January 1, 1956 and in order to satisfy at least a
part of its indebtedness to the Corporation, it has proposed to transfer its current
assets in the amount of NINETY SEVEN THOUSAND SIX HUNDRED THIRTY SIX PESOS
& 98/100 (P97,636.98) as per its balance sheet as of December 31, 1955, its
contractual rights valued at ONE HUNDRED THOUSAND PESOS (P100,000.00) and its
title over various mining claims valued at ONE HUNDRED FORTY TWO THOUSAND
FOUR HUNDRED EIGHT PESOS & 10/100 (P142,408.10) or a total evaluation of THREE
HUNDRED FORTY THOUSAND FORTY FIVE PESOS & 08/100 (P340,045.08) which shall
be applied in partial settlement of its obligation to the Corporation in the amount of
FOUR HUNDRED FORTY TWO THOUSAND EIGHT HUNDRED EIGHTY FIVE PESOS &
23/100 (P442,885.23)," (Exh. E-1, p. 18, CTA rec.)
Petitioner determined the cost of the mines at P242,408.10 by adding the value of the
contractual rights (P100,000.00) and the value of its mining claims (P142,408.10). Respondent
disallowed the deduction on the following grounds: (1) that the Palawan Manganese Mines,
Inc. could not transfer P242,408.10 worth of assets to petitioner because the balance sheet of
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the said corporation for 1955 shows that it had only current as worth P97,636.96; and (2) that
the alleged amortization of "contractual rights" is not allowed by the Revenue Code.
The law in point is Section 30(g) (1) (B) of the Revenue Code, before its amendment by
Republic Act No. 2698, which provided in part:
"(g) Depletion of oil and gas wells and mines.:
"(1) In general. ... (B) in the case of mines, a reasonable allowance for depletion
thereof not to exceed the market value in the mine of the product thereof, which has
been mined and sold during the year for which the return and computation are
made. The allowances shall be made under rules and regulations to be prescribed by
the Secretary of Finance: Provided, That when the allowances shall equal the capital
invested, ... no further allowance shall be made."
Assuming, arguendo, that the Palawan Manganese Mines, Inc. had assets worth P242,408.10
which it actually transferred to the petitioner in 1956, the latter cannot just deduct one-fifth
(1/5) of said amount from its gross income for the year 1957 because such deduction in the
form of depletion charge was not sanctioned by Section 30(g) (1) (B) of the Revenue Code, as
above-quoted.
xxx
xxx
xxx
The sole basis of petitioner in claiming the amount of P48,481.62 as a deduction was the
memorandum of its mining engineer (Exh. 1, pp. 31-32, CTA rec.), who stated that the ore
reserves of the Busuange Mines (Mines transferred by the Palawan Manganese Mines, Inc. to
the petitioner) would be exhausted in five (5) years, hence, the claim for P48,481.62 or onefifth (1/5) of the alleged cost of the mines corresponding to the year 1957 and every year
thereafter for a period of 5 years. The said memorandum merely showed the estimated ore
reserves of the mines and it probable selling price. No evidence whatsoever was presented to
show the produced mine and for how much they were sold during the year for which the
return and computation were made. This is necessary in order to determine the amount of
depletion that can be legally deducted from petitioner's gross income. The method
employed by petitioner in making an outright deduction of 1/5 of the cost of the mines is
not authorized under Section 30(g) (1) (B) of the Revenue Code. Respondent's disallowance
of the alleged "contractual rights" amounting to P48,481.62 must therefore be sustained. 21
The taxpayer insists in this appeal that it could use as a method for depletion under the pertinent
provision of the Tax Code its "capital investment," representing the alleged value of its contractual
rights and titles to mining claims in the sum of P242,408.10 and thus deduct outright one-fifth (1/5)
of this "capital investment" every year. regardless of whether it had actually mined the product and
sold the products. The very authorities cited in its brief give the correct concept of depletion charges
that they "allow for the exhaustion of the capital value of the deposits by production"; thus, "as the
cost of the raw materials must be deducted from the gross income before the net income can be
determined, so the estimated cost of the reserve used up is allowed." 22 The alleged "capital
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investment" method invoked by the taxpayer is not a method of depletion, but the Tax Code
provision, prior to its amendment by Section 1, of Republic Act No. 2698, which took effect on June
18, 1960, expressly provided that "when the allowances shall equal the capital invested ... no further
allowances shall be made;" in other words, the "capital investment" was but the limitation of the
amount of depletion that could be claimed. The outright deduction by the taxpayer of 1/5 of the cost
of the mines, as if it were a "straight line" rate of depreciation, was correctly held by the Tax Court
not to be authorized by the Tax Code.
ACCORDINGLY, the judgment of the Court of Tax Appeals, subject of the appeals in Cases Nos. L21551 and L-21557, as modified by the crediting of the losses of P36,722.42 disallowed in 1951 and
1952 to the taxpayer for the year 1953 as directed in paragraph 1 (c) of this decision, is hereby
affirmed. The judgment of the Court of Tax Appeals appealed from in Cases Nos. L-24972 and L24978 is affirmed in toto. No costs. So ordered.
G.R. No. L-14142
May 30, 1961
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
J. AMADO ARANETA and AMADO ARANETA & CO., INC., and MANILA SURETY & FIDELITY CO.,
INC.,defendants.
