CIR v.

PINEDA

FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15
children, the eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in
Court so that the estate was divided among and awarded to the heirs. Atty Pineda's
share amounted to about P2,500.00. After the estate proceedings were closed, the
BIR 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 issued an assessment and charged the full amount to the inheritance
due to Atty. Pineda who argued that he is liable only to extent of his proportional
share in the inheritance.

ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance.

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.

CIR v. CTA 234 SCRA 348

FACTS:A petition for review of the decision of the BIR denying the tax refund of
Citytrust wasfiled with the CTA. It was submitted for decision based solely on the
pleadings and evidencesubmitted by Citytrust. CIR could not present any evidence
by reason of the repeated failureof the Tax Credit/Refund Division of the BIR to
transmit the records of the case, as well asthe investigation report thereon, to the
Solicitor General. The CTA rendered its decisionordering BIR to grant a refund to
Citytrust in the amount of P13,314,506.14. The CAaffirmed the judgment of the CTA.
Issue:WhetherornotCitytrustisentitledtoarefund.

HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the
taxes assessed.
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 taxes for which said
estate is liable. By virtue of such lien, the Government has the right to subject the
property in Pineda's possession to satisfy the income tax assessment. After such
payment, Pineda will have a right of contribution from his co-heirs, 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; and second, 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. 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.

HELD:It is a long and firmly settled rule of law that the government is not bound by
the errorscommitted by its agents. In the performance of its government functions,
the State cannot be estopped by the neglect of its agents and officers. Although the
government maygenerally be estopped through affirmative acts of public officers
acting within their authority, their neglect or omission of public duties as exemplified
in this case will notand should not produce that effect. Nowhere is the aforestated
rule more true than in thefield of taxation. It is axiomatic that the government cannot
and must be estopped particularly in matters involving taxes. Taxes are the lifeblood
of the nation through whichthe government agencies continue to operate and with
which the State effects its functionsfor the welfare of its constituents. The errors of
certain administrative officers should never be allowed to jeopardize the
government's financial position, 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.Judgment of the CA is SET ASIDE and the case
is REMANDED to the CTA for further proceedings and appropriate action.

COMMISSIONER v. ALGUE, INC.

FACTS: Private respondent corporation Algue, Inc. filed its income tax returns for
1958 and 1959 showing deductions, for promotional fees paid, from their gross
income, thus lowering their taxable income. The BIR assessed Algue based on such
deductions contending that the claimed deduction is disallowed because it was not
an ordinary, reasonable and necessary expense.

VERA v. FERNANDEZ

FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and for
payment of taxes representing the estate's tax deficiencies in 1963 to 1964 in the
intestate proceedings of Luis Tongoy. The administrator opposed arguing that the
claim was already barred by the statute of limitation, Section 2 and Section 5 of Rule
86 of the Rules of Court which provides that 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 the notice; otherwise they are barred forever.

ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of the
government for unpaid taxes?

HELD: No. 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 nonclaims, is not hard to find. Taxes are the lifeblood of the Government and their prompt
and certain availability are imperious need. (CIR vs. Pineda, 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

ISSUE: Should an uncommon business expense be disallowed as a proper

deduction in computation of income taxes, corollary to the doctrine that taxes are the
lifeblood of the government?

HELD: No. 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 xperimental 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 well-settled that 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.
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.

Page 1 of 10

GOMEZ v. PALOMAR
LUTZ v. ARANETA

FACTS: Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate
estate of Antionio Ledesma, sought to recover from the CIR the sum of P14,666.40
paid by the estate as taxes, under section 3 of the CA 567 or the Sugar Adjustment
Act thereby assailing its constitutionality, for it provided for an increase of the existing
tax on the manufacture of sugar, alleging that such enactment is not being levied for
a public purpose but solely and exclusively for the aid and support of the sugar
industry thus making it void and unconstitutional. The sugar industry situation at the
time of the enactment was in an imminent threat of loss and needed to be stabilized
by imposition of emergency measures.

ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the equal
protection clause, the purpose of which is not for the benefit of the general public but
for the rehabilitation only of the sugar industry?

HELD: Yes. 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 to fully play, subject only to the test of reasonableness;
and it is not contended that the means provided in the law 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.

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San
Fernando, Pampanga. It did not bear the special anti-TB stamp required by the RA
1635. It was returned to the petitioner. Petitioner now assails the constitutionality of
the statute claiming that RA 1635 otherwise known as the Anti-TB Stamp law is
violative of the equal protection clause because 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 exemptions. The law in
question requires an additional 5 centavo stamp for every mail being posted, and no
mail shall be delivered unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the
equal protection clause?

HELD: No. It is settled that the legislature has the inherent power to select the
subjects of taxation and to grant exemptions. This power has aptly been described as
"of wide range and flexibility." Indeed, it is said that in the field of taxation, more than
in other areas, the legislature possesses the greatest freedom in classification. 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.
The classification of mail users is based on the ability to pay, the enjoyment of a
privilege and on administrative convenience. Tax exemptions have never been
thought of as raising revenues under the equal protection clause.
PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN

TIO vs. VRB

"The classification made in the exercise of power to tax, to be valid, must be

reasonable ."

"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."

