G.R. No.

L-75697

VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY
MAYOR and CITY TREASURER OF MANILA, respondents.

Nelson Y. Ng for petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.:

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 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:

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 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 theater-owners 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.

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.

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.

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.

No costs.

SO ORDERED.
Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento and Cortes, JJ., concur.

G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

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.

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," 9being "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 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 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. 21After 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 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.
SO ORDERED.

Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

[G.R. Nos. 147062-64. December 14, 2001]

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT (PCGG), petitioner, vs. COCOFED et al. and BALLARES et al.,[1] EDUARDO M.
COJUANGCO JR. and the SANDIGANBAYAN (First Division) respondents.

DECISION

PANGANIBAN, J.:

The right to vote sequestered shares of stock registered in the names of private individuals or
entities and alleged to have been acquired with ill-gotten wealth shall, as a rule, be exercised by the
registered owner. The PCGG may, however, be granted such voting right provided it can (1) show prima
facie evidence that the wealth and/or the shares are indeed ill-gotten; and (2) demonstrate imminent
danger of dissipation of the assets, thus necessitating their continued sequestration and voting by the
government until a decision, ruling with finality on their ownership, is promulgated by the proper court.

However, the foregoing two-tiered test does not apply when the sequestered stocks are acquired with
funds that are prima facie public in character or, at least, are affected with public interest. Inasmuch as
the subject UCPB shares in the present case were undisputably acquired with coco levy funds which are
public in character, then the right to vote them shall be exercised by the PCGG. In sum, the public
character test, not the two-tiered one, applies in the instant controversy.

The Case

Before us is a Petition for Certiorari with a prayer for the issuance of a temporary restraining order
and/or a writ of preliminary injunction under Rule 65 of the Rules of Court, seeking to set aside the
February 28, 2001 Order[2] of the First Division of the Sandiganbayan[3] in Civil Case Nos. 0033-A, 0033-B
and 0033-F. The pertinent portions of the assailed Order read as follows:

In view hereof, the movants COCOFED, et al. and Ballares, et al. as well as Eduardo Cojuangco, et al.,
who were acknowledged to be registered stockholders of the UCPB are authorized, as are all other
registered stockholders of the United Coconut Planters Bank, until further orders from this Court, to
exercise their rights to vote their shares of stock and themselves to be voted upon in the United
Coconut Planters Bank (UCPB) at the scheduled Stockholders Meeting on March 6, 2001 or on any
subsequent continuation or resetting thereof, and to perform such acts as will normally follow in the
exercise of these rights as registered stockholders.

Since by way of form, the pleadings herein had been labeled as praying for an injunction, the right of the
movants to exercise their right as abovementioned will be subject to the posting of a nominal bond in
the amount of FIFTY THOUSAND PESOS (P50,000.00) jointly for the defendants COCOFED, et al. and
Ballares, et al., as well as all other registered stockholders of sequestered shares in that bank, and FIFTY
THOUSAND PESOS (P50,000.00) for Eduardo Cojuangco, Jr., et al., to answer for any undue damage or
injury to the United Coconut Planters Bank as may be attributed to their exercise of their rights as
registered stockholders.[4]

The Antecedents

The very roots of this case are anchored on the historic events that transpired during the change of
government in 1986. Immediately after the 1986 EDSA Revolution, then President Corazon C. Aquino
issued Executive Order (EO) Nos. 1,[5] 2[6] and 14.[7]

On the explicit premise that vast resources of the government have been amassed by former President
Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad, the
Presidential Commission on Good Government (PCGG) was created by Executive Order No. 1 to assist
the President in the recovery of the ill-gotten wealth thus accumulated whether located in the
Philippines or abroad.[8]

Executive Order No. 2 states that the ill-gotten assets and properties are in the form of bank accounts,
deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums, mansions,
residences, estates, and other kinds of real and personal properties in the Philippines and in various
countries of the world.[9]

Executive Order No. 14, on the other hand, empowered the PCGG, with the assistance of the Office of
the Solicitor General and other government agencies, inter alia, to file and prosecute all cases
investigated by it under EO Nos. 1 and 2.

Pursuant to these laws, the PCGG issued and implemented numerous sequestrations, freeze orders and
provisional takeovers of allegedly ill-gotten companies, assets and properties, real or personal.[10]

Among the properties sequestered by the Commission were shares of stock in the United Coconut
Planters Bank (UCPB) registered in the names of the alleged one million coconut farmers, the so-called
Coconut Industry Investment Fund companies (CIIF companies) and Private Respondent Eduardo
Cojuangco Jr. (hereinafter Cojuangco).

In connection with the sequestration of the said UCPB shares, the PCGG, on July 31, 1987, instituted an
action for reconveyance, reversion, accounting, restitution and damages docketed as Case No. 0033 in
the Sandiganbayan.
On November 15, 1990, upon Motion[11] of Private Respondent COCOFED, the Sandiganbayan issued a
Resolution[12] lifting the sequestration of the subject UCPB shares on the ground that herein private
respondents -- in particular, COCOFED and the so-called CIIF companies had not been impleaded by the
PCGG as parties-defendants in its July 31, 1987 Complaint for reconveyance, reversion, accounting,
restitution and damages. The Sandiganbayan ruled that the Writ of Sequestration issued by the
Commission was automatically lifted for PCGGs failure to commence the corresponding judicial action
within the six-month period ending on August 2, 1987 provided under Section 26, Article XVIII of the
1987 Constitution. The anti-graft court noted that though these entities were listed in an annex
appended to the Complaint, they had not been named as parties-respondents.

This Sandiganbayan Resolution was challenged by the PCGG in a Petition for Certiorari docketed as GR
No. 96073 in this Court. Meanwhile, upon motion of Cojuangco, the anti-graft court ordered the holding
of elections for the Board of Directors of UCPB. However, the PCGG applied for and was granted by this
Court a Restraining Order enjoining the holding of the election. Subsequently, the Court lifted the
Restraining Order and ordered the UCPB to proceed with the election of its board of
directors. Furthermore, it allowed the sequestered shares to be voted by their registered owners.

The victory of the registered shareholders was fleeting because the Court, acting on the solicitor
generals Motion for Clarification/Manifestation, issued a Resolution on February 16, 1993, declaring
that the right of petitioners [herein private respondents] to vote stock in their names at the meetings of
the UCPB cannot be conceded at this time. That right still has to be established by them before the
Sandiganbayan. Until that is done, they cannot be deemed legitimate owners of UCPB stock and cannot
be accorded the right to vote them.[13] The dispositive portion of the said Resolution reads as follows:

IN VIEW OF THE FOREGOING, the Court recalls and sets aside the Resolution dated March 3, 1992 and,
pending resolution on the merits of the action at bar, and until further orders, suspends the effectivity
of the lifting of the sequestration decreed by the Sandiganbayan on November 15, 1990, and directs the
restoration of the status quo ante, so as to allow the PCGG to continue voting the shares of stock under
sequestration at the meetings of the United Coconut Planters Bank.[14]

On January 23, 1995, the Court rendered its final Decision in GR No. 96073, nullifying and setting aside
the November 15, 1990 Resolution of the Sandiganbayan which, as earlier stated, lifted the
sequestration of the subject UCPB shares. The express impleading of herein Respondents COCOFED et
al. was deemed unnecessary because the judgment may simply be directed against the shares of stock
shown to have been issued in consideration of ill-gotten wealth.[15] Furthermore, the companies are
simply the res in the actions for the recovery of illegally acquired wealth, and there is, in principle, no
cause of action against them and no ground to implead them as defendants in said case.[16]

A month thereafter, the PCGG -- pursuant to an Order of the Sandiganbayan -- subdivided Case No. 0033
into eight Complaints and docketed them as Case Nos. 0033-A to 0033-H.