J. AMADO ARANETA & CO., INC., defendants-appellants.
MANILA SURETY & FIDELITY CO., INC., cross-plaintiff-appellant,
vs.
J. AMADO ARANETA and J. AMADO ARANETA & CO., INC., cross-defendants-appellees.
On 22 February 1957 in the Court of First Instance of Manila the Solicitor General, in behalf of the
Republic Of the Philippines, brought an action against J. Amado Araneta and J. Amado Araneta &
Company, Inc., as principals and the Manila Surety & Fidelity Company, Inc., as surety, to recover
from them jointly and severally the sum of P30, as fixed tax upon business due from 1946 to 1948,
imposed by section 182, in connection with sections 178 to 180 of the National Internal Revenue
Code, as amended: P5,067.42, as 2% tax on P253,370.84, the gross receipts from their business as a
common carrier during the said period, pursuant to section 192 of the same Code; and P1,266.86, as
25% surcharge, or a total sum of P6,364.28, the payment of which was guaranteed by a bond (Annex
B) executed by the defendant-surety, and 6% in interest on the amount of P6,364.28 from 6
December 1951, when the first extrajudicial demand was made, until fully paid. On 12 March 1957
the defendants-principals filed a motion to dismiss the plaintiffs complaint on the ground that its
cause of action is barred by the statute of limitations and on 20 March 1957 the plaintiff, an
objection thereto. On 23 March 1957 the Court denied the defendants-principals' motion to dismiss.
On 29 March the defendants-principals filed their answer denying that they had operated their vessel
as a common carrier, the truth being that they had used it to ship goods and cargoes manufactured
and sold by them and allied companies owned and/or controlled by them; asserting that granting
without admitting that they were liable for common carrier's tax, their gross receipts during the
alleged period was P166,299.67 only and not P253,370.24; and that the "Bond to Guarantee Payment
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of Common Carrier's Tax and Compensating Tax," attached to the complaint as Annex A or to the
stipulation of facts filed on 25 February 1958 as Annex B, is not genuine and had not been duly
executed because the same had not been approved by the Collector of Internal Revenue; and setting
up affirmative defenses that the five-year period of limitation provided for in section 332, paragraph
(c) of the National Internal Revenue Code, as amended, already had elapsed, hence the plaintiff's
action was barred; and that granting that the said bond was valid, the enforcement of the principal
obligation having been barred, it follows that the enforcement of the obligation undertaken in the
said bond was also barred. They set up a counterclaim of P2,000 for expenses of litigation and
attorney's fees incurred in defending their legal rights. On 30 March 1957 the defendant surety filed
its answer setting up the following affirmative defenses: that the plaintiff's complaint states no cause
of action; that its liability under the bond (Annex B) was extinguished by its novation and alteration
without its knowledge and consent; that granting that its liability still subsists, the said bond being
merely se ondary or auxiliary to a principal obligation that could no longer be enforced by reason of
prescription, its obligation thereunder could, likewise, no longer be enforced; and that the bond
(Annex B), not having been approved by the Collector of Internal Revenue, was void. As counterclaim,
it sought from the plaintiff the sum of P2,500 for expenses of litigation and attorney's fees incurred
for the protection of its rights.
On 10 April 1957, the plaintiff answered the defendants' respective counterclaim, alleging that it was
a valid cause of action against them and that its complaint was filed pursuant to its policy of
collecting long overdue accounts from delinquent taxpayers.
After obtaining leave of court, on 25 May 1957 the de defendant-surety filed an amended answer
reiterating its denials, affirmative defenses and counterclaim in its first answer and adding or
including a cross-claim against the defendants-principals for recovery from the latter of whatever
sum of money it might be ordered to pay the plaintiff by judgment of the Court, with interest at the
rate of 12% per annum from the date of payment until the sum it shall have paid be fully reimbursed
to it by the defendants-principals; of the sum of P3,598.20 as premiums due for the period from 18
September 1949 to 18 March 1957, with interest at the rate 12% per annum from 18 March 1957
until fully paid; of a sum equivalent to 15% of the total amount claimed as attorney's fees, as agreed
upon in the indemnity bond executed by the cross-defendants on 21 March 1949 and accepted by
the cross-plaintiff (Annex "1-MSFCI") attached to the attended answer and made a part thereof; and
of the costs of the suit with respect to its cross-claim. It prayed further for any other just and
equitable relief.
On 10 June 1957 the cross-defendants filed an answer to the cross-complaint of the defendantsurety, denying the truth, genuineness and correctness of the copy of the bond attached to the
complaint as Annex A and as Annex B of the stipulation of facts; and claiming that the mere filing of
a suit against the cross-plaintiff did not render it liable to pay the alleged tax liability of the crossdefendants; that the bond filed on 18 March 1949 by the cross-plaintiff (Annex B) was null and void,
hence the same could not be the basis of the cross-plaintiff's cross-claim against the crossdefendants; that since both of them have denied liability to the plaintiff for any amount, the crossplaintiff has no cause of action against the cross-defendants; and that the amount of expenses of
litigation and attorney's fees claimed by the cross-plaintiff, should there be any, is to be determined
by the Court in the exercise of its discretion. As counterclaim, they prayed for recovery from the
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cross-plaintiff of the sum of P2,000 as expenses of litigation and attorney's fees incurred in
defending their rights on the cross-claim.