FACTS: The petitioner assails the validity of PD 1987 entitled an "Act creating the
Videogram Regulatory Board," citing especially Section 10 thereof, which imposes a
tax of 30% on the gross receipts payable to the local government. Petitioner
contends that aside from its being a rider and not germane to the subject matter
thereof, and such imposition was being harsh, confiscatory, oppressive and/or
unlawfully restraints trade in violation of the due process clause of the Constitution.

FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it under

protest, to the City of Butuan, and collected by the latter, pursuant to its Municipal
Ordinance No. 110 which plaintiff assails as null and void because it partakes of the
nature of an import tax, amounts to double taxation, highly unjust and discriminatory,
excessive, oppressive and confiscatory, and constitutes an invlaid delegation of the
power to tax. The ordinance imposes taxes for every case of softdrinks, liquors and
other carbonated beverages, regardless of the volume of sales, shipped to the
agents and/or consignees by outside dealers or any person or company having its
actual business outside the City.

ISSUE: Is PD 1987 a valid exercise of taxing power of the state?

ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?

HELD: Yes. 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. 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 those rest in the discretion of the authority which exercises it. In
imposing a tax, the legislature acts upon its constituents. This is, in general, a
sufficient security against erroneous and oppressive taxation.

HELD: Yes. The tax levied is discriminatory. Even 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.

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.
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.

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 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.

Page 2 of 10

PASCUAL vs. SECRETARY OF PUBLIC WORKS

"A law appropriating the public revenue is invalid if the public advantage or benefit,
derived from such expenditure, is merely incidental in the promotion of a particular
enterprise."

FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory
relief, with injunction, upon the ground that RA No. 920, which apropriates funds for
public works particularly for the construction and improvement of Pasig feeder road
terminals. Some of the feeder roads, however, as alleged and as contained in the
tracings attached to the petition, were nothing but projected and planned subdivision
roads, not yet constructed within the Antonio Subdivision, belonging to private
respondent Zulueta, situated at Pasig, Rizal; and which projected feeder roads do not
connect any government property or any important premises to the main highway.
The respondents' contention is that there is public purpose because people living in
the subdivision will directly be benefitted from the construction of the roads, and the
government also gains from the donation of the land supposed to be occupied by the
streets, made by its owner to the government.

ISSUE: Should incidental gains by the public be considered "public purpose" for the
purpose of justifying an expenditure of the government?

HELD: No. 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.
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.
Pepsi Cola Bottling Company vs Municipality of Tanauan
Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September
1962, the Municipality approved Ordinance No. 23 which 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.

In December 1962, the Municipality also approved Ordinance No. 27 which 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 of volume capacity.

Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute
double taxation in two instances: a) double taxation because Ordinance No. 27
covers the same subject matter and impose practically the same tax rate as with
Ordinance No. 23, b) double taxation because the two ordinances impose
percentage or specific taxes.

Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for
the delegation of taxing powers to local government units; that allowing local
governments to tax companies like Pepsi Cola is confiscatory and oppressive.

ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not
there is double taxation.

HELD: No. There is no undue delegation. The Constitution even allows such
delegation. Legislative powers may be delegated to local governments in respect of
matters of local concern. 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. 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.

There is no double taxation. The argument of the Municipality is well taken. Further,
Pepsi Colas assertion that the delegation of taxing power in itself constitutes double
taxation cannot be merited. It must be observed that the delegating authority
specifies the limitations and enumerates the taxes over which local taxation may not
be exercised. The reason is that the State has exclusively reserved the same for its
own prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law unlike in other jurisdictions. Double taxation becomes obnoxious
only where the taxpayer is taxed twice for the benefit of the same governmental
entity or by the same jurisdiction for the same purpose, but not in a case where one
tax is imposed by the State and the other by the city or municipality.
CIR v. YMCA

FACTS: Private Respondent YMCA--a non-stock, non-profit institution, which

conducts various programs beneficial to the public pursuant to its religious,
educational and charitable objectives--leases out a portion of its premises to small
shop owners, like restaurants and canteen operators, deriving substantial income for
such. Seeing this, the Commissioner of Internal Revenue (CIR) issued an
assessment to private respondent for deficiency income tax, deficiency expanded
withholding taxes on rentals and professional fees and deficiency withholding tax on
wages. YMCA opposed arguing that its rental income is not subject to tax, mainly
because of the provisions of Section 27 of NIRC which provides that civic league or
organizations not organized for profit but operate exclusively for promotion of social
welfare and those organized exclusively for pleasure, recreation and other nonprofitble businesses shall not be taxed.

ISSUE: Is the contention of YMCA tenable?

HELD: No. Because taxes are the lifeblood of the nation, the Court has always
applied the doctrine of strict in interpretation in construing tax exemptions.
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."

ISSUE #1 (G.R. No. 109289): NO. The RA did not violate any constitutional provision.
Petitioner: The said law violates the ff. provisions of the 3 Constitutional provisions:
1.) Article VI, Section 26(1) Every bill passed by the Congress shall embrace only
one subject which shall be expressed in the title thereof.

The Municipality assailed the arguments presented by Pepsi Cola. It argued, among
others, that only Ordinance No. 27 is being enforced and that the latter law is an
amendment of Ordinance No. 23, hence there is no double taxation.