Six years later, on February 13, 2001, the Board of Directors of UCPB received from the ACCRA Law
Office a letter written on behalf of the COCOFED and the alleged nameless one million coconut farmers,
demanding the holding of a stockholders meeting for the purpose of, among others, electing the board
of directors. In response, the board approved a Resolution calling for a stockholders meeting on March
6, 2001 at three oclock in the afternoon.

On February 23, 2001, COCOFED, et al. and Ballares, et al. filed the Class Action Omnibus
Motion[17] referred to earlier in Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F, asking the
court a quo:

1. To enjoin the PCGG from voting the UCPB shares of stock registered in the respective names of the
more than one million coconut farmers; and

2. To enjoin the PCGG from voting the SMC shares registered in the names of the 14 CIIF holding
companies including those registered in the name of the PCGG.[18]

On February 28, 2001, respondent court, after hearing the parties on oral argument, issued the assailed
Order.

Hence, this Petition by the Republic of the Philippines represented by the PCGG.[19]

The case had initially been raffled to this Courts Third Division which, by a vote of 3-2,[20] issued a
Resolution[21] requiring the parties to maintain the status quo existing before the issuance of the
questioned Sandiganbayan Order dated February 28, 2001. On March 7, 2001, Respondent COCOFED et
al. moved that the instant Petition be heard by the Court en banc.[22] The Motion was unanimously
granted by the Third Division.

On March 13, 2001, the Court en banc resolved to accept the Third Divisions referral.[23] It heard the
case on Oral Argument in Baguio City on April 17, 2001. During the hearing, it admitted the intervention
of a group of coconut farmers and farm worker organizations, the Pambansang Koalisyon ng mga
Samahang Magsasaka at Manggagawa ng Niyugan (PKSMMN). The coalition claims that its members
have been excluded from the benefits of the coconut levy fund. Inter alia, it joined petitioner in praying
for the exclusion of private respondents in voting the sequestered shares.

Issues

Petitioner submits the following issues for our consideration:[24]

A.

Despite the fact that the subject sequestered shares were purchased with coconut levy funds (which
were declared public in character) and the continuing effectivity of Resolution dated February 16, 1993
in G.R. No. 96073 which allows the PCGG to vote said sequestered shares, Respondent Sandiganbayan,
with grave abuse of discretion, issued its Order dated February 28, 2001 enjoining PCGG from voting the
sequestered shares of stock in UCPB.

B.
The Respondent Sandiganbayan violated petitioners right to due process by taking cognizance of the
Class Action Omnibus Motion dated 23 February 2001 despite gross lack of sufficient notice and by
issuing the writ of preliminary injunction despite the obvious fact that there was no actual pressing
necessity or urgency to do so.

In its Resolution dated April 17, 2001, the Court defined the issue to be resolved in the instant case
simply as follows:

Did the Sandiganbayan commit grave abuse of discretion when it issued the disputed Order allowing
respondents to vote UCPB shares of stock registered in the name of respondents?

This Courts Ruling

The Petition is impressed with merit.

Main Issue: Who May Vote the Sequestered Shares of Stock?

Simply stated, the gut substantive issue to be resolved in the present Petition is: Who may vote the
sequestered UCPB shares while the main case for their reversion to the State is pending in the
Sandiganbayan?

This Court holds that the government should be allowed to continue voting those shares inasmuch as
they were purchased with coconut levy funds -- funds that are prima facie public in character or, at the
very least, are clearly affected with public interest.

General Rule: Sequestered Shares Are Voted by the Registered Holder

At the outset, it is necessary to restate the general rule that the registered owner of the shares of a
corporation exercises the right and the privilege of voting.[25] This principle applies even to shares that
are sequestered by the government, over which the PCGG as a mere conservator cannot, as a general
rule, exercise acts of dominion.[26] On the other hand, it is authorized to vote these sequestered shares
registered in the names of private persons and acquired with allegedly ill-gotten wealth, if it is able to
satisfy the two-tiered test devised by the Court in Cojuangco v. Calpo[27] and PCGG v. Cojuangco Jr.,[28] as
follows:

(1) Is there prima facie evidence showing that the said shares are ill-gotten and thus belong to the
State?

(2) Is there an imminent danger of dissipation, thus necessitating their continued sequestration and
voting by the PCGG, while the main issue is pending with the Sandiganbayan?

Sequestered Shares Acquired with Public Funds Are an Exception

From the foregoing general principle, the Court in Baseco v. PCGG[29] (hereinafter Baseco) and Cojuangco
Jr. v. Roxas[30] (Cojuangco-Roxas) has provided two clear public character exceptions under which the
government is granted the authority to vote the shares:
(1) Where government shares are taken over by private persons or entities who/which registered them
in their own names, and

(2) Where the capitalization or shares that were acquired with public funds somehow landed in private
hands.

The exceptions are based on the common-sense principle that legal fiction must yield to truth; that
public property registered in the names of non-owners is affected with trust relations; and that
the prima facie beneficial owner should be given the privilege of enjoying the rights flowing from
the prima facie fact of ownership.

In Baseco, a private corporation known as the Bataan Shipyard and Engineering Co. was placed under
sequestration by the PCGG. Explained the Court:

The facts show that the corporation known as BASECO was owned and controlled by President Marcos
during his administration, through nominees, by taking undue advantage of his public office and/or
using his powers, authority, or influence, and that it was by and through the same means, that BASECO
had taken over the business and/or assets of the National Shipyard and Engineering Co., Inc., and other
government-owned or controlled entities.[31]

Given this factual background, the Court discussed PCGGs right over BASECO in the following manner:

Now, in the special instance of a business enterprise shown by evidence to have been taken over by the
government of the Marcos Administration or by entities or persons close to former President Marcos,
the PCGG is given power and authority, as already adverted to, to provisionally take (it) over in the
public interest or to prevent * * (its) disposal or dissipation; and since the term is obviously employed in
reference to going concerns, or business enterprises in operation, something more than mere physical
custody is connoted; the PCGG may in this case exercise some measure of control in the operation,
running, or management of the business itself.[32]

Citing an earlier Resolution, it ruled further:

Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling
and holding of a stockholders' meeting for the election of directors as authorized by the Memorandum
of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this case, the
government can, through its designated directors, properly exercise control and management over what
appear to be properties and assets owned and belonging to the government itself and over which the
persons who appear in this case on behalf of BASECO have failed to show any right or even any
shareholding in said corporation.[33] (Italics supplied)

The Court granted PCGG the right to vote the sequestered shares because they appeared to be assets
belonging to the government itself. The Concurring Opinion of Justice Ameurfina A. Melencio-Herrera, in
which she was joined by Justice Florentino P. Feliciano, explained this principle as follows:
I have no objection to according the right to vote sequestered stock in case of a take-over of business
actually belonging to the government or whose capitalization comes from public funds but which,
somehow, landed in the hands of private persons, as in the case of BASECO. To my mind, however,
caution and prudence should be exercised in the case of sequestered shares of an on-going private
business enterprise, specially the sensitive ones, since the true and real ownership of said shares is yet
to be determined and proven more conclusively by the Courts.[34] (Italics supplied)

The exception was cited again by the Court in Cojuangco-Roxas[35] in this wise:

The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of
sequestered property. It is a mere conservator. It may not vote the shares in a corporation and elect the
members of the board of directors. The only conceivable exception is in a case of a takeover of a
business belonging to the government or whose capitalization comes from public funds, but which
landed in private hands as in BASECO.[36] (Italics supplied)

The public character test was reiterated in many subsequent cases; most recently, in Antiporda v.
Sandiganbayan.[37] Expressly citing Cojuangco-Roxas,[38] this Court said that in determining the issue of
whether the PCGG should be allowed to vote sequestered shares, it was crucial to find out first whether
these were purchased with public funds, as follows:

It is thus important to determine first if the sequestered corporate shares came from public funds that
landed in private hands.[39]

In short, when sequestered shares registered in the names of private individuals or entities are alleged
to have been acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the
sequestered shares in the name of private individuals or entities are shown, prima facie, to have been
(1) originally government shares, or (2) purchased with public funds or those affected with public
interest, then the two-tiered test does not apply. Rather, the public character exceptions in Baseco v.
PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote the shares.