On 18 June 1957, the cross-plaintiff filed an answer to the cross-defendants' counterclaim denying
the allegations therein and setting up a counterclaim to the cross-defendants defendants'
counterclaim in the amount of P1,000 as exemplary damages.
On 3 December 1957 the defendants-principals filed a motion to dismiss on the ground of lack of
jurisdiction because the case involves a disputed tax assessment; on 9 December 1957 the plaintiff,
an "opposition" thereto. On 12 December 1957 the Court denied the motion to dismiss.
On 25 February 1957 the cross-plaintiff and the cross-defendants entered into the following
stipulation of facts:
COME NOW, the parties in the cross-complaint represented by their respective counsel and to this
Honorable Court respect-fully submit the following stipulation of facts:
1. That the jurisdictional facts and the capacity of the parties to sue and be sued are
submitted;
2. That on or about March 18, 1949, cross-defendants J. Amado Araneta and J. Amado
Araneta & Co., Inc. (Philippine Shipping Lines) represented by J. Amado Araneta requested
the herein cross-plaintiff to post a surety bond in behalf of cross-defendant Philippine
Shipping Lines and in favor of the Republic of the Philippines in the amount of P11,814.00 to
guarantee the payment of the Common Carrier's Tax and Compensating Tax of the former
with the latter, to which request the cross-plaintiff agreed and did in fact post the said bond,
the original copy of which is attached as Annex "A" of the Stipulation of Facts entered into
with the plaintiff Republic of the Philippines and made an integral part hereof by reference as
Annex "1-MSFC";
3. That the parties admit the truth of the terms and conditions of said bond;
4. That the cross-plaintiff agreed and did in fact post the aforesaid surety bond upon written
undertaking of the cross-defendants the original carbon copy of which is hereto attached as
Annex "2-MSFCI" and made an integral part of this stipulation of facts obligating themselves
to indemnify the cross-plaintiff for any damage, losses, costs, charges or expenses of
whatever kind and nature including counsel or attorney's fees which the company may incur
at any time as a consequence of having become surety of the abovementioned bond;
5. That the parties admit the truth of the terms and conditions of the said written
undertaking marked Annex "2- MSFCI";
6. That upon the passage and approval of Republic Act No. 961 on June 9, 1949, exempting
from payment of the compensating tax the purchase or receipt of vessels, their equipment
and/or appurtenances, from without the Philippines, before or after the taking effect of said
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Republic Act No. 361, the alleged tax liability of the cross-defendant was reduced by
P5,250.00 from the original assessment of P11,814.00 leaving the sum of P6,364.28 only,
representing the fixed and common carrier's tax allegedly due the Government;
7. That on February 22, 1957, the Republic of the Philippines initiated court proceedings
seeking to recover from the as principal and the cross-plaintiff as surety the said sum of
P6,364.28 including penalties plus six (6%) percent thereon from December 6, 1951 until fully
paid plus costs;
8. That in accordance with the indemnity agreement An Annex "2-MSFCI", the crossdefendants agreed to indemnify the cross-plaintiff as soon as the latter has become liable for
the payment of any amount under the aforementioned bond, whether or not it shall have
paid such sum or sums of money, or any part thereof;
9. That in spite of repeated demands cross-defendants have failed and refused and still fail
and refuse to indemnify the cross-plaintiff the amount claimed for in the cross-plaintiff's
complaint;
10. That the cross-plaintiff hereby withdraws the second and third causes of action as
contained in the cross-claim; and
11. That the parties hereto hereby withdraw their respective counterclaims.
which they submitted to the Court (pp. 71-76; 84-91, recs. on app.).
On the same day, 25 February 1957, all the parties to this case submitted to the Court the following
stipulation of facts dated 7 February 1957:
COME NOW the parties in the above-entitled case represented by their respective counsel and to
this Honorable Court respectfully submit the following stipulation of facts:
1. That the jurisdictional facts and the capacity of the parties to sue and be sued are
admitted;
2. That sometime in 1946, the defendant J. Amado Araneta purchased from the Philippine
Shipping Commission, and received delivery of one F. S. vessel for the sum of P120,000.00;
3. That during the fourth quarter of 1946 up to and in including the fourth quarter of 1948,
defendants J. Amado Araneta and/or J. Amado Araneta & Co., operated said F. S. vessel
within Philippine waters under the business style "Philippine Shipping Lines" without first
providing themselves with the necessary fixed tax C-3-C required by Sec. 182 of the Tax
Code;
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4. That during the above-mentioned period from the fourth quarter of 1946 to the fourth
quarter of 1947, said defendants J. Amado Araneta and/or J. Amado Araneta & Co., failed to
make a return of gross receipts from the operation of said F.S. vessel;
5. That the Bureau of Internal Revenue conducted an examination of the books of the
Philippine Shipping Lines, as a result of which the Bureau of Internal Revenue assessed defer
defendant in the sums of P6,361.28, as fixed and percentage taxes and surcharge and
P5,250.00 as compensating tax and surcharge, or a total of P11,614.28, as evidenced by the
letter, dated May 15, 1948, hereto attached as Annex "A" to this stipulation of facts and made
an integral part hereof, computed as follows:
Fixed Tax (1947-1948) ...................................................... P 30.00
2% common carrier's tax in accordance with Sec.