- The title of the bill "Simplified Net Income Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their Profession" is a misnomer

Page 3 of 10

Court:
- The full text title of the bill is An Act Adopting the Simplified Net Income Taxation
Scheme For The Self-Employed and Professionals Engaged In The Practice of Their
Profession, Amending Sections 21 and 29 of the National Internal Revenue Code, as
Amended
- Amended Sec. 21 of the National Internal Revenue Code speaks of imposing tax on
taxable net income received from all sources of self-employed/ practicing
professionals while Sec. 29 speaks of the allowed deductions from gross income of
the said group of people. However, deductible items on income are now more limited
as compared to the law before the said amendment.
- Petitioner contends that the law now impose taxes on gross as opposed to net
income.
- Court held that limiting the deductible items is still within the purview of the concept
of net income. It is still income less the expenses and then the remaining amount
determines the tax to be paid. The amendment just limited the items that fall under
the expenses.
- The objectives of the law on bill titles are: (a) to prevent log-rolling legislation
intended to unite the members of the legislature who favor any one of unrelated
subjects in support of the whole act, (b) to avoid surprises or even fraud upon the
legislature, and (c) to fairly apprise the people, through such publications of its
proceedings as are usually made, of the subjects of legislation. The above objectives
of the fundamental law appear to us to have been sufficiently met.

Held: The argument that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution will not bear
analysis. To begin with, it is not the law but the revenue bill which is required by the
Constitution to originate exclusively in the House of Representatives. To insist that a
revenue statute and not only the bill which initiated the legislative process
culminating in the enactment of the law 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. 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. 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.
The next argument of the petitioners was that S. No. 1630 did not pass 3 readings on
separate days as required by the Constitution because the second and third readings
were done on the same day. But this was because the President had certified S. No.
1630 as urgent. The presidential certification dispensed with the requirement not only
of printing but also that of reading the bill on separate days. That upon the
certification of a bill by the President the requirement of 3 readings on separate days
and of printing and distribution can be dispensed with is supported by the weight of
legislative practice.
REYES v. ALMANZOR

2.) Petitioner contends that the law would now attempt to tax single proprietorships
and professionals differently from the manner it imposes the tax on corporations and
partnerships violating the ff. constitutional provisions:
Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.

FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are
leased and occupied as dwelling
units by tenants who were paying monthly rentals of not exceeding P300. Sometimes
in 1971 the Rental
Freezing Law was passed prohibiting for one year from its effectivity, an increase in
monthly rentals of dwelling

Article III, Section 1 No person shall be deprived of . . . property without due

process of law, nor shall any person be denied the equal protection of the laws.

units where rentals do not exceed three hundred pesos (P300.00), so that the
Reyeses were precluded from

Court:
- Uniformity in taxation means those that are similarly situated are to be treated alike.
There is uniformity as long as: (1) the standards that are used therefor are
substantial and not arbitrary, (2) the categorization is germane to achieve the
legislative purpose, (3) the law applies, all things being equal, to both present and
future conditions, and (4) the classification applies equally well to all those belonging
to the same class
- The court does not view the classification in this instance as arbitrary or
inappropriate. Moreover, the legislature has the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of
taxation. The Court only intervenes when there is a violation of the constitution, which
in this case there is none.
Tolentino vs. Secretary of Finance G.R. No. 115455, August 25, 1994

raising the rents 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, which entailed an
increase in the corresponding tax rates prompting petitioners to file a Memorandum
of Disagreement averring
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

Facts: The value-added tax (VAT) is levied on the sale, barter or exchange of goods
and properties as well as on the sale or exchange of services. RA 7716 seeks to
widen the tax base of the existing VAT system and enhance its administration by
amending the National Internal Revenue Code. There are various suits challenging
the constitutionality of RA 7716 on various grounds.

of the comparable sales approach which the City Assessor adopted.

ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?

One contention is that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution, because it is in
fact the result of the consolidation of 2 distinct bills, H. No. 11197 and S. No. 1630.
There is also a contention that S. No. 1630 did not pass 3 readings as required by
the Constitution.

HELD: No. The taxing power has the authority to make a reasonable and natural
classification for purposes of

Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the Constitution

that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under

taxation but the government's act must not be prompted by a spirit of hostility, or at
the very least discrimination

Page 4 of 10

similar circumstances or that all persons must be treated in the same manner, the
conditions not being different

protested claiming the assessment to be without basis because Section 42 was

vetoed by then President Marcos.

both in the privileges conferred and the liabilities imposed.

CIR denied the protestation of the club, who maintain that Section 42 was not
entirely vetoed but merely the words "hotel, motels, resthouses" on the ground that it
might restrain the development of hotels which is essential to the tourism industry.

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.

ISSUE:
Whether or not the presidential veto referred to the entire section or merely to the
imposition of 20% tax on gross receipt of operators or proprietors of restaurants,
refreshment parlors, bars and other eating places which are maintained within the
premises or compound of a hotel, motel or resthouses.

Abra Valley College vs Aquino (G.R. No. L-39086)

FACTS: Petitioner, an educational corporation and institution of higher learning duly
incorporated with the Securities and Exchange Commission in 1948, filed a complaint
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 by respondents Municipal
Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction
of the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court
in its questioned decision. The trial court ruled for the government, holding that the
second floor of the building is being used by the director for residential purposes and
that the ground floor used and rented by Northern Marketing Corporation, a
commercial establishment, and thus the property is not being used exclusively for
educational purposes. Instead of perfecting an appeal, petitioner availed of the
instant petition for review on certiorari with prayer for preliminary injunction before the
Supreme Court, by filing said petition on 17 August 1974.