UCPB Shares Were Acquired With Coconut Levy Funds

In the present case before the Court, it is not disputed that the money used to purchase the
sequestered UCPB shares came from the Coconut Consumer Stabilization Fund (CCSF), otherwise known
as the coconut levy funds.

This fact was plainly admitted by private respondents counsel, Atty. Teresita J. Herbosa, during the Oral
Arguments held on April 17, 2001 in Baguio City, as follows:

Justice Panganiban:

In regard to the theory of the Solicitor General that the funds used to purchase [both] the original 28
million and the subsequent 80 million came from the CCSF, Coconut Consumers Stabilization Fund, do
you agree with that?
Atty. Herbosa:

Yes, Your Honor.

xxxxxxxxx

Justice Panganiban:

So it seems that the parties [have] agreed up to that point that the funds used to purchase 72% of the
former First United Bank came from the Coconut Consumer Stabilization Fund?

Atty. Herbosa:

Yes, Your Honor.[40]

Indeed in Cocofed v. PCGG,[41] this Court categorically declared that the UCPB was acquired with the use
of the Coconut Consumers Stabilization Fund in virtue of Presidential Decree No. 755, promulgated on
July 29, 1975.

Coconut Levy Funds Are Affected With Public Interest

Having conclusively shown that the sequestered UCPB shares were purchased with coconut levies, we
hold that these funds and shares are, at the very least, affected with public interest.

The Resolution issued by the Court on February 16, 1993 in Republic v. Sandiganbayan[42] stated that
coconut levy funds were clearly affected with public interest; thus, herein private respondents even if
they are the registered shareholders cannot be accorded the right to vote them. We quote the said
Resolution in part, as follows:

The coconut levy funds being clearly affected with public interest, it follows that the corporations
formed and organized from those funds, and all assets acquired therefrom should also be regarded as
clearly affected with public interest.[43]

xxxxxxxxx

Assuming, however, for purposes of argument merely, the lifting of sequestration to be correct, may it
also be assumed that the lifting of sequestration removed the character of the coconut levy companies
of being affected with public interest, so that they and their stock and assets may now be considered to
be of private ownership? May it be assumed that the lifting of sequestration operated to relieve the
holders of stock in the coconut levy companies affected with public interest of the obligation of proving
how that stock had been legitimately transferred to private ownership, or that those stockholders who
had had some part in the collection, administration, or disposition of the coconut levy funds are now
deemed qualified to acquire said stock, and freed from any doubt or suspicion that they had taken
advantage of their special or fiduciary relation with the agencies in charge of the coconut levies and the
funds thereby accumulated? The obvious answer to each of the questions is a negative one. It seems
plain that the lifting of sequestration has no relevance to the nature of the coconut levy companies or
their stock or property, or to the legality of the acquisition by private persons of their interest therein, or
to the latters capacity or disqualification to acquire stock in the companies or any property acquired
from coconut levy funds.

This being so, the right of the [petitioners] to vote stock in their names at the meetings of the UCPB
cannot be conceded at this time. That right still has to be established by them before the
Sandiganbayan.Until that is done, they cannot be deemed legitimate owners of UCPB stock and cannot
be accorded the right to vote them.[44] (Italics supplied)

It is however contended by respondents that this Resolution was in the nature of a temporary
restraining order. As such, it was supposedly interlocutory in character and became functus oficio when
this Court decided GR No. 96073 on January 23, 1995.

This argument is aptly answered by petitioner in its Memorandum, which we quote:

The ruling made in the Resolution dated 16 February 1993 confirming the public nature of the coconut
levy funds and denying claimants their purported right to vote is an affirmation of doctrines laid down in
the cases of COCOFED v. PCGG supra, Baseco v. PCGG, supra, and Cojuangco v. Roxas, supra. Therefore
it is of no moment that the Resolution dated 16 February 1993 has not been ratified. Its jurisprudential
bases remain. [45] (Italics supplied)

Granting arguendo that the Resolution is interlocutory, the truth remains: the coconut levy funds are
still clearly affected with public interest. That was the truth in 1989 as quoted by this Court in its
February 16, 1993 Resolution, and so it is today. Said the Court in 1989:

The utilization and proper management of the coconut levy funds, raised as they were by the States
police and taxing powers, are certainly the concern of the Government. It cannot be denied that it was
the welfare of the entire nation that provided the prime moving factor for the imposition of the levy. It
cannot be denied that the coconut industry is one of the major industries supporting the national
economy. It is, therefore, the States concern to make it a strong and secure source not only of the
livelihood of a significant segment of the population but also of export earnings the sustained growth of
which is one of the imperatives of economic stability. The coconut levy funds are clearly affected with
public interest. Until it is demonstrated satisfactorily that they have legitimately become private funds,
they must prima facie and by reason of the circumstances in which they were raised and accumulated be
accounted subject to the measures prescribed in E.O. Nos. 1, 2, and 14 to prevent their concealment,
dissipation, etc., which measures include the sequestration and other orders of the PCGG complained
of.[46] (Italics supplied)

To repeat, the foregoing juridical situation has not changed. It is still the truth today: the coconut levy
funds are clearly affected with public interest. Private respondents have not demonstrated satisfactorily
that they have legitimately become private funds.

If private respondents really and sincerely believed that the final Decision of the Court in Republic v.
Sandiganbayan (GR No. 96073, promulgated on January 23, 1995) granted them the right to vote, why
did they wait for the lapse of six long years before definitively asserting it (1) through their letter dated
February 13, 2001, addressed to the UCPB Board of Directors, demanding the holding of a shareholders
meeting on March 6, 2001; and (2) through their Omnibus Motion dated February 23, 2001 filed in the
court a quo, seeking to enjoin PCGG from voting the subject sequestered shares during the said
stockholders meeting? Certainly, if they even half believed their submission now -- that they already had
such right in 1995 -- why are they suddenly and imperiously claiming it only now?

It should be stressed at this point that the assailed Sandiganbayan Order dated February 28, 2001 --
allowing private respondents to vote the sequestered shares -- is not based on any finding that the
coconut levies and the shares have legitimately become private funds. Neither is it based on the alleged
lifting of the TRO issued by this Court on February 16, 1993. Rather, it is anchored on the grossly
mistaken application of the two-tiered test mentioned earlier in this Decision.

To stress, the two-tiered test is applied only when the sequestered asset in the hands of a private
person is alleged to have been acquired with ill-gotten wealth. Hence, in PCGG v. Cojuangco,[47] we
allowed Eduardo Cojuangco Jr. to vote the sequestered shares of the San Miguel Corporation (SMC)
registered in his name but alleged to have been acquired with ill-gotten wealth. We did so on his
representation that he had acquired them with borrowed funds and upon failure of the PCGG to satisfy
the two-tiered test. This test was, however, not applied to sequestered SMC shares that were purchased
with coco levy funds.

In the present case, the sequestered UCPB shares are confirmed to have been acquired with coco levies,
not with alleged ill-gotten wealth. Hence, by parity of reasoning, the right to vote them is not subject to
the two-tiered test but to the public character of their acquisition, which per Antiporda v.
Sandiganbayan cited earlier, must first be determined.

Coconut Levy Funds Are Prima Facie Public Funds

To avoid misunderstanding and confusion, this Court will even be more categorical and positive than its
earlier pronouncements: the coconut levy funds are not only affected with public interest; they are, in
fact, prima facie public funds.

Public funds are those moneys belonging to the State or to any political subdivision of the State; more
specifically, taxes, customs duties and moneys raised by operation of law for the support of the
government or for the discharge of its obligations.[48] Undeniably, coconut levy funds satisfy this general
definition of public funds, because of the following reasons:

1. Coconut levy funds are raised with the use of the police and taxing powers of the State.

2. They are levies imposed by the State for the benefit of the coconut industry and its farmers.

3. Respondents have judicially admitted that the sequestered shares were purchased with public funds.

4. The Commission on Audit (COA) reviews the use of coconut levy funds.
5. The Bureau of Internal Revenue (BIR), with the acquiescence of private respondents, has treated
them as public funds.