192, NIRC, on gross receipt for the same period
in
the
sum
of
P253,370.84
..................................................................
5,067.42
25% surcharge ..................................................................
1,266.86
TOTAL ..................................................................... P 6,364.28

and an assessment for compensating tax as
follows:
2-1/2%
.............................................
25%
...................................
on
surcharge
P120,000.00
P 4,200.00
on
P4,200.00
1,050.00
TOTAL COMPENSATING TAX DUE

....................
P 5,250.00
6. That on March 18, 1949, defendants J. Amado Araneta as principal and the Manila Surety
& Fidelity Co., Inc. as surety executed "Bond to Guarantee Payment of Common Carriers Tax
and Compensating Tax", the original of which is hereto attached to this stipulation of facts as
Annex "B" and made an integral part hereof. That the parties admit the truth of the terms
and conditions of said bond and the fact that at the lower portion of said bond which reads:
"APPROVED:
"BIBIANO L. MEER
"Collector of Internal Revenue"
was left unsigned by said official;
7. That in view of the enactment of Rep. Act No. 361, the defendant J. Amado Araneta and/or
J. Amado Araneta & Co., Inc. sent a letter to the Collector of Internal Revenue dated June 14,
1949, a certified true copy of which is hereto attached with this stipulation of facts as Annex
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"C" and made an integral part hereof. Said letter was answered by the Collector of Internal
Revenue dated June 21, 1949, a certified true copy of which is likewise attached to this
stipulation of facts as Annex "D" and made an integral part hereof;
8. That plaintiff through the Collector of Internal Revenue sent letters of demand to the
defendants J. Amado Araneta and the Manila Surety & Fidelity Co., Inc., dated December 6,
1951 and May 17, 1952, respectively, certified true copies of which are hereto attached to this
stipulation of facts as Annexes "E" and "F" and made integral parts hereof. Another set of
demand letters dated November 14, 1953, was sent to the defendant J. Amado Araneta
under the firm name of Philippine Shipping Lines and to the Manila Surety & Fidelity Co., Inc.
certified true copies of which are likewise hereto attached to this stipulation of facts as
Annexes "G" and "H" and likewise made integral parts hereof;
9. That on February 3, 1955, the Bureau of Internal Revenue sent another demand letter to
the Philippine Shipping Lines. A copy of said letter is hereto attached and made an integral
part hereof as Annex I;
10. That due to the failure of defendants to comply with the above-demands, plaintiff
instituted the present action on February 22, 1957, to collect from defendants J. Amado
Araneta and/or J. Amado Araneta & Co., Inc., and Manila Surety & Fidelity Co., Inc., jointly
and severally the amount of P6,364.28 including penalties plus 6% interest thereon from
December 6, 1951, until fully paid, and/or in default thereof, to execute upon the bond
(Annex "B") for the satisfaction of the claim.
WHEREFORE, it is respectfully prayed that the above case be submitted for decision based
upon the above stipulation of facts. (pp. 76-101; 66-83, recs. on app.)
On 31 May 1958 the Court rendered judgment holding that the action brought by the plaintiff was
for the enforcement of an obligation undertaken by the defendants-principals and the defendantsurety in the bond executed by them in favor of the plaintiff (Annex B); that the action having been
brought on 22 February 1957 was within the period of ten years from 18 March 1949, the date of
execution of the bond; that the defendants-principals having defaulted in the payment of their tax
obligation, which the defendant-surety had guaranteed to pay should the principals fail, the surety's
obligation undertaken in the bond became a principal obligation; and that although the Collector of
Internal Revenue failed to affix his signature in the bond (Annex B), the latter's acceptance
constituted approval thereof, and ordering the defendants, jointly and severally, to pay the plaintiff
the sum of P6,364.28, with interest at the rate of 6% per annum from 22 February 1957, the date of
the filing of the complaint, until fully paid; and dismissing the defendants' counterclaims against the
plaintiff and those against each other as well as the cross-claim by the cross plaintiff and defendantsurely against the cross-defendants and defendants-principals, without pronouncement as to costs.
On 12 June and 5 July 1958 the defendants filed motions for reconsideration; on 14 June 1958, the
cross-defendants, an objection to the cross-plaintiff's motion for reconsideration.
On 27 June and 8 July 1958 the Court denied the defendants' respective motions for reconsideration.
Page 445 of 455
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The defendants have appealed separately.

The contention of the appellants-taxpayers (J. Amado Araneta and J. Amado Araneta & Company,
Inc.) is that the appellee's cause of action has prescribed, because the action for recovery of internal
revenue taxes and surcharge due brought on 22 February 1957, was not commenced within the
period of five years after the assessment dated 15 May 1948 had been made (Annex A); that the
bond executed by them and the appellant-surety (Manila Surety & Fidelity Company, Inc.) to
guarantee payment of the common carrier's tax (Annex B), being merely auxiliary or ancillary to the
principal obligation the enforcement of which has prescribed, the enforcement of their auxiliary
obligation in the bond also has prescribed; and that the bond, (Annex B) is null and void because the
same was not approved by the Collector of Internal Revenue.