ISSUE: Whether or not the lot and building are used exclusively for educational
purposes.

HELD: Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution,
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.
Reasonable emphasis has always been made that the exemption extends to facilities
which are incidental to and reasonably necessary for the accomplishment of the main
purposes. The use of the school building or lot for commercial purposes is neither
contemplated by law, nor by jurisprudence. In the case at bar, the lease of the first
floor of the building to the Northern Marketing Corporation cannot by any stretch of
the imagination be considered incidental to the purpose of education. The test of
exemption from taxation is the use of the property for purposes mentioned in the
Constitution.
The decision of the CFI Abra (Branch I) is affirmed subject to the modification that
half of the assessed tax be returned to the petitioner. The modification is derived from
the fact that the ground floor is being used for commercial purposes (leased) and the
second floor being used as incidental to education (residence of the director).
CIR v Court of Tax Appeals
FACTS:

DECISION:
The presidential veto referred merely to the inclusion of hotels, motels, and rest
houses in the 20% caterer's tax bracket but not to the whole section. It was then
agreed by the SC with then Solicitor General Estelito Mendoza and his associates
that inclusion of hotels, motels, and rest houses in the 20% caterer's tax bracket are
"items" in themselves within the meaning of Sec. 20(3), Article VI of the 1935
Constitution.
The Petition is granted. Sec. 191-A of RA 6110 is valid and enforceable, hence the
Manila Golf and Country Club, Inc is liable for the amount assessed against it.
DAVAO GULF LUMBER CORP v. CIR
GR No. 117359, July 23, 1998
293 SCRA 77

FACTS: Republic Act No. 1435 entitles miners and forest concessioners to the refund
of 25% of the specific taxes paid by the oil companies, which were eventually passed
on to the user--the petitioner in this case--in the purchase price of the oil products.
Petitioner filed before respondent Commissioner of Internal Revenue (CIR) a claim
for refund in the amount representing 25% of the specific taxes actually paid on the
above-mentioned fuels and oils that were used by petitioner in its operations.
However petitioner asserts that equity and justice demands 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.

ISSUE: Should the petitioner be 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, and not on the taxes deemed paid
and passed on to them, as end-users, by the oil companies?

HELD: No. According to an eminent authority on taxation, "there is no tax exemption

solely on the ground of equity." Thus, the tax refund should be based on the taxes
deemed paid. 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.

Manila Golf & Country Club, Inc., a non-stock corporation who maintains a golf
course and operates a clubhouse with a lounge, bar & dining room exclusively for its
members & guests claims that they should have been exempt from payment of
privilege taxes were it not for the last paragraph of Section 191-A of RA No. 6110,
otherwise known as "Omnibus Tax Law".

LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now JARDINE-CMG

LIFE INSURANCE CO. INC.), petitioner, vs. COURT OF APPEALS and
COMMISSIONER OF INTERNAL REVENUE, respondents.

By virtue of RA No. 6110, the CIR assessed the Manila Golf and Country Club fixed
taxes as operators of golf links and restaurant, and also percentage tax (caterer's
tax) for its sale of foods and fermented liquors/wines for the period covering
September 1969 to December 1970 in the amount of P32,504.96 in which the club

Petitioner, now the Jardine-CMG Life Insurance Company, Inc., is a domestic

corporation engaged in the life insurance business. It issued shares of stock as
stock dividends and paid documentary stamp taxes on each certificate on the basis
of its par value. The CIR, held Lincoln liable based on the book value of the shares,

FACTS:

Page 5 of 10

and consequently, should be used as basis for determining the amount of the
documentary stamp tax. Accordingly, the CIR issued a deficiency documentary
stamp tax assessment. Lincoln appealed the Commissioners ruling to the CTA,
which held that the amount of the documentary stamp tax should be based on the
par value stated on each certificate of stock. In turn, CIR appealed to the Court of
Appeals which, reversed the CTAs decision.

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 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.

ISSUE: Whether in determining the amount to be paid as documentary stamp tax, it

is the par value of the certificates of stock or the book value of the shares which
should be considered.

Commissioner of Internal Revenue v Ayala Securities Corporation

HELD: The par value of the certificates of stock should be the basis for determining
the amount to be paid as documentary stamp tax. First, the NIRC Sec. 224 provides
that On every original issue, whether on organization, reorganization or for any
lawful purpose, of certificates of stock by any association, company or corporation,
there shall be collected a documentary stamp tax of one peso and ten centavos on
each two hundred pesos, or fractional part thereof, of the par value of such
certificates
There is no basis for considering stock dividends as a distinct class from ordinary
shares of stock since under this provision only certificates of stock are required to be
distinguished (into either one with par value or one without) rather than the classes of
shares themselves.
A stock certificate is merely evidence of a share of stock and not the share itself.
(Sec. 63, Corporation Code). Stock dividends are in the nature of shares of stock, the
consideration for which is the amount of unrestricted retained earnings converted
into equity in the corporations books. There is, therefore, no reason for determining
the actual value of such dividends for purposes of the documentary stamp tax if the
certificates representing them indicate a par value.
Second. The documentary stamp tax here is not levied upon the specific transaction
which gives rise to such original issuance but on the privilege of issuing certificates
of stock. A documentary stamp tax is in the nature of an excise tax. It is not imposed
upon the business transacted but is an excise upon the privilege, opportunity or
facility offered at exchanges for the transaction of the business.

