Cecille Therese G.

Pedregosa JD 2 - A

WALTER LUTZ, as Judicial Administrator of the Intestate value of the rental or consideration collected and the amount
Estate of the deceased Antonio Jayme Ledesma, plaintiff- representing 12 per centum of the assessed value of such land.
appellant,
vs. According to section 6 of the law —
J. ANTONIO ARANETA, as the Collector of Internal
Revenue, defendant-appellee. SEC. 6. All collections made under this Act shall accrue to
a special fund in the Philippine Treasury, to be known as the
G.R. No. L-7859        December 22, 1955 '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.

This case was initiated in the Court of First Instance of Negros First, to place the sugar industry in a position to maintain
Occidental to test the legality of the taxes imposed by itself, despite the gradual loss of the preferntial position of the
Commonwealth Act No. 567, otherwise known as the Sugar Philippine sugar in the United States market, and ultimately to
Adjustment Act. insure its continued existence notwithstanding the loss of that
market and the consequent necessity of meeting competition in
Promulgated in 1940, the law in question opens (section 1) with the free markets of the world;
a declaration of emergency, due to the threat to our industry by the
imminent imposition of export taxes upon sugar as provided in the Second, to readjust the benefits derived from the sugar
Tydings-McDuffe Act, and the "eventual loss of its preferential industry by all of the component elements thereof — the mill,
position in the United States market"; wherefore, the national policy the landowner, the planter of the sugar cane, and the laborers
was expressed "to obtain a readjustment of the benefits derived in the factory and in the field — so that all might continue
from the sugar industry by the component elements thereof" and "to profitably to engage therein;lawphi1.net
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 Third, to limit the production of sugar to areas more
the imposition of the export taxes." economically suited to the production thereof; and

In section 2, Commonwealth Act 567 provides for an increase Fourth, to afford labor employed in the industry a living
of the existing tax on the manufacture of sugar, on a graduated wage and to improve their living and working conditions:
basis, on each picul of sugar manufactured; while section 3 levies Provided, That the President of the Philippines may, until the
on owners or persons in control of lands devoted to the cultivation adjourment of the next regular session of the National
of sugar cane and ceded to others for a consideration, on lease or Assembly, make the necessary disbursements from the fund
otherwise —a tax equivalent to the difference between the money herein created (1) for the establishment and operation of sugar
Cecille Therese G. Pedregosa JD 2 - A

experiment station or stations and the undertaking of The basic defect in the plaintiff's position is his assumption that
researchers (a) to increase the recoveries of the centrifugal the tax provided for in Commonwealth Act No. 567 is a pure
sugar factories with the view of reducing manufacturing costs, exercise of the taxing power. Analysis of the Act, and particularly of
(b) to produce and propagate higher yielding varieties of sugar section 6 (heretofore quoted in full), will show that the tax is levied
cane more adaptable to different district conditions in the with a regulatory purpose, to provide means for the rehabilitation
Philippines, (c) to lower the costs of raising sugar cane, (d) to and stabilization of the threatened sugar industry. In other words,
improve the buying quality of denatured alcohol from molasses the act is primarily an exercise of the police power.
for motor fuel, (e) to determine the possibility of utilizing the
other by-products of the industry, (f) to determine what crop or This Court can take judicial notice of the fact that sugar
crops are suitable for rotation and for the utilization of excess production is one of the great industries of our nation, sugar
cane lands, and (g) on other problems the solution of which occupying a leading position among its export products; that it gives
would help rehabilitate and stabilize the industry, and (2) for the employment to thousands of laborers in fields and factories; that it
improvement of living and working conditions in sugar mills and is a great source of the state's wealth, is one of the important
sugar plantations, authorizing him to organize the necessary sources of foreign exchange needed by our government, and is
agency or agencies to take charge of the expenditure and thus pivotal in the plans of a regime committed to a policy of
allocation of said funds to carry out the purpose hereinbefore currency stability. Its promotion, protection and advancement,
enumerated, and, likewise, authorizing the disbursement from therefore redounds greatly to the general welfare. Hence it was
the fund herein created of the necessary amount or amounts competent for the legislature to find that the general welfare
needed for salaries, wages, travelling expenses, equipment, demanded that the sugar industry should be stabilized in turn; and
and other sundry expenses of said agency or agencies. 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.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311,
the Intestate Estate of Antonio Jayme Ledesma, seeks to recover 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
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 As stated in Johnson vs. State ex rel. Marey, with reference to
1948-1949 and 1949-1950; alleging that such tax is unconstitutional the citrus industry in Florida —
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 The protection of a large industry constituting one of the great
which a tax may be constitutioally levied. The action having been sources of the state's wealth and therefore directly or indirectly
dismissed by the Court of First Instance, the plaintifs appealed the affecting the welfare of so great a portion of the population of the
case directly to this Court (Judiciary Act, section 17). State is affected to such an extent by public interests as to be within
the police power of the sovereign. (128 Sp. 857).
Cecille Therese G. Pedregosa JD 2 - A

Once it is conceded, as it must, that the protection and Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the
promotion of the sugar industry is a matter of public concern, it evil where it is most felt, it is not to be overthrown because there
follows that the Legislature may determine within reasonable are other instances to which it might have been applied;" and that
bounds what is necessary for its protection and expedient for its "the legislative authority, exerted within its proper field, need not
promotion. Here, the legislative discretion must be allowed fully embrace all the evils within its reach" (N. L. R. B. vs. Jones &
play, subject only to the test of reasonableness; and it is not Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).
contended that the means provided in section 6 of the law (above
quoted) bear no relation to the objective pursued or are oppressive Even from the standpoint that the Act is a pure tax measure, it
in character. If objective and methods are alike constitutionally cannot be said that the devotion of tax money to experimental
valid, no reason is seen why the state may not levy taxes to raise stations to seek increase of efficiency in sugar production, utilization
funds for their prosecution and attainment. Taxation may be made of by-products and solution of allied problems, as well as to the
the implement of the state's police power (Great Atl. & Pac. Tea Co. improvements of living and working conditions in sugar mills or
vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 plantations, without any part of such money being channeled
U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. directly to private persons, constitutes expenditure of tax money for
Ed. 579). private purposes, (compare Everson vs. Board of Education, 91 L.
Ed. 472, 168 ALR 1392, 1400).
That the tax to be levied should burden the sugar producers
themselves can hardly be a ground of complaint; indeed, it appears The decision appealed from is affirmed, with costs against
rational that the tax be obtained precisely from those who are to be appellant. So ordered.
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

Lutz v Araneta

GR No L-7859 December 22, 1955

FACTS:

Walter Lutz, as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, sought to
recover the sum of

P14,666.40 paid by the estate as taxes from the Commissioner under Section e of Commonwealth
Act 567 or the Sugar Adjustment Act, alleging that such tax is unconstitutional as it levied for the aid
and support of the sugar industry exclusively, which is in his opinion not a public purpose.

ISSUE:

Is the tax valid?

HELD:

Yes. The tax is levied with a regulatory purpose, i.e. to provide means for the rehabilitation and
stabilization of the threatened sugar industry. The act is primarily an exercise of police power and is not
a pure exercise of taxing power.

As sugar production is one of the great industries of the Philippines and its promotion, protection
and advancement redounds greatly to the general welfare, the legislature found that the general
welfare demanded that the industry should be stabilized, and provided that the distribution of benefits
had to sustain.

Further, 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, etc., as well as to the improvement of living
and working conditions in sugar mills and plantations without any part of such money being channeled
directly to private persons, constitute expenditure of tax money for private purposes.

Hence, the tax is valid.