The ground of the appellant-surety's appeal is that, not-withstanding the fact that the appellantstaxpayers had bound themselves to indemnify it "for any damages, loss, costs, charges, or expenses
of whatever kind and nature," as a result of its having executed and filed the bond marked as Annex
B (Annex 2-MSFCI), the trial court dismissed its cross-claim against the appellants-taxpayers instead
of ordering them to pay it whatever amount it shall have paid to the appellee by virtue of its
judgment and the stipulated interests thereon from the date of payment of said amount by the
cross-plaintiff to the appellee until full payment thereof by the cross-defendants to the crossplaintiff.
The appellants-taxpayers' appeal is without merit. They cannot invoke prescription under the
provisions of section 331 of the National Internal Revenue Code, as amended, because the appellee
is suing on the bond executed and filed by them and the appellant-surety (Annex B). It must be
borne in mind that on 15 March 1948 the Collector of Internal Revenue assessed the appellantstaxpayers for fixed tax upon business due from 1946 to 1948 under the provisions of section 182, in
connection with sections 178 to 180, of the National Internal Revenue Code, as amended, and 2% tax
on gross receipts from their business as common carrier under those of section 192 of the same
Code, and surcharge, all amounting to P6,364.28 (An Annex A);1 that the appellants-taxpayers
requested the Collector of internal Revenue to be allowed to pay their tax liability in six equal
monthly installments beginning 15 April 1949; that the Collector of Internal Revenue granted their
request provided a bond to guarantee payment of their tax liability be filed by them (Annex B); that
the appellants-taxpayers requested the appellant-surety to underwrite the required bond (Annex 2MSFCI); and that on 18 March 1949 the appellants-taxpayers and the appel appellant-surety
executed the, required bend (Annex B) and submitted it to the Collector of Internal Revenue who
received and kept it. The condition of the bond is
. . . that if the above-bounden Principal (the appellants-tax-payers) truly and faithfully make a
prompt and complete payment of the 2% common carriers tax and compensating tax due on
the above-mentioned vessel for the year 1948, in six (6) equal monthly installments
Commencing on April 15, 1949, as well as all fines and penalties imposed in accordance with
the National Internal Revenue Code, then this obligation shall be null and void, otherwise it
shall remain in full force and effect (Annex B).
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The appellants-taxpayers failed to pay any of the installments due despite demand (Annexes E, G &
1). Hence, the appellee sued on the bond (Annex B) which is a separate and distinct obligation of the
parties thereto. For this Court to sustain the appellants' defense of prescription would in effect nullify
their undertaking in the bond which was executed and filed by them to lighten their tax obligation or
burden by being allowed to pay in six equal installments.
The action to enforce the obligation on the bond executed on 18 March 1949, having been filed in
court by the appellee on 22 February 1957, was within the prescriptive period of ten years.
The appellants-taxpayers' argument that the bond (Annex B) being ancillary to the principal
obligation to pay heir tax liability, which already has prescribed, the enforcement of their obligation
in the bond also has prescribed is untenable. What has been said about their claim of prescription
against the collection of the tax equally applies to the claim of prescription against the enforcement
of the bond obligation or undertaking.
The act of the Collector of Internal Revenue in receiving and keeping the bond, deferring collection
of the tax, and suing on the bond (Annex B) upon failure of the appellants taxpayers to pay the tax,
the payment of which is guaranteed by the bond, meant or amounted to approval thereof.
Turning now to the appeal of the appellant-surety, the having bound themselves to the former as
follows:
INDEMNITY: (b) To indemnify the Company for any damage, loss, costs, charges, or expenses
of whatever kind and nature including counsel or attorney's fees, which the COMPANY may,
at any time, sustain or incur as a consequence of having become surety upon the abovementioned bond; said attorneys fees shall not be less than fifteen (15%) per cent of e total
amount claimed in any action which the COMPANY may institute against the undersigned in
Court.
MATURITY OF THE OBLIGATION UNDER THIS SECOND: (c) Said indemnity shall be paid to
the COMPANY as soon as it has become liable for the payment of any amount, under the
abovementioned bond, whether or not it shall have paid such sums or sums of money, or any
part thereof.
INTEREST IN CASE OF DEFAULT: (d) And in the case of non-payment of the said sum or sums
of money to the COMPANY by the undersigned, the said undersigned shall pay, upon said
sum or sums of money, an interest of twelve (12%) per cent per annum, which interest, while
not paid, shall be liquidated and accumulated monthly to the capital owed by the
undersigned, drawing the same interest as the said capital.
UNQUESTIONABILITY OF THE PAYMENTS AND DISBURSEMENTS MADE BY THE COMPANY:
(e) Any payment or disbursement made by the COMPANY on account of the
abovementioned bond, either in the belief that it was bound to make said payment or
disbursement or in the belief that the payment or disbursement made was necessary or
expedient, in order to avoid greater losses or obligations for which it would be liable under
Page 447 of 455
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the abovementioned bond, shall be final and shall not be questioned by the undersigned
who hereby agree to indemnify, jointly and severally, to the COMPANY, for each and
everyone of said payments and disbursements. (Emphasis supplied). Annex "2- MSFCI"
should be ordered to reimburse the appellant-surety for whatever amount it shall have paid to the
appellee by virtue of the judgment rendered in this case and to pay the stipulated interest thereon.