6. The very laws governing coconut levies recognize their public character.

We shall now discuss each of the foregoing reasons, any one of which is enough to show their public
character.

1. Coconut Levy Funds Are Raised Through the States Police and Taxing Powers.

Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced proportional
contributions from persons and properties, exacted by the State by virtue of its sovereignty for the
support of government and for all public needs.[49]

Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution
from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied
for the support of the government. The coconut levy funds fall squarely into these elements for the
following reasons:

(a) They were generated by virtue of statutory enactments imposed on the coconut farmers requiring
the payment of prescribed amounts. Thus, PD No. 276, which created the Coconut Consumer
Stabilization Fund (CCSF), mandated the following:

a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its equivalent in other coconut
products, shall be imposed on every first sale, in accordance with the mechanics established under RA
6260, effective at the start of business hours on August 10, 1973.

The proceeds from the levy shall be deposited with the Philippine National Bank or any other
government bank to the account of the Coconut Consumers Stabilization Fund, as a separate trust fund
which shall not form part of the general fund of the government.[50]

The coco levies were further clarified in amendatory laws, specifically PD No. 961[51] and PD No. 1468[52] -
- in this wise:

The Authority (Philippine Coconut Authority) is hereby empowered to impose and collect a levy, to be
known as the Coconut Consumers Stabilization Fund Levy, on every one hundred kilos of copra
resecada, or its equivalent in other coconut products delivered to, and/or purchased by, copra
exporters, oil millers, desiccators and other end-users of copra or its equivalent in other coconut
products. The levy shall be paid by such copra exporters, oil millers, desiccators and other end-users of
copra or its equivalent in other coconut products under such rules and regulations as the Authority may
prescribe.Until otherwise prescribed by the Authority, the current levy being collected shall be
continued.[53]

Like other tax measures, they were not voluntary payments or donations by the people. They were
enforced contributions exacted on pain of penal sanctions, as provided under PD No. 276:
3. Any person or firm who violates any provision of this Decree or the rules and regulations promulgated
thereunder, shall, in addition to penalties already prescribed under existing administrative and special
law, pay a fine of not less than P2,500 or more than P10,000, or suffer cancellation of licenses to
operate, or both, at the discretion of the Court.[54]

Such penalties were later amended thus:

Whenever any person or entity willfully and deliberately violates any of the provisions of this Act, or any
rule or regulation legally promulgated hereunder by the Authority, the person or persons responsible for
such violation shall be punished by a fine of not more than P20,000.00 and by imprisonment of not
more than five years. If the offender be a corporation, partnership or a juridical person, the penalty shall
be imposed on the officer or officers authorizing, permitting or tolerating the violation. Aliens found
guilty of any offenses shall, after having served his sentence, be immediately deported and, in the case
of a naturalized citizen, his certificate of naturalization shall be cancelled.[55]

(b) The coconut levies were imposed pursuant to the laws enacted by the proper legislative authorities
of the State. Indeed, the CCSF was collected under PD No. 276, issued by former President Ferdinand E.
Marcos who was then exercising legislative powers.[56]

(c) They were clearly imposed for a public purpose. There is absolutely no question that they were
collected to advance the governments avowed policy of protecting the coconut industry. This Court
takes judicial notice of the fact that the coconut industry is one of the great economic pillars of our
nation, and coconuts and their byproducts occupy a leading position among the countrys export
products; that it gives employment to thousands of Filipinos; that it is a great source of the States
wealth; and that it is one of the important sources of foreign exchange needed by our country and, thus,
pivotal in the plans of a government committed to a policy of currency stability.

Taxation is done not merely to raise revenues to support the government, but also to provide means for
the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest
as to be within the police power of the State, as held in Caltex Philippines v. COA[57] and Osmea v.
Orbos.[58]

Even if the money is allocated for a special purpose and raised by special means, it is still public in
character. In the case before us, the funds were even used to organize and finance State
offices. In Cocofed v. PCGG,[59] the Court observed that certain agencies or enterprises were organized
and financed with revenues derived from coconut levies imposed under a succession of laws of the late
dictatorship x x x with deposed Ferdinand Marcos and his cronies as the suspected authors and chief
beneficiaries of the resulting coconut industry monopoly.[60] The Court continued: x x x. It cannot be
denied that the coconut industry is one of the major industries supporting the national economy. It is,
therefore, the States concern to make it a strong and secure source not only of the livelihood of a
significant segment of the population, but also of export earnings the sustained growth of which is one
of the imperatives of economic stability. x x x.[61]

2. Coconut Funds Are Levied for the Benefit of the Coconut Industry and Its Farmers.
Just like the sugar levy funds, the coconut levy funds constitute state funds even though they may be
held for a special public purpose.

In fact, Executive Order No. 481 dated May 1, 1998 specifically likens the coconut levy funds to the sugar
levy funds, both being special public funds acquired through the taxing and police powers of the
State. The sugar levy funds, which are strikingly similar to the coconut levies in their imposition and
purpose, were declared public funds by this Court in Gaston v. Republic Planters Bank,[62] from which we
quote:

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 vs. Araneta, 98 Phil. 148). They constitute sugar
liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a Special Fund, a Development and
Stabilization Fund, almost identical to the Sugar Adjustment and Stabilization Fund created under
Section 6 of Commonwealth Act 567. The tax collected is not in a pure exercise of the taxing power. It is
levied with a regulatory purpose, to provide means for the stabilization of the sugar industry. The levy is
primarily in the exercise of the police power of the State. (Lutz vs. Araneta, supra.).[63]

The Court further explained:[64]

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 as state funds, even
though they are held for a special purpose (Lawrence v. American Surety Co., 263 Mich 586. 294 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, Art. VI, Sec. 29[3], lifted from the 1935 Constitution, Article VI, Sec. 23[1]. (Italics supplied)

The character of the Stabilization Fund as a special 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[1],
1973 Constitution, Article VIII, Sec. 18[1]).

That the fees were collected from sugar producers, planters and millers, and that the funds were
channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a trust
fund for their benefit nor make them the beneficial owners of the shares so purchased. It is but rational
that the fees be collected from them since it is also they who are to be benefited from the expenditure
of the funds derived from it. The investment in shares of respondent Bank is not alien to the purpose
intended because of the Banks character as a commodity bank for sugar conceived for the industrys
growth and development. Furthermore, of note is the fact that one-half (1/2) or P0.50 per picul, of the
amount levied under P.D. No. 388 is to be utilized for the payment of salaries and wages of personnel,
fringe benefits and allowances of officers and employees of PHILSUCOM thereby immediately negating
the claim that the entire amount levied is in trust for sugar, producers, planters and millers.

To rule in petitioners favor would contravene the general principle that revenues derived from taxes
cannot be used for purely private purposes or for the exclusive benefit of private persons. The
Stabilization Fund is to be utilized for the benefit of the entire sugar industry, and all its components,
stabilization of the domestic market including the foreign market, the industry being of vital importance
to the countrys economy and to national interest.