Facts:
Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so
Ayala was charged with 25% surtax by the Commissioner of internal Revenue. The
CTA (Court of Tax Appeals) reversed the Commissioners decision and held that the
assessment made against Ayala was beyond the 5-yr prescriptive period as provided
in section 331 of the National Internal Revenue Code. Commissioner now files a
motion for reconsideration of this decision. Ayala invokes the defense of prescription
against the right of the Commissioner to assess the surtax.

Issue:
Whether or not the right to assess and collect the 25% surtax has prescribed after
five years.

Held:
No. There is no such time limit on the right of the Commissioner to assess the 25%
surtax since there is no express statutory provision limiting such right or providing for
its prescription. Hence, the collection of surtax is imprescriptible. The underlying
purpose of the surtax is to avoid a situation where the corporation unduly retains its
surplus earnings instead of declaring and paying dividends to its shareholders. SC
reverses the ruling of the CTA.
CIR VS SC JOHNSON & SON, INCS AND CA [G.R. No. 127105. June 25, 1999]
Respondent, JOHNSON AND SON, INC a domestic corporation organized and
operating under the Philippine laws, entered into a license agreement with SC
Johnson and Son, United States of America (USA), a non-resident foreign
corporation based in the U.S.A. pursuant to which the [respondent] was granted the
right to use the trademark, patents and technology owned by the latter including the
right to manufacture, package and distribute the products covered by the Agreement
and secure assistance in management, marketing and production from SC Johnson
and Son, U. S. A.

PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN

"The classification made in the exercise of power to tax, to be valid, must be

reasonable ."

FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it under

protest, to the City of Butuan, and collected by the latter, pursuant to its Municipal
Ordinance No. 110 which plaintiff assails as null and void because it partakes of the
nature of an import tax, amounts to double taxation, highly unjust and discriminatory,
excessive, oppressive and confiscatory, and constitutes an invlaid delegation of the
power to tax. The ordinance imposes taxes for every case of softdrinks, liquors and
other carbonated beverages, regardless of the volume of sales, shipped to the
agents and/or consignees by outside dealers or any person or company having its
actual business outside the City.

ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?

HELD: Yes. The tax levied is discriminatory. Even 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.

The said License Agreement was duly registered with the Technology Transfer Board
of the Bureau of Patents, Trade Marks and Technology Transfer under Certificate of
Registration No. 8064 . For the use of the trademark or technology, SC JOHNSON
AND SON, INC was obliged to pay SC Johnson and Son, USA royalties based on a
percentage of net sales and subjected the same to 25% withholding tax on royalty
payments which respondent paid for the period covering July 1992 to May 1993.00
On October 29, 1993, SC JOHNSON AND SON, USA filed with the International Tax
Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on
royalties arguing that, since the agreement was approved by the Technology Transfer
Board, the preferential tax rate of 10% should apply to the respondent. Respondent
submits that royalties paid to SC Johnson and Son, USA is only subject to 10%
withholding tax pursuant to the most-favored nation clause of the RP-US Tax Treaty
in relation to the RP-West Germany Tax Treaty. The Internal Tax Affairs Division of
the BIR ruled against SC Johnson and Son, Inc. and an appeal was filed by the
former to the Court of tax appeals.
The CTA ruled against CIR and ordered that a tax credit be issued in favor of SC
Johnson and Son, Inc. Unpleased with the decision, the CIR filed an appeal to the
CA which subsequently affirmed in toto the decision of the CTA. Hence, an appeal on
certiorari was filed to the SC.

THE MAIN ISSUE:

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
Page 6 of 10

WON SC JOHNSON AND SON,USA IS ENTITLED TO THE MOST FAVORED

NATION TAX RATE OF 10% ON ROYALTIES AS PROVIDED IN THE RP-US TAX
TREATY IN RELATION TO THE RP-WEST GERMANY TAX TREATY.

The concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty
could not apply to taxes imposed upon royalties in the RP-US Tax Treaty since the
two taxes imposed under the two tax treaties are not paid under similar
circumstances, they are not containing similar provisions on tax crediting.

The United States is the state of residence since the taxpayer, S. C. Johnson and
Son, U. S. A., is based there. Under the RP-US Tax Treaty, the state of residence
and the state of source are both permitted to tax the royalties, with a restraint on the
tax that may be collected by the state of source. Furthermore, the method employed
to give relief from double taxation is the allowance of a tax credit to citizens or
residents of the United States against the United States tax, but such amount shall
not exceed the limitations provided by United States law for the taxable year. The
Philippines may impose one of three rates- 25 percent of the gross amount of the
royalties; 15 percent when the royalties are paid by a corporation registered with the
Philippine Board of Investments and engaged in preferred areas of activities; or the
lowest rate of Philippine tax that may be imposed on royalties of the same kind paid
under similar circumstances to a resident of a third state.