The premium and attorney's fees sought to be collected by the appellant-surety in the second and
third causes of action of its cross-complaint against the appellants-taxpayers have been withdrawn
by it (paragraph 10 of the stipulation of facts).
WITH THE FOREGOING MODIFICATION, the rest of the judgment appealed from is affirmed, with
costs against the appellants-taxpayers.
G.R. No. 130430 December 13, 1999
REPUBLIC OF THE PHILIPPINES, represented by the Commissioner of the Bureau of Internal Revenue
(BIR), petitioner,
vs.
SALUD V. HIZON, respondent.
This is a petition for review of the decision 1 of the Regional Trial Court, Branch 44, San Fernando,
Pampanga, dismissing the suit filed by the Bureau of Internal Revenue for collection of tax.
The facts are as follows:
On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment of
P1,113,359.68 covering the fiscal year 1981-1982. Respondent not having contested the assessment,
petitioner, on January 12, 1989, served warrants of distraint and levy to collect the tax deficiency.
However, for reasons not known, it did not proceed to dispose of the attached properties.
More than three years later, or on November 3, 1992, respondent wrote the BIR requesting a
reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11, 1994, denied
the request. On January 1, 1997, it filed a case with the Regional Trial Court, Branch 44, San
Fernando, Pampanga to collect the tax deficiency. The complaint was signed by Norberto Salud,
Chief of the Legal Division, BIR Region 4, and verified by Amancio Saga, the Bureau's Regional
Director in Pampanga.
Respondent moved to dismiss the case on two grounds: (1) that the complaint was not filed upon
authority of the BIR Commissioner as required by 221 2 of the National Internal Revenue Code, and
(2) that the action had already prescribed. Over petitioner's objection, the trial court, on August 28,
1997, granted the motion and dismissed the complaint. Hence, this petition. Petitioner raises the
following issues: 3
Page 448 of 455
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I. WHETHER OR NOT THE INSTITUTION OF THE CIVIL CASE FOR COLLECTION OF

TAXES WAS WITHOUT THE APPROVAL OF THE COMMISSIONER IN VIOLATION OF
SECTION 221 OF THE NATIONAL INTERNAL REVENUE CODE.
II. WHETHER OR NOT THE ACTION FOR COLLECTION OF TAXES FILED AGAINST
RESPONDENT HAD ALREADY BEEN BARRED BY THE STATUTE OF LIMITATIONS.
First. In sustaining respondent's contention that petitioner's complaint was filed without the authority
of the BIR Commissioner, the trial court stated: 4
There is no question that the National Internal Revenue Code explicitly provides that
in the matter of filing cases in Court, civil or criminal, for the collection of taxes, etc.,
the approval of the commissioner must first be secured. . . . [A]n action will not
prosper in the absence of the commissioner's approval. Thus, in the instant case, the
absence of the approval of the commissioner in the institution of the action is fatal to
the cause of the plaintiff . . . .
The trial court arrived at this conclusion because the complaint filed by the BIR was not
signed by then Commissioner Liwayway Chato.
Sec. 221 of the NIRC provides:
Form and mode of proceeding in actions arising under this Code. Civil and
criminal actions and proceedings instituted in behalf of the Government under the
authority of this Code or other law enforced by the Bureau of Internal Revenue shall
be brought in the name of the Government of the Philippines and shall be conducted
by the provincial or city fiscal, or the Solicitor General, or by the legal officers of the
Bureau of Internal Revenue deputized by the Secretary of Justice, but no civil and
criminal actions for the recovery of taxes or the enforcement of any fine , penalty or
forfeiture under this Code shall begun without the approval of the Commissioner .
(Emphasis supplied)
To implement this provision Revenue Administrative Order No. 5-83 of the BIR provides in
pertinent portions:
The following civil and criminal cases are to be handled by Special Attorneys and
Special Counsels assigned in the Legal Branches of Revenues Regions:
xxx xxx xxx
II. Civil Cases
1. Complaints for collection on cases falling within the jurisdiction of
the Region . . . .
Page 449 of 455
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In all the abovementioned cases, the Regional Director is authorized

to sign all pleadings filed in connection therewith which, otherwise,
requires the signature of the Commissioner.
xxx xxx xxx
Revenue Administrative Order No. 10-95 specifically authorizes the Litigation and Prosecution
Section of the Legal Division of regional district offices to institute the necessary civil and criminal
actions for tax collection. As the complaint filed in this case was signed by the BIR's Chief of Legal
Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with the
law.
However, the lower court refused to recognize RAO No. 10-95 and, by implication, RAO No. 5-83. It
held:
[M]emorand[a], circulars and orders emanating from bureaus and agencies whether
in the purely public or quasi-public corporations are mere guidelines for the internal
functioning of the said offices. They are not laws which courts can take judicial notice
of. As such, they have no binding effect upon the courts for such memorand[a] and
circulars are not the official acts of the legislative, executive and judicial departments
of the Philippines. . . . 5
This is erroneous. The rule is that as long as administrative issuances relate solely to carrying into
effect the provisions of the law, they are valid and have the force of law. 6 The governing statutory
provision in this case is 4(d) of the NIRC which provides:
Specific provisions to be contained in regulations. The regulations of the Bureau of

Internal Revenue shall, among other things, contain provisions specifying,
prescribing, or defining:
xxx xxx xxx
(d) The conditions to be observed by revenue officers, provincial fiscals and other
officials respecting the institution and conduct of legal actions and proceedings.