In the same manner, this Court has also ruled that the oil stabilization funds were public in character
and subject to audit by COA. It ruled in this wise:

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.[65]

In his Concurring Opinion in Kilosbayan v. Guingona,[66] Justice Florentino P. Feliciano explained that the
funds raised by the On-line Lottery System were also public in nature. In his words:

x x x. In the case presently before the Court, the funds involved are clearly public in nature. The funds to
be generated by the proposed lottery are to be raised from the population at large. Should the proposed
operation be as successful as its proponents project, those funds will come from well-nigh every town
and barrio of Luzon. The funds here involved are public in another very real sense: they will belong to
the PCSO, a government owned or controlled corporation and an instrumentality of the government and
are destined for utilization in social development projects which, at least in principle, are designed to
benefit the general public. x x x. The interest of a private citizen in seeing to it that public funds, from
whatever source they may have been derived, go only to the uses directed and permitted by law is as
real and personal and substantial as the interest of a private taxpayer in seeing to it that tax monies are
not intercepted on their way to the public treasury or otherwise diverted from uses prescribed or
allowed by law. It is also pertinent to note that the more successful the government is in raising
revenues by non-traditional methods such as PAGCOR operations and privatization measures, the lesser
will be the pressure upon the traditional sources of public revenues, i.e., the pocket books of individual
taxpayers and importers.[67]

Thus, the coconut levy funds -- like the sugar levy and the oil stabilization funds, as well as the monies
generated by the On-line Lottery System -- are funds exacted by the State. Being enforced contributions,
they are prima facie public funds.

3. Respondents Judicially Admit That the Levies Are Government Funds.

Equally important as the fact that the coconut levy funds were raised through the taxing and police
powers of the State is respondents effective judicial admission that these levies are government
funds.As shown by the attachments to their pleadings,[68] respondents concede that the Coconut
Consumers Stabilization Fund (CCSF) and the Coconut Investment Development Fund constitute
government funds x x x for the benefit of coconut farmers.

Collections on both levies constitute government funds. However, unlike other taxes that the
Government levies and collects such as income tax, tariff and customs duties, etc., the collections on the
CCSF and CIDF are, by express provision of the laws imposing them, for a definite purpose, not just for
any governmental purpose. As stated above part of the collections on the CCSF levy should be spent for
the benefit of the coconut farmers. And in respect of the collections on the CIDF levy, P.D. 582
mandatorily requires that the same should be spent exclusively for the establishment, operation and
maintenance of a hybrid coconut seed garden and the distribution, for free, to the coconut farmers of
the hybrid coconut seednuts produced from that seed garden.

On the other hand, the laws which impose special levies on specific industries, for example on the
mining industry, sugar industry, timber industry, etc., do not, by their terms, expressly require that the
collections on those levies be spent exclusively for the benefit of the industry concerned. And if the
enabling law thus so provide, the fact remains that the governmental agency entrusted with the duty of
implementing the purpose for which the levy is imposed is vested with the discretionary power to
determine when and how the collections should be appropriated.[69]

4. The COA Audit Shows the Public Nature of the Funds.

Under COA Office Order No. 86-9470 dated April 15, 1986,[70] the COA reviewed the expenditure and use
of the coconut levies allocated for the acquisition of the UCPB. The audit was aimed at ascertaining
whether these were utilized for the purpose for which they had been intended.[71] Under the 1987
Constitution, the powers of the COA are as follows:

The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property,
owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or
instrumentalities x x x.[72]

Because these funds have been subjected to COA audit, there can be no other conclusion than that they
are prima facie public in character.

5. The BIR Has Pronounced That the Coconut Levy Funds Are Taxes.

In response to a query posed by the administrator of the Philippine Coconut Authority regarding the
character of the coconut levy funds, the Bureau of Internal Revenue has affirmed that these funds are
public in character. It held as follows: [T]he coconut levy is not a public trust fund for the benefit of the
coconut farmers, but is in the nature of a tax and, therefore, x x x public funds that are subject to
government administration and disposition.[73]
Furthermore, the executive branch treats the coconut levies as public funds. Thus, Executive Order No.
277, issued on September 24, 1995, directed the mode of treatment, utilization, administration and
management of the coconut levy funds. It provided as follows:

(a) The coconut levy funds, which include all income, interests, proceeds or profits derived therefrom, as
well as all assets, properties and shares of stocks procured or obtained with the use of such funds, shall
be treated, utilized, administered and managed as public funds consistent with the uses and purposes
under the laws which constituted them and the development priorities of the government, including the
governments coconut productivity, rehabilitation, research extension, farmers organizations, and
market promotions programs, which are designed to advance the development of the coconut industry
and the welfare of the coconut farmers.[74] (Italics supplied)

Doctrinally, acts of the executive branch are prima facie valid and binding, unless declared
unconstitutional or contrary to law.

6. Laws Governing Coconut Levies Recognize Their Public Nature.

Finally and tellingly, the very laws governing the coconut levies recognize their public character. Thus,
the third Whereas clause of PD No. 276 treats them as special funds for a specific public
purpose.Furthermore, PD No. 711 transferred to the general funds of the State all existing special and
fiduciary funds including the CCSF. On the other hand, PD No. 1234 specifically declared the CCSF as a
special fund for a special purpose, which should be treated as a special account in the National Treasury.

Moreover, even President Marcos himself, as the sole legislative/executive authority during the martial
law years, struck off the phrase which is a private fund of the coconut farmers from the original copy of
Executive Order No. 504 dated May 31, 1978, and we quote:

WHEREAS, by means of the Coconut Consumers Stabilization Fund (CCSF), which is the private fund of
the coconut farmers (deleted), essential coconut-based products are made available to household
consumers at socialized prices. (Emphasis supplied)

The phrase in bold face -- which is the private fund of the coconut farmers -- was crossed out and duly
initialed by its author, former President Marcos. This deletion, clearly visible in Attachment C of
petitioners Memorandum,[75] was a categorical legislative intent to regard the CCSF as public, not
private, funds.

Having Been Acquired With Public Funds, UCPB Shares Belong, Prima Facie, to the Government

Having shown that the coconut levy funds are not only affected with public interest, but are in
fact prima facie public funds, this Court believes that the government should be allowed to vote the
questioned shares, because they belong to it as the prima facie beneficial and true owner.

As stated at the beginning, voting is an act of dominion that should be exercised by the share
owner. One of the recognized rights of an owner is the right to vote at meetings of the corporation. The
right to vote is classified as the right to control.[76] Voting rights may be for the purpose of, among
others, electing or removing directors, amending a charter, or making or amending bylaws.[77] Because
the subject UCPB shares were acquired with government funds, the government becomes their prima
facie beneficial and true owner.

Ownership includes the right to enjoy, dispose of, exclude and recover a thing without limitations other
than those established by law or by the owner.[78] Ownership has been aptly described as the most
comprehensive of all real rights.[79] And the right to vote shares is a mere incident of ownership. In the
present case, the government has been shown to be the prima facie owner of the funds used to
purchase the shares. Hence, it should be allowed the rights and privileges flowing from such fact.

And paraphrasing Cocofed v. PCGG, already cited earlier, the Republic should continue to vote those
shares until and unless private respondents are able to demonstrate, in the main cases pending before
the Sandiganbayan, that they [the sequestered UCPB shares] have legitimately become private.

Procedural and Incidental Issues: Grave Abuse of Discretion, Improper Arguments and Intervenors
Relief

Procedurally, respondents argue that petitioner has failed to demonstrate that the Sandiganbayan
committed grave abuse of discretion, a demonstration required in every petition under Rule 65.[80]

We disagree. We hold that the Sandiganbayan gravely abused its discretion when it contravened the
rulings of this Court in Baseco and Cojuangco-Roxas -- thereby unlawfully, capriciously and arbitrarily
depriving the government of its right to vote sequestered shares purchased with coconut levy funds
which are prima facie public funds.

Indeed, grave abuse of discretion may arise when a lower court or tribunal violates or contravenes the
Constitution, the law or existing jurisprudence. In one case,[81] this Court ruled that the lower courts
resolution was tantamount to overruling a judicial pronouncement of the highest Court x x x and
unmistakably a very grave abuse of discretion.[82]

The Public Character of Shares Is a Valid Issue

Private respondents also contend that the public nature of the coconut levy funds was not raised as an
issue before the Sandiganbayan. Hence, it could not be taken up before this Court.