Given the purpose underlying tax treaties and the rationale for the most favored
nation clause, the Tax Treaty should apply only if the taxes imposed upon royalties in
the RP-US Tax Treaty and in the RP-Germany Tax Treaty are paid under similar
circumstances. This would mean that private respondent must prove that the RP-US
Tax Treaty grants similar tax reliefs to residents of the United States in respect of the
taxes imposable upon royalties earned from sources within the Philippines as those
allowed to their German counterparts under the RPGermany Tax Treaty. The RP-US
and the RP-West Germany Tax Treaties do not contain similar provisions on tax
crediting. Article 24 of the RP-Germany Tax Treaty, supra, expressly allows crediting
against German income and corporation tax of 20% of the gross amount of royalties
paid under the law of the Philippines. On the other hand, Article 23 of the RP-US Tax
Treaty, which is the counterpart provision with respect to relief for double taxation,
does not provide for similar crediting of 20% of the gross amount of

TAXATION RELATED TOPICS:

What is the purpose of a tax treaty?

The purpose of these international agreements is to reconcile the national fiscal

legislations of the contracting parties in order to help the taxpayer avoid simultaneous
taxation in two different jurisdictions.

The goal of double taxation conventions would be thwarted if such treaties did not
provide for effective measures to minimize, if not completely eliminate, the tax burden
laid upon the income or capital of the investor. Thus, if the rates of tax are lowered by
the state of source, in this case, by the Philippines, there should be a concomitant
commitment on the part of the state of residence to grant some form of tax relief,
whether this be in the form of a tax credit or exemption. Otherwise, the tax which
could have been collected by the Philippine government will simply be collected by
another state, defeating the object of the tax treaty since the tax burden imposed
upon the investorwould remain unrelieved. If the state of residence does not grant
some form of tax relief to the investor, no benefit would redound to the Philippines,
i.e., increased investment resulting from a favorable tax regime, should it impose a
lower tax rate on the royalty earnings of the investor, and it would be better to impose
the regular rate rather than lose much-needed revenues to another country.

What is international double taxation and the rationale for doing away with it?

International juridical double taxation is defined as the imposition of comparable

taxes in two or more states on the same taxpayer in respect of the same subject
matter and for identical periods; The apparent rationale for doing away with double
taxation is to encourage the free flow of goods and services and the movement of
capital, technology and persons between countries, conditions deemed vital in
creating robust and dynamic economies.

royalties paid.
When is there double taxation?
At the same time, the intention behind the adoption of the provision on relief from
double taxation in the two tax treaties in question should be considered in light of the
purpose behind the most favored nation clause.

Double taxation usually takes place when a person is resident of a contracting state
and derives income from, or owns capital in, the other contracting state and both
states impose tax on that income or capital.

What is the most favored nation clause?

What are the methods of eliminating double taxation?
The purpose of a most favored nation clause is to grant to the contracting party
treatment not less favorable than that which has been or may be granted to the most
favored among other countries. It is intended to establish the principle of equality of
international treatment by providing that the citizens or subjects of the contracting
nations may enjoy the privileges accorded by either party to those of the most
favored nation. The essence of the principle is to allow the taxpayer in one state to
avail of more liberal provisions granted in another tax treaty to which the country of
residence of such taxpayer is also a party provided that the subject matter of
taxation, in this case royalty income, is the same as that in the tax treaty under which
the taxpayer is liable.

The RP-US Tax Treaty does not give a matching tax credit of 20 percent for the taxes
paid to the Philippines on royalties as allowed under the RP-West Germany Tax
Treaty, private respondent cannot be deemed entitled to the 10 percent rate granted
under the latter treaty for the reason that there is no payment of taxes on royalties
under similar circumstances.

First, it sets out the respective rights to tax of the state of source or situs and of the
state of residence with regard to certain classes of income or capital. In some cases,
an exclusive right to tax is conferred on one of the contracting states; however, for
other items of income or capital, both states are given the right to tax, although the
amount of tax that may be imposed by the state of source is limited.

The second method for the elimination of double taxation applies whenever the
state of source is given a full or limited right to tax together with the state of
residence. In this case, the treaties make it incumbent upon the state of residence to
allow relief in order to avoid double taxation. In this case, the treaties make it
incumbent upon the state of residence to allow relief in order to avoid double
taxation.

What are the methods of relief under the second method?

Page 7 of 10

ISSUE: Whether or not the tax owed by Francia should be set-off by the debt owed
him by the government.

There are two methods of reliefthe exemption method and the credit method.
Exemption method, the income or capital which is taxable in the state of source or
situs is exempted in the state of residence, although in some instances it may be
taken into account in determining the rate of tax applicable to the taxpayers
remaining income or capital.
Credit method, although the income or capital which is taxed in the state of source
is still taxable in the state of residence, the tax paid in the former is credited against
the tax levied in the latter.

The basic difference between the two methods is that in the exemption method, the
focus is on the income or capital itself, whereas the credit method focuses upon the
tax.

What is the rationale of reducing tax rates in negotiating tax treaties?

In negotiating tax treaties, the underlying rationale for reducing the tax rate is that the
Philippines will give up a part of the tax in the expectation that the tax given up for
this particular investment is not taxed by the other country.

What are tax refunds?

Tax refunds are in the nature of tax exemptions, and as such they are regarded as in
derogation of sovereign authority and to be construed strictissimi juris against the
person or entity claiming the exemption.