RAO Nos. 5-83 and 10-95 are in harmony with this statutory mandate.
As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code
authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent
provisions of the Code to any subordinate official with the rank equivalent to a division chief or
higher, except the following:
(a) The power to recommend the promulgation of rules and regulations by the
Secretary of Finance;
Page 450 of 455
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(b) The power to issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the Bureau;
(c) The power to compromise or abate under 204 (A) and (B) of this Code, any tax
deficiency:Provided, however, that assessment issued by the Regional Offices
involving basic deficiency taxes of five hundred thousand pesos (P500,000.00) or less,
and minor criminal violations as may be determined by rules and regulations to be
promulgated by the Secretary of Finance, upon the recommendation of the
Commissioner, discovered by regional and district officials, may be compromised by
a regional evaluation board which shall be composed of the Regional Director as
Chairman, the Assistant Regional Director, heads of the Legal, Assessment and
Collection Divisions and the Revenue District Officer having jurisdiction over the
taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments where
articles subject to excise tax are produced or kept.
None of the exceptions relates to the Commissioner's power to approve the filing of tax
collection cases.
Second. With regard to the issue that the case filed by petitioner for the collection of respondent's
tax deficiency is barred by prescription, 223(c) of the NIRC provides:
Any internal revenue tax which has been assessed within the period of limitation
above-prescribed may be collected by distraint or levy or by a proceeding in court
within three years 7 following the assessment of the tax.
The running of the three-year prescriptive period is suspended 8
for the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for sixty days
thereafter; when the taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by him in
the return filed upon which the tax is being assessed or collected; provided, that, if
the taxpayer informs the Commissioner of any change in address, the running of the
statute of limitations will not be suspended; when the warrant of distraint or levy is
duly served upon the taxpayer, his authorized representative or a member of his
household with sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines.
Petitioner argues that, in accordance with this provision, respondent's request for
reinvestigation of her tax deficiency assessment on November 3, 1992 effectively suspended
the running of the period of prescription such that the government could still file a case for
tax collection. 9
Page 451 of 455
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The contention has no merit. Sec. 229 10 of the Code mandates that a request for reconsideration
must be made within 30 days from the taxpayer's receipt of the tax deficiency assessment, otherwise
the assessment becomes final, unappealable and, therefore, demandable. 11 The notice of
assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On the other
hand, respondent made her request for reconsideration thereof only on November 3, 1992, without
stating when she received the notice of tax assessment. She explained that she was constrained to
ask for a reconsideration in order to avoid the harassment of BIR collectors. 12 In all likelihood, she
must have been referring to the distraint and levy of her properties by petitioner's agents which took
place on January 12, 1989. Even assuming that she first learned of the deficiency assessment on this
date, her request for reconsideration was nonetheless filed late since she made it more than 30 days
thereafter. Hence, her request for reconsideration did not suspend the running of the prescriptive
period provided under 223(c). Although the Commissioner acted on her request by eventually
denying it on August 11, 1994, this is of no moment and does not detract from the fact that the
assessment had long become demandable.
Nonetheless, it is contended that the running of the prescriptive period under 223(c) was
suspended when the BIR timely served the warrants of distraint and levy on respondent on January
12, 1989. 13 Petitioner cites for this purpose our ruling in Advertising Associates Inc., v. Court of
Appeals. 14 Because of the suspension, it is argued that the BIR could still avail of the other remedy
under 223(c) of filing a case in court for collection of the tax deficiency, as the BIR in fact did on
January 1, 1997.
Petitioner's reliance on the Court's ruling in Advertising Associates Inc. v. Court of Appeals is
misplaced. What the Court stated in that case and, indeed, in the earlier case of Palanca
v. Commissioner of Internal Revenue, 15 is that the timely service of a warrant of distraint or levy
suspends the running of the period to collect the tax deficiency in the sense that the disposition of
the attached properties might well take time to accomplish, extending even after the lapse of the
statutory period for collection. In those cases, the BIR did not file any collection case but merely
relied on the summary remedy of distraint and levy to collect the tax deficiency. The importance of
this fact was not lost on the Court. Thus, in Advertising Associates, it was held: 16 "It should be noted
that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the
warrants of distraint and levy to interrupt the running of the statute of limitations.
Moreover, if, as petitioner in effect says, the prescriptive period was suspended twice, i.e., when the
warrants of distraint and levy were served on respondent on January 12, 1989 and then when
respondent made her request for reinvestigation of the tax deficiency assessment on November 3,
1992, the three-year prescriptive period must have commenced running again sometime after the
service of the warrants of distraint and levy. Petitioner, however, does not state when or why this
took place and, indeed, there appears to be no reason for such. It is noteworthy that petitioner raised
this point before the lower court apparently as an alternative theory, which, however, is untenable.