Again we disagree. By ruling that the two-tiered test should be applied in evaluating private respondents
claim of exercising voting rights over the sequestered shares, the Sandiganbayan effectively held that
the subject assets were private in character. Thus, to meet this issue, the Office of the Solicitor General
countered that the shares were not private in character, and that quite the contrary, they were and are
public in nature because they were acquired with coco levy funds which are public in character. In short,
the main issue of who may vote the shares cannot be determined without passing upon the question of
the public/private character of the shares and the funds used to acquire them. The latter issue, although
not specifically raised in the Court a quo, should still be resolved in order to fully adjudicate the main
issue.
Indeed, this Court has the authority to waive the lack of proper assignment of errors if the unassigned
errors closely relate to errors properly pinpointed out or if the unassigned errors refer to matters upon
which the determination of the questions raised by the errors properly assigned depend.[83]

Therefore, where the issues already raised also rest on other issues not specifically presented as long as
the latter issues bear relevance and close relation to the former and as long as they arise from matters
on record, the Court has the authority to include them in its discussion of the controversy as well as to
pass upon them.[84]

No Positive Relief For Intervenors

Intervenors anchor their interest in this case on an alleged right that they are trying to enforce in
another Sandiganbayan case docketed as SB Case No. 0187.[85] In that case, they seek the recovery of
the subject UCPB shares from herein private respondents and the corporations controlled by
them. Therefore, the rights sought to be protected and the reliefs prayed for by intervenors are still
being litigated in the said case. The purported rights they are invoking are mere expectancies wholly
dependent on the outcome of that case in the Sandiganbayan.

Clearly, we cannot rule on intervenors alleged right to vote at this time and in this case. That right is
dependent upon the Sandiganbayans resolution of their action for the recovery of said sequestered
shares. Given the patent fact that intervenors are not registered stockholders of UCPB as of the
moment, their asserted rights cannot be ruled upon in the present proceedings. Hence, no positive relief
can be given them now, except insofar as they join petitioner in barring private respondents from voting
the subject shares.

Epilogue

In sum, we hold that the Sandiganbayan committed grave abuse of discretion in grossly contradicting
and effectively reversing existing jurisprudence, and in depriving the government of its right to vote the
sequestered UCPB shares which are prima facie public in character.

In making this ruling, we are in no way preempting the proceedings the Sandiganbayan may conduct or
the final judgment it may promulgate in Civil Case Nos. 0033-A, 0033-B and 0033-F. Our determination
here is merely prima facie, and should not bar the anti-graft court from making a final ruling, after
proper trial and hearing, on the issues and prayers in the said civil cases, particularly in reference to the
ownership of the subject shares.

We also lay down the caveat that, in declaring the coco levy funds to be prima facie public in character,
we are not ruling in any final manner on their classification -- whether they are general or trust or
special funds -- since such classification is not at issue here. Suffice it to say that the public nature of the
coco levy funds is decreed by the Court only for the purpose of determining the right to vote the shares,
pending the final outcome of the said civil cases.

Neither are we resolving in the present case the question of whether the shares held by Respondent
Cojuangco are, as he claims, the result of private enterprise. This factual matter should also be taken up
in the final decision in the cited cases that are pending in the court a quo. Again suffice it to say that the
only issue settled here is the right of PCGG to vote the sequestered shares, pending the final outcome of
said cases.

This matter involving the coconut levy funds and the sequestered UCPB shares has been straddling the
courts for about 15 years. What we are discussing in the present Petition, we stress, is just an incident of
the main cases which are pending in the anti-graft court -- the cases for the reconveyance, reversion and
restitution to the State of these UCPB shares.

The resolution of the main cases has indeed been long overdue. Every effort, both by the parties and the
Sandiganbayan, should be exerted to finally settle this controversy.

WHEREFORE, the Petition is hereby GRANTED and the assailed Order SET ASIDE. The PCGG shall
continue voting the sequestered shares until Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F
are finally and completely resolved. Furthermore, the Sandiganbayan is ORDERED to decide with finality
the aforesaid civil cases within a period of six (6) months from notice. It shall report to this Court on the
progress of the said cases every three (3) months, on pain of contempt. The Petition in Intervention
is DISMISSED inasmuch as the reliefs prayed for are not covered by the main issues in this case. No
costs.

SO ORDERED.

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 Solicitor General for petitioner.

Palaez, Adriano & Gregorio for private respondent.

REGALADO, J.:

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
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 Y-3
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*
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

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

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. 21The errors of certain administrative
officers should never be allowed to jeopardize the Government's financial position, 22especially 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 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.

SO ORDERED.

Narvasa, C.J., Padilla, Puno and Mendoza, JJ., concur.

G.R. No. L-30232 July 29, 1988

LUZON STEVEDORING CORPORATION, petitioner-appellant,

vs.
COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL REVENUE, respondents-
appellees.

H. San Luis & V.L. Simbulan for petitioner-appellant.

PARAS, J.:

This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in CTA Case
No. 1484, "Luzon Stevedoring Corporation v. Hon. Ramon Oben, Commissioner, Bureau of Internal
Revenue", denying the various claims for tax refund; and the February 20, 1969 Resolution of the same
court denying the motion for reconsideration.

Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats, imported
various engine parts and other equipment for which it paid, under protest, the assessed compensating
tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, on January 2, 1964, it
filed a Petition for Review (Rollo, pp. 14-18) with the Court of Tax Appeals, docketed therein as CTA Case
No. 1484, praying among others, that it be granted the refund of the amount of P33,442.13. The Court
of Tax Appeals, however, in a Decision dated October 21, 1969 (Ibid., pp. 22-27), denied the various
claims for tax refund. The decretal portion of the said decision reads:

WHEREFORE, finding petitioner's various claims for refund amounting to P33,442.13 without sufficient
legal justification, the said claims have to be, as they are hereby, denied. With costs against petitioner.
On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration (Ibid., pp. 28-34), but the
same was denied in a Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant petition.

This Court, in a Resolution dated March 13, 1969, gave due course to the petition (Ibid., p. 40).
Petitioner-appellant raised three (3) assignments of error, to wit:

The lower court erred in holding that the petitioner-appellant is engaged in business as stevedore, the
work of unloading and loading of a vessel in port, contrary to the evidence on record.

II

The lower court erred in not holding that the business in which petitioner-appellant is engaged, is part
and parcel of the shipping industry.

III

The lower court erred in not allowing the refund sought by petitioner-appellant.

The instant petition is without merit.

The pivotal issue in this case is whether or not petitioner's tugboats" can be interpreted to be included
in the term "cargo vessels" for purposes of the tax exemption provided for in Section 190 of the National
Internal Revenue Code, as amended by Republic Act No. 3176.

Said law provides:

Sec. 190. Compensating tax. ... And Provided further, That the tax imposed in this section shall not
apply to articles to be used by the importer himself in the manufacture or preparation of articles subject
to specific tax or those for consignment abroad and are to form part thereof or to articles to be used by
the importer himself as passenger and/or cargo vessel, whether coastwise or oceangoing, including
engines and spare parts of said vessel. ....

Petitioner contends that tugboats are embraced and included in the term cargo vessel under the tax
exemption provisions of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176. He
argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former towing
the latter for loading and unloading of a vessel in part, constitute a single vessel. Accordingly, it
concludes that the engines, spare parts and equipment imported by it and used in the repair and
maintenance of its tugboats are exempt from compensating tax (Rollo, p. 23).

On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are not "Cargo
vessel" because they are neither designed nor used for carrying and/or transporting persons or goods by
themselves but are mainly employed for towing and pulling purposes. As such, it cannot be claimed that
the tugboats in question are used in carrying and transporting passengers or cargoes as a common
carrier by water, either coastwise or oceangoing and, therefore, not within the purview of Section 190
of the Tax Code, as amended by Republic Act No. 3176 (Brief for Respondents-Appellees, pp. 45).

