C. UNIFORMITY OF TAXATION

G.R. No. 81311 June 30, 1988KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA,petitioners,vs.HON. BIENVENIDO TAN, as Commissioner of Internal Revenue,respondent.G.R. No. 81820 June 30, 1988KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated labor federations and alliances,petitioners,vs.THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE, and SECRETARY OF BUDGET,respondents.G.R. No. 81921 June 30, 1988INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES and JESUS B. BANAL,petitioners,vs.The HON. COMMISSIONER, BUREAU OF INTERNAL REVENUE,respondent.G.R. No. 82152 June 30, 1988RICARDO C. VALMONTE,petitioner,vs.THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, COMMISSIONER OF INTERNAL REVENUE and SECRETARY OF BUDGET,respondent.PADILLA,J.:These four (4) petitions, which have been consolidated because of the similarity of the main issues involved therein, seek to nullify Executive Order No. 273 (EO 273, for short), issued by the President of the Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT, for short), for being unconstitutional in that its enactment is not alledgedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution.The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have failed to show justification for the exercise of its judicial powers, viz. (1) the existence of an appropriate case; (2) an interest, personal and substantial, of the party raising the constitutional questions; (3) the constitutional question should be raised at the earliest opportunity; and (4) the question of constitutionality is directly and necessarily involved in a justiciable controversy and its resolution is essential to the protection of the rights of the parties. According to the Solicitor General, only the third requisite that the constitutional question should be raised at the earliest opportunity has been complied with. He also questions the legal standing of the petitioners who, he contends, are merely asking for an advisory opinion from the Court, there being no justiciable controversy for resolution.Objections to taxpayers' suit for lack of sufficient personality standing, or interest are, however, in the main procedural matters. Considering the importance to the public of the cases at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine wether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of these petitions.But, before resolving the issues raised, a brief look into the tax law in question is in order.The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or gross receipts realized from the sale of services.The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed to rationalize the system of taxing goods and services; simplify tax administration; and make the tax system more equitable, to enable the country to attain economic recovery.The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was essentially a single stage value added tax system computed under the "cost subtraction method" or "cost deduction method" and was imposed only on original sale, barter or exchange of articles by manufacturers, producers, or importers. Subsequent sales of such articles were not subject to sales tax. However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale, which was reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were imposed not only on the second sale, but oneverysubsequent sale, as well. EO 273 merely increased the VAT onevery saleto 10%, unless zero-rated or exempt.Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no authority to issue EO 273 on 25 July 1987.The contention is without merit.It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states:Sec. 1. Until a legislature is elected and convened under a new Constitution, the President shall continue to exercise legislative powers.On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the Republic of the Philippines which was ratified in a plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution, hereafter referred to as the 1987 Constitution, provides:Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is convened.It should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested with legislative powers until a legislature under a new Constitution isconvened. The first Congress, created and elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25 July 1987, two (2) days before Congress convened on 27 July 1987, was within the President's constitutional power and authority to legislate.Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27 July 1987). He contends that the word "convene" is synonymous with "the date when the elected members of Congress assumed office."The contention is without merit. The word "convene" which has been interpreted to mean "to call together, cause to assemble, or convoke,"1is clearly different from assumption of office by theindividual membersof Congress or their taking the oath of office. As an example, we call to mind the interim National Assembly created under the 1973 Constitution, which had not been "convened" but some members of the body, more particularly the delegates to the 1971 Constitutional Convention who had opted to serve therein by voting affirmatively for the approval of said Constitution, had taken their oath of office.To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene" a bit too far. It would also defeat the purpose of the framers of the 1987 Constitutional and render meaningless some other provisions of said Constitution. For example, the provisions of Art. VI, sec. 15, requiring Congress toconveneonce every year on the fourth Monday of July for its regular session would be a contrariety, since Congress would already be deemed to be in session after the individual members have taken their oath of office. A portion of the provisions of Art. VII, sec. 10, requiring Congress toconvenefor the purpose of enacting a law calling for a special election to elect a President and Vice-President in case a vacancy occurs in said offices, would also be a surplusage. The portion of Art. VII, sec. 11, third paragraph, requiring Congress toconvene, if not in session, to decide a conflict between the President and the Cabinet as to whether or not the President and the Cabinet as to whether or not the President can re-assume the powers and duties of his office, would also be redundant. The same is true with the portion of Art. VII, sec. 18, which requires Congress to convene within twenty-four (24) hours following the declaration of martial law or the suspension of the privilage of the writ of habeas corpus.The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers of said Constitution had intended to terminate the exercise of legislative powers by the President at the beginning of the term of office of the members of Congress, they should have so stated (but did not) in clear and unequivocal terms. The Court has not power to re-write the Constitution and give it a meaning different from that intended.The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in grave abuse of discretion amounting to lack or excess of jurisdiction. "Grave abuse of discretion" has been defined, as follows:Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction (Abad Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other words, where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. 