For the foregoing reasons, we hold that petitioner's contention that the action in this case had not
prescribed when filed has no merit. Our holding, however, is without prejudice to the disposition of
the properties covered by the warrants of distraint and levy which petitioner served on respondent,
as such would be a mere continuation of the summary remedy it had timely begun. Although
Page 452 of 455
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considerable time has passed since then, as held inAdvertising Associates Inc. v. Court of
Appeals 17 and Palanca v. Commissioner of Internal Revenue, 18 the enforcement of tax collection
through summary proceedings may be carried out beyond the statutory period considering that such
remedy was seasonably availed of.
WHEREFORE, the petition is DENIED.
G.R. No. L-23988
January 2, 1968

vs.
LEONARDO S. VILLA and THE COURT OF APPEALS, respondents.
Jurisdiction over the subject matter is fundamental for a court to act on a given controversy. It is
conferred by law,1 not by consent of the parties. 2 It can be challenged at any stage of the
proceedings and for lack of it, a court can dismiss a case ex mero motu. 3
To inquire into the existence of jurisdiction over the subject matter is the primary concern of a court,
for thereon would depend the ability of its entire proceedings. In this case, the parties submitted
voluntarily to the jurisdiction of the Court of Tax Appeals, adduced their evidence thereat. Thereafter,
they submitted their cause for decision. At no stage of the proceedings have they raised the issue of
jurisdiction. However, as aforesaid, the consent of the parties does not confer jurisdiction over the
subject matter. Hence, We shall proceed to inquire whether or not the Court of Tax Appeals had
jurisdiction to entertain the so-called appeal of the taxpayer in this case.
Leonardo S. Villa, a doctor of medicine, and his wife filed joint income tax returns for the years 1951,
1952, 1953, 1954, 1955 and 1956 on April 2, 1952, March 30, 1953, February 26, 1954, March 31,
1955, April 2, 1956 and March 23, 1957, respectively. Subsequently, the Bureau of Internal Revenue
determined the income of the Villa spouses by the use of networth method and accordingly issued
on February 23, 1961 assessments for deficiency income tax for the years 1951, 1952, 1953, 1954 and
1956 and residence tax for 1951 to 1957. Dr. Villa received the assessments on April 7, 1961. Without
contesting the said assessments in the Bureau of Internal Revenue, he filed on May 4, 1961 a petition
for review in the Court of Tax Appeals.
The Court of Tax Appeals took cognizance of the appeal, tried the case on the merits and rendered
the following judgment:
IN VIEW OF THE FOREGOING CONSIDERATIONS, with the exception of that portion
regarding the additional residence taxes and surcharges for the years 1951 to 1957 in the
amount of P244.00, for which we hold petitioner liable, the decision appealed from is hereby
reversed. The petitioner is ordered to pay to the Commissioner of Internal Revenue or his
representative the sum of P244.00, as additional residence tax and surcharge without
pronouncement as to costs.
From said judgment, the Commissioner of Internal Revenue has appealed to Us.
Page 453 of 455
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The law conferring jurisdiction on the Court of Tax Appeals is found in Section 7 of Republic Act
1125, the pertinent part of which states:
Sec. 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction
to review by appeal as herein provided
(1) Decisions of the Collector 4of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under the National Internal Revenue Code or other law or
part of law administered by the Bureau of Internal Revenue;
The word "decisions" in paragraph 1, Section 7 of Republic Act 1125, quoted above, has been
interpreted to mean the decisions of the Commissioner of Internal Revenue on the protest of the
taxpayer against the assessments. Definitely, said word does not signify the assessment itself. We
quote what this Court said aptly in a previous case:
In the first place, we believe the respondent court erred in holding that the assessment in
question is the respondent Collector's decision or ruling appealable to it, and that
consequently, the period of thirty days prescribed by section 11 of Republic Act No. 1125
within which petitioner should have appealed to the respondent court must be counted from
its receipt of said assessment. Where a taxpayer questions an assessment and asks the
Collector to reconsider or cancel the same because he (the taxpayer) believes he is not liable
therefor, the assessment becomes a "disputed assessment" that the Collector must decide,
and the taxpayer can appeal to the Court of Tax Appeals only upon receipt of the decision of
the Collector on the disputed assessment, . . . 5(Emphasis supplied)
The same interpretation finds support in Section 11 of Republic Act 1125, which states:
Sec. 11. Who may appeal; effect of appeal. Any person, association or corporation
adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector
of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the
Court of Tax Appeals within thirty days after the receipt of such decision or ruling. (Emphasis
supplied)
Note that the law uses the word "decisions", not "assessments", further indicating the legislative
intention to subject to judicial review the decision of the Commissioner on the protest against an
assessment but not the assessment itself. 6
Since in the instant case the taxpayer appealed the assessment of the Commissioner of Internal
Revenue without previously contesting the same, the appeal was premature and the Court of Tax
Appeals had no jurisdiction to entertain said appeal. For, as stated, the jurisdiction of the Tax Court is
to review by appeal decisions of Internal Revenue on disputed assessments. The Tax Court is a court
of special jurisdiction. As such, it can take cognizance only of such matters as are clearly within its
jurisdiction. 7
Page 454 of 455
TAXATION LAW REVIEW

WHEREFORE, the judgment appealed from is set aside for lack of jurisdiction and the petition for
review filed in the Court of Tax Appeals is hereby ordered dismissed. No costs. So ordered.
Page 455 of 455

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