This Court has laid down the rule that "as the power of taxation is a high prerogative of sovereignty, the
relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or
its rate, must be strictly construed, and the same must be coached in clear and unmistakable terms in
order that it may be applied." (84 C.J.S. pp. 659-800), More specifically stated, the general rule is that
any claim for exemption from the tax statute should be strictly construed against the taxpayer (Acting
Commissioner of Customs v. Manila Electric Co. et al., 69 SCRA 469 [1977] and Commissioner of Internal
Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA 142 [1975]).

As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be
declared exempt from the compensating tax, it is indispensable that the requirements of the
amendatory law be complied with, namely: (1) the engines and spare parts must be used by the
importer himself as a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo vessel
must be used in coastwise or oceangoing navigation (Decision, CTA Case No. 1484; Rollo, p. 24).

As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic Act No. 3176 limit
tax exemption from the compensating tax to imported items to be used by the importer himself as
operator of passenger and/or cargo vessel (Ibid., p. 25).

As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows:

A tugboat is a strongly built, powerful steam or power vessel, used for towing and, now, also used for
attendance on vessel. (Webster New International Dictionary, 2nd Ed.)

A tugboat is a diesel or steam power vessel designed primarily for moving large ships to and from piers
for towing barges and lighters in harbors, rivers and canals. (Encyclopedia International Grolier, Vol. 18,
p. 256).

A tug is a steam vessel built for towing, synonymous with tugboat. (Bouvier's Law Dictionary.) (Rollo, p.
24).

Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of
passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where a
provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense
being entertained to justify non-compliance. All that has to be done is to apply it in every case that falls
within its terms (Allied Brokerage Corp. v. Commissioner of Customs, L-27641, 40 SCRA 555 [1971];
Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]).

And, even if construction and interpretation of the law is insisted upon, following another fundamental
rule that statutes are to be construed in the light of purposes to be achieved and the evils sought to be
remedied (People v. Purisima etc., et al., L-42050-66, 86 SCRA 544 [1978], it will be noted that the
legislature in amending Section 190 of the Tax Code by Republic Act 3176, as appearing in the records,
intended to provide incentives and inducements to bolster the shipping industry and not the business of
stevedoring, as manifested in the sponsorship speech of Senator Gil Puyat (Rollo, p. 26).

On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found that no evidence was
adduced by petitioner-appellant that tugboats are passenger and/or cargo vessels used in the shipping
industry as an independent business. On the contrary, petitioner-appellant's own evidence supports the
view that it is engaged as a stevedore, that is, the work of unloading and loading of a vessel in port; and
towing of barges containing cargoes is a part of petitioner's undertaking as a stevedore. In fact, even its
trade name is indicative that its sole and principal business is stevedoring and lighterage, taxed under
Section 191 of the National Internal Revenue Code as a contractor, and not an entity which transports
passengers or freight for hire which is taxed under Section 192 of the same Code as a common carrier by
water (Decision, CTA Case No. 1484; Rollo, p. 25).

Under the circumstances, there appears to be no plausible reason to disturb the findings and conclusion
of the Court of Tax Appeals.

As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the
Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an expertise on the subject unless there
has been an abuse or improvident exercise of authority (Reyes v. Commissioner of Internal Revenue, 24
SCRA 199 [1981]), which is not present in the instant case.

PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the Court of Tax Appeals is
AFFIRMED.

SO ORDERED.

Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

G.R. No. L-7859 December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme
Ledesma, plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.

Ernesto J. Gonzaga for appellant.

Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and
Solicitor Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:

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.

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;lawphi1.net

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 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

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).

The decision appealed from is affirmed, with costs against appellant. So ordered.

Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.
G.R. No. L-23645 October 29, 1968

BENJAMIN P. GOMEZ, petitioner-appellee,

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, respondent-appellants.

Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C. Zaballero and Solicitor
Dominador L. Quiroz for respondents-appellants.

CASTRO, J.:

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.

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 separately-addressed 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 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.

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.

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 a different proposition. As explained in Commonwealth v. Life
Assurance Co.:8

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 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
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

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 five-centavo 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.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano, JJ., concur.
Zaldivar, J., is on leave.

G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

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.

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," 9being "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 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 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. 21After 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 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.

SO ORDERED.

Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

G.R. No. L-29059 December 15, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS, respondents.

CRUZ, J.:

By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on appeal by
the Supreme Court on February 27, 1965, the Commissioner of Internal Revenue was ordered to refund
to the Cebu Portland Cement Company the amount of P 359,408.98, representing overpayments of ad
valorem taxes on cement produced and sold by it after October 1957. 1

On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the
private respondent, the latter moved for a writ of execution to enforce the said judgment . 2

The motion was opposed by the petitioner on the ground that the private respondent had an
outstanding sales tax liability to which the judgment debt had already been credited. In fact, it was
stressed, there was still a balance owing on the sales taxes in the amount of P 4,789,279.85 plus 28%
surcharge. 3

On April 22, 1968, the Court of Tax Appeals * granted the motion, holding that the alleged sales tax
liability of the private respondent was still being questioned and therefore could not be set-off against
the refund. 4

In his petition to review the said resolution, the Commissioner of Internal Revenue claims that the
refund should be charged against the tax deficiency of the private respondent on the sales of cement
under Section 186 of the Tax Code. His position is that cement is a manufactured and not a mineral
product and therefore not exempt from sales taxes. He adds that enforcement of the said tax deficiency
was properly effected through his power of distraint of personal property under Sections 316 and
318 5 of the said Code and, moreover, the collection of any national internal revenue tax may not be
enjoined under Section 305, 6 subject only to the exception prescribed in Rep. Act No. 1125. 7 This is not
applicable to the instant case. The petitioner also denies that the sales tax assessments have already
prescribed because the prescriptive period should be counted from the filing of the sales tax returns,
which had not yet been done by the private respondent.

For its part, the private respondent disclaims liability for the sales taxes, on the ground that cement is
not a manufactured product but a mineral product. 8 As such, it was exempted from sales taxes under
Section 188 of the Tax Code after the effectivity of Rep. Act No. 1299 on June 16, 1955, in accordance
with Cebu Portland Cement Co. v. Collector of Internal Revenue, 9 decided in 1968. Here Justice Eugenio
Angeles declared that "before the effectivity of Rep. Act No. 1299, amending Section 246 of the National
Internal Revenue Code, cement was taxable as a manufactured product under Section 186, in
connection with Section 194(4) of the said Code," thereby implying that it was not considered a
manufactured product afterwards. Also, the alleged sales tax deficiency could not as yet be enforced
against it because the tax assessment was not yet final, the same being still under protest and still to be
definitely resolved on the merits. Besides, the assessment had already prescribed, not having been
made within the reglementary five-year period from the filing of the tax returns. 10

Our ruling is that the sales tax was properly imposed upon the private respondent for the reason that
cement has always been considered a manufactured product and not a mineral product. This matter
was extensively discussed and categorically resolved in Commissioner of Internal Revenue v. Republic
Cement Corporation, 11decided on August 10, 1983, where Justice Efren L. Plana, after an exhaustive
review of the pertinent cases, declared for a unanimous Court:

From all the foregoing cases, it is clear that cement qua cement was never considered as a mineral
product within the meaning of Section 246 of the Tax Code, notwithstanding that at least 80% of its
components are minerals, for the simple reason that cement is the product of a manufacturingprocess
and is no longer the mineral product contemplated in the Tax Code (i.e.; minerals subjected to simple
treatments) for the purpose of imposing the ad valorem tax.