Who has the burden of proof in tax exemption?

HELD: No. As a rule, set-off of taxes is not allowed. 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). This is not applicable in taxes. 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.

The Supreme Court emphasized: 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.

Further, the government already Francia. All he has to do was to withdraw the money.
Had he done that, he could have paid his tax obligations even before the auction sale
or could have exercised his right to redeem which he did not do.

Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same
is not tenable. The Supreme Court said: 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. 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. 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.
Domingo v. Garlitos

The burden of proof is upon him who claims the exemption in his favor and he must
be able to justify his claim by the clearest grant of organic or statute law.

Facts:
1. In Melecio Domingo v. Judge Moscoso SC declared as final and executor the
order of payment by the estate of Walter Scott Price of estate & inheritance taxes,
charges, andpenalties @P40K.

Engracio Francia was the owner of a 328 square meter land in Pasay City. In October
1977, a portion of his land (125 square meter) was expropriated by the government
for P4,116.00. The expropriation was made to give way to the expansion of a nearby
road.

2. Petition for execution of this judgment was sought Atty Benedicto submitted:
a. Note by the then Pres. Carlos Garcia directing the Dir. Of Lands to pay Mrs. Price
(administratix of Walter Prices estate) @P369,140
b. RA 2700, page 765: appropriating P262,200 for payment to Mrs. Price.

It also appears that Francia failed to pay his real estate taxes since 1963 amounting
to P2,400.00. So in December 1977, the remaining 203 square meters of his land
was sold at a public auction (after due notice was given him). The highest bidder was
a certain Ho Fernandez who paid the purchase price of P2,400.00 (which was lesser
than the price of the portion of his land that was expropriated).

3. CFI: Petition DENIED, execution is not justifiable since the Govt is indebted to the
estate. The payment of the claim of CIR deferred until the Govt has paid this debt.
Hence this petition to Set Aside the above order.
Issue: w/n the set-off/deferment of the claim of CIR is proper.
Held:

Later, Francia filed a complaint to annul the auction sale on the ground that the
selling price was grossly inadequate. He further argued that his land should have
never been auctioned because the P2,400.00 he owed the government in taxes
should have been set-off by the debt the government owed him (legal compensation).
He alleged that he was not paid by the government for the expropriated portion of his
land because though he knew that the payment therefor was deposited in the
Philippine National Bank, he never withdrew it.

It is proper. Compensation/set-off of taxes may happen by operation of law when

bothdebts are due and demandable.
1. The ordinary procedure to settle claims before an estate is not a petition for
execution,but by presenting a claim before the probate court.
a. Aldamiz vs. Judge of CFI Mindoro- 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

Page 8 of 10

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.)

longer envisioned as a measure merely to raise revenue to support the existence of

the government; taxes may be levied with a regulatory purpose to provide means for
the rehabilitation and stabilization of a threatened industry which is affected with
public interest as to be within the police power of the State.

b. Legal basis is the fact that the properties belonging to the state are under custodia
legis, which continues until said properties have been distributed among the heirs.

The oil industry is greatly imbued with public interest as it vitally affects the general
welfare.

2. Court having jurisdiction also found that the claim of the estate has been
recognized by the govt and has already appropriated the corresponding amount.

PD 1956, as amended by EO No. 137 explicitly provides that the source of OPSF is
taxation.

3. Claim of the Govt for inheritance taxes against the estate is due and demandable.
The claim of the estate against the Govt is also due, demandable and is 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.

Republic vs. Mambulao Lumber

CALTEX PHILIPPINES, INC., petitioner,vs.THE HONORABLE COMMISSION ON

AUDIT,

Mambulao Lumber Company paid the Government a total of P9,127.50 as

reforestation charges. Having found liable for an aggregate amount of P4,802.37 for
forest charges, it contended that since the Republic (Government) has not made use
of the reforestation charges for reforesting the denuded area of the land covered by
the companys license, the Republic should refund said amount or, if it cannot be
refunded, at least the company should be compensated with what it owed the
Republic for reforestation charges.

Topic: (1) tax vs. ordinary debt, (2) purpose/objective of taxation: non-revenue /
special / regulatory
DOCTRINE:
A taxpayer may not offset taxes due from the claims that he may have againstthe
government.
QUICK FACTS : Caltex Philippines questions the decisions of COA fordisallowing the
offsetting of its claims for reimbursement with its due OPSFremittance

FACTS:

ISSUE:
Whether taxes may be subject of set-off or compensation.

FACTS:
The Oil Price Stabilization Fund (OPSF) was created under Sec. 8, PD 1956, as
amended by EO 137 for the purpose of minimizing frequent price changes brought
about by exchange rate adjustments. It will be used to reimburse the oil companies
for cost increase and possible cost under recovery incurred due to reduction of
domestic prices. COA sent a letter to Caltex directing the latter to remit to the OPSF
its collection. Caltex requested COA for an early release of its reimbursement
certificates which the latter denied. COA disallowed recover of financing charges,
inventory losses and sales to marcopper and atlas but allowed the recovery of
product sale or those arising from export sales.
Petitioners Contention: Department of Finance issued Circular No. 4-88 allowing
reimbursement. Denial of claim for reimbursement would be inequitable. NCC
(compensation)and Sec. 21, Book V, Title I-B of the Revised Administrative Code
(Retention of Money for Satisfaction of Indebtedness to Government) allows
offsetting. Amounts due do not arise as a result of taxation since PD 1956 did not
create a source of taxation, it instead established a special fund. This lack of public
purpose behind OPSF exactions distinguishes it from tax.