What has apparently encouraged the herein respondents to maintain their present posture is the case
of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-20563, Oct. 29, 1968 (28 SCRA 789)
penned by Justice Eugenio Angeles. For some portions of that decision give the impression that Republic
Act No. 1299, which amended Section 246, reclassified cement as a mineral product that was not
subject to sales tax. ...

xxx xxx xxx

After a careful study of the foregoing, we conclude that reliance on the decision penned by Justice
Angeles is misplaced. The said decision is no authority for the proposition that after the enactment of
Republic Act No. 1299 in 1955 (defining mineral product as things with at least 80% mineral content),
cement became a 'mineral product," as distinguished from a "manufactured product," and therefore
ceased to be subject to sales tax. It was not necessary for the Court to so rule. It was enough for the
Court to say in effect that even assuming Republic Act No. 1299 had reclassified cement was a mineral
product, the reclassification could not be given retrospective application (so as to justify the refund of
sales taxes paid before Republic Act 1299 was adopted) because laws operate prospectively only, unless
the legislative intent to the contrary is manifest, which was not so in the case of Republic Act 1266. [The
situation would have been different if the Court instead had ruled in favor of refund, in which case it
would have been absolutely necessary (1) to make an unconditional ruling that Republic Act 1299 re-
classified cement as a mineral product (not subject to sales tax), and (2) to declare the law retroactive,
as a basis for granting refund of sales tax paid before Republic Act 1299.]

In any event, we overrule the CEPOC decision of October 29, 1968 (G.R. No. L-20563) insofar as its
pronouncements or any implication therefrom conflict with the instant decision.

The above views were reiterated in the resolution 12 denying reconsideration of the said decision, thus:

The nature of cement as a "manufactured product" (rather than a "mineral product") is well-settled. The
issue has repeatedly presented itself as a threshold question for determining the basis for computing
the ad valorem mining tax to be paid by cement Companies. No pronouncement was made in these
cases that as a "manufactured product" cement is subject to sales tax because this was not at issue.

The decision sought to be reconsidered here referred to the legislative history of Republic Act No. 1299
which introduced a definition of the terms "mineral" and "mineral products" in Sec. 246 of the Tax Code.
Given the legislative intent, the holding in the CEPOC case (G.R. No. L-20563) that cement was subject to
sales tax prior to the effectivity f Republic Act No. 1299 cannot be construed to mean that, after the
law took effect, cement ceased to be so subject to the tax. To erase any and all misconceptions that may
have been spawned by reliance on the case of Cebu Portland Cement Co. v. Collector of Internal
Revenue, L-20563, October 29, 1968 (28 SCRA 789) penned by Justice Eugenio Angeles, the Court has
expressly overruled it insofar as it may conflict with the decision of August 10, 1983, now subject of
these motions for reconsideration.

On the question of prescription, the private respondent claims that the five-year reglementary period
for the assessment of its tax liability started from the time it filed its gross sales returns on June 30,
1962. Hence, the assessment for sales taxes made on January 16, 1968 and March 4, 1968, were already
out of time. We disagree. This contention must fail for what CEPOC filed was not the sales returns
required in Section 183(n) but the ad valorem tax returns required under Section 245 of the Tax Code.
As Justice Irene R. Cortes emphasized in the aforestated resolution:

In order to avail itself of the benefits of the five-year prescription period under Section 331 of the Tax
Code, the taxpayer should have filed the required return for the tax involved, that is, a sales tax return.
(Butuan Sawmill, Inc. v. CTA, et al., G.R. No. L-21516, April 29, 1966, 16 SCRA 277). Thus CEPOC should
have filed sales tax returns of its gross sales for the subject periods. Both parties admit that returns were
made for the ad valorem mining tax. CEPOC argues that said returns contain the information necessary
for the assessment of the sales tax. The Commissioner does not consider such returns as compliance
with the requirement for the filing of tax returns so as to start the running of the five-year prescriptive
period.
We agree with the Commissioner. It has been held in Butuan Sawmill Inc. v. CTA, supra, that the filing of
an income tax return cannot be considered as substantial compliance with the requirement of filing
sales tax returns, in the same way that an income tax return cannot be considered as a return for
compensating tax for the purpose of computing the period of prescription under Sec. 331. (Citing Bisaya
Land Transportation Co., Inc. v. Collector of Internal Revenue, G.R. Nos. L-12100 and L-11812, May 29,
1959). There being no sales tax returns filed by CEPOC, the statute of stations in Sec. 331 did not begin
to run against the government. The assessment made by the Commissioner in 1968 on CEPOC's cement
sales during the period from July 1, 1959 to December 31, 1960 is not barred by the five-year
prescriptive period. Absent a return or when the return is false or fraudulent, the applicable period is
ten (10) days from the discovery of the fraud, falsity or omission. The question in this case is: When was
CEPOC's omission to file tha return deemed discovered by the government, so as to start the running of
said period? 13

The argument that the assessment cannot as yet be enforced because it is still being contested loses
sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of
taxes could be postponed by simply questioning their validity, the machinery of the state would grind to
a halt and all government functions would be paralyzed. That is the reason why, save for the exception
already noted, the Tax Code provides:

Sec. 291. Injunction not available to restrain collection of tax. No court shall have authority to grant
an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by
this Code.

It goes without saying that this injunction is available not only when the assessment is already being
questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is
still-and only-on the administrative level. There is all the more reason to apply the rule here because it
appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4
million is still due from the private respondent.

To require the petitioner to actually refund to the private respondent the amount of the judgment debt,
which he will later have the right to distrain for payment of its sales tax liability is in our view an Idle
ritual. We hold that the respondent Court of Tax Appeals erred in ordering such a charade.

WHEREFORE, the petition is GRANTED. The resolution dated April 22, 1968, in CTA Case No. 786 is SET
ASIDE, without any pronouncement as to costs.

SO ORDERED.

Teehankee, C.J., Narvasa, Paras and Gancayco, JJ., concur.

G.R. No. 124043 October 14, 1998

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S CHRISTIAN ASSOCIATION OF THE
PHILIPPINES, INC., respondents.

PANGANIBAN, J.:

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 CA-GR
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 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:

Following 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 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:

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 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:

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

The petition is meritorious.

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 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 non-profitable 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)

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

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 tax-exempt; 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.

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

The cases 49 relied on by private respondent do not support its cause. YMCA of Manila v. Collector of
Internal Revenue 50and 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.

SO ORDERED.

Davide, Jr., Vitug and Quisumbing, JJ., concur.

G.R. No. L-31364 March 30, 1979

MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional Director,
Revenue Region No. 14, Bureau of Internal Revenue, petitioners,
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 respondents.

DE CASTRO, J.:
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. 11-50-29-1-11061-21-
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 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 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. 334-335).

In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-23081,
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, 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, L-23272, 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 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.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and Melencio-Herrera, JJ., concur.

G.R. No. 117359 July 23, 1998

DAVAO GULF LUMBER CORPORATION, petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.

PANGANIBAN, J.:

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

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.

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.

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 the Highway Special Fund was
abolished in 1985, the reason for the refund likewise ceased to exist. 14Since 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;

(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 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:

Sec. 153. Specific tax on manufactured oils and other fuels. On refined and manufactured 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;

(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
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;
(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:

Sec. 153. Specific tax on manufactured oils and other fuels. On refined and manufactured 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;

(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
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;

(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, 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 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, or Rio 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.

SO ORDERED.

Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza,
Martinez, Qiusumbing and Purisima, JJ., concur.

G.R. No. L-59431 July 25, 1984

ANTERO M. SISON, JR., petitioner,

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, respondents.

Antero Sison for petitioner and for his own behalf.

The Solicitor General for respondents.

FERNANDO, C.J.:

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 3as 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
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 in Graves 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. 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 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.

Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and
Cuevas, JJ., concur.

Teehankee, J., concurs in the result.

Plana, J., took no part.

G.R. No. L-41631 December 17, 1976

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, petitioners,
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., respondents.

Santiago F. Alidio and Restituto R. Villanueva for petitioners.

Antonio H. Abad, Jr. for private respondent.

Federico A. Blay for petitioner for intervention.

MARTIN, J.:

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 non-compliance with
the requirement of publication under the Revised City Charter. Respondent Judge ruled:

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 post-publication
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
barrio ordinances 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
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, 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 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." 16Clearly, 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 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.

SO ORDERED.

Castro, C.J., Barredo, Makasiar, Antonio, Muoz Palma, Aquino and Concepcion, Jr., JJ., concur.

Teehankee, J., reserves his vote.