HELD:
Internal revenue taxes, such as forest charges, cannot be the subject of set-off or
compensation. 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 subject of recoupment since they do not arise out of the contract or
transaction sued on.

Taxes are not in the nature of contracts between the parties but grow out of a duty to,
and are the positive acts of the government, to the making and enforcing of which,
the personal consent of individual taxpayers is not required.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.NATIONAL LABOR
RELATIONS COMMISSION, et. al., respondents

Respondents Contention: Based on Francia v. IAC

theres no offsetting of taxes against the claims that a taxpayer may have against the
government, as taxes do not arise from contracts or depend upon the will of the
taxpayer, but are imposed by law.

G.R. No. 74965

November 9, 1994

ISSUE: WON Caltex is entitled to offsetting

DECISION: NO.

COA AFFIRMED

FACTS:

HELD:
It is settled that a taxpayer may not offset taxes due from the claims that he may
have against the government. Taxes cannot be subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each other and a
claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off.
Technically, the oil companies merely act as agents for the Government in the
latters collection since the taxes are, in reality, passed unto the end-users the
consuming public. Their primary obligation is to account for and remit the taxes
collection to the administrator of the OPSF.
There is not merit in Caltexs contention that the OPSF contributions are not for a
public purpose because they go to a special fund of the government. Taxation is no

Commissioner of Internal Revenue issued warrants of distraint of personal property

and levy of real property of private respondent Maritime Company of the Philippines
for failure to pay its tax liabilities. However, it appears that four of the barges placed
under constructive distraint were levied upon execution by respondent deputy sheriff
of Manila to satisfy a judgment for unpaid wages and other benefits of employees of
respondent Maritime Company of the Philippines.

Petitioner asked the Labor Arbiter to annul the sale but the same was denied. NLRC
affirmed LAs decision averring that taxes are absolutely preferred claims only with
respect to movable or immovable properties on which they are due and that since the
taxes sought to be collected in this case are not due on the barges in question the
governments claim cannot prevail over the claims of employees of the Maritime

Page 9 of 10

Company of the Philippines which, pursuant to Art. 110 of the Labor Code, enjoy first
preference.

ISSUE:
WON the claims of the employees are given first preference over the claim for unpaid
internal revenue taxes.

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.

HELD:
No.

UNGAB vs. CUSI

Under Articles 2241 No. 1, 2242 No. 1, and 2246-2249 of the Civil Code, this tax
claim must be given preference over any other claim of any other creditor, in respect
of any and all properties of the insolvent.

Article 110 of the Labor Code does not purport to create a lien in favor of workers or
employees for unpaid wages either upon all of the properties or upon any particular
property owned by their employer.

Art. 110 of the Labor Code applies only in case of bankruptcy or judicial liquidation of
the employer. This case does not involve the liquidation of the employers business.
CIR vs. PASCOR
309 SCRA 402

97 SCRA 877
GR No. L-41919-24 May 30, 1980
"An assessment of a deficiency is not necessary to a criminal prosecution for wilful
attempt to defeat and evade the income tax."

FACTS: The BIR filed six criminal charges against Quirico Ungab, a banana saplings
producer, for allegedly evading payment of taxes and other violations of the NIRC.
Ungab, subsequently filed a motion to quash on the ground that (1) the information
are null and void for want of authority on the part of the State Prosecutor to initiate
and prosecute the said cases; and (2)that the trial court has no jurisdiction to take
cognizance of the case in view of his pending protest against the assessment made
by the BIR examiner. The trial court denied the motion prompting the petitioner to file
a petition for certiorari and prohibition with preliminary injunction and restraining order
to annul and set aside the information filed.

GR No. 128315 June 29, 1999

"An assessment is not necessary before a criminal charge can be filed."
ISSUE: Is the contention that the criminal prosecution is premature since the CIR has
not yet resolved the protest against the tax assessment tenable?
FACTS: The BIR examined the books of account of Pascor Realty and Devt Corp for
years 1986, 1987 and 1988, from which a tax liability of 10.5 Million Pesos was
found. Based on the recommendations of the examiners, the CIR filed an information
with the DOJ for tax evasion against the officers of Pascor. Upon receipt of the
subpoena, the latter filed an urgent request for reconsideration/reinvestigation with
the CIR, which was immediately denied upon the ground that no formal assessment
has yet been issued by the Commisioner. Pascor elevated the CIR's decision to the
CTA on a petition for review. The CIR filed a Motion to Dismiss on the ground of lack
of jurisdiction of CTA as there was no formal assessment made against the
respondents. The CTA dismissed the motion, hence this petition.

ISSUE: Is a formal assessment necessary in the filing of a criminal complaint?

HELD: No. Section 222 of the NIRC 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.

HELD: No. 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.
An assessment of a deficiency is not necessary to a criminal prosecution for wilful
attempt to defeat and evade the income tax. A crime is complete when the violator
has knowingly and wilfully 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.

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