62).2Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved in its implementation, even under the past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative process started long before the signing when the data were gathered, proposals were weighed and the final wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the Congress, two days before it convened."3Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states:Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication.4As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court, inCity of Baguio vs. De Leon,5said:... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court, stated: "A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found."There was no occasion in that case to consider the possible effect on such a constitutional requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862). Thus: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; . . ." About two years later, Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his opinion and continued; "Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution."To satisfy this requirement then, all that is needed as held in another case decided two years later, (Uy Matias v. City of Cebu, 93 Phil. 300) is that the statute or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation." This Court is on record as accepting the view in a leading American case (Carmichael v. Southern Coal and Coke Co., 301 US 495) that "inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation." (Lutz v. Araneta, 98 Phil. 148, 153).The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt, at the constant rate of 0% or 10%.The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business with an aggregate gross annual sales exceeding P200,000.00. Small cornersari-saristores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public.6The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers Association of the Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates against customs brokers. The contested provision states:Sec. 103.Exempt transactions. The following shall be exempt from the value-added tax:xxx xxx xxx(r) Service performed in the exercise of profession or calling (except customs brokers) subject to the occupation tax under the Local Tax Code, and professional services performed by registered general professional partnerships;The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which makes the services of customs brokers subject to the payment of the VAT and to distinguish customs brokers from other professionals who are subject to the payment of an occupation tax under the Local Tax Code. Pertinent provisions of Sec. 102 read:Sec. 102. Value-added tax on sale of services. There shall be levied, assessed and collected, a value-added tax equivalent to 10% percent of gross receipts derived by any person engaged in the sale of services. The phrase sale of services" means the performance of all kinds of services for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of personal property; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; and similar services regardless of whether or not the performance thereof call for the exercise or use of the physical or mental faculties: ...With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a potential conflict between the two sections, (Secs. 102 and 103), insofar as customs brokers are concerned, is averted.At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the petitioner Association did not protest the classification of customs brokers then, the Court sees no reason why it should protest now.The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the fears expressed by the petitioners that the adoption of the VAT will trigger skyrocketing of prices of basic commodities and services, as well as mass actions and demonstrations against the VAT should by now be evident. The fact that nothing of the sort has happened shows that the fears and apprehensions of the petitioners appear to be more imagined than real. It would seem that the VAT is not as bad as we are made to believe.In any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to the general welfare or the interests of the majority of the people, they should seek recourse and relief from the political branches of the government. The Court, following the time-honored doctrine of separation of powers, cannot substitute its judgment for that of the President as to the wisdom, justice and advisability of the adoption of the VAT. The Court can only look into and determine whether or not EO 273 was enacted and made effective as law, in the manner required by, and consistent with, the Constitution, and to make sure that it was not issued in grave abuse of discretion amounting to lack or excess of jurisdiction; and, in this regard, the Court finds no reason to impede its application or continued implementation.WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.SO ORDERED.

D. NON-IMPAIRMENT CLAUSE

(1) G.R. No. 3473 March 22, 1907J. CASANOVAS,plaintiff-appellant,vs.JNO. S. HORD,defendant-appellee.WILLARD,J.:The plaintiff brought this action against the defendant, the Collector of Internal Revenue, to recover the sum of P9,600, paid by him under protest as taxes on certain mining claims owned by him in the Province of Ambos Camarines. Judgment was rendered in the court below in favor of the defendant, and from that judgment the plaintiff appealed.There is no dispute about the facts.In January, 1897, the Spanish Government, in accordance with the provisions of the royal decree of the 14th of May, 1867, granted to the plaintiff certain mines in the said Province of Ambos Camarines, of which mines the plaintiff is now the owner.That there were valid perfected mining concessions granted prior to the 11th of April, 1899, is conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall within the provisions of section 134 of Act No. 1189, known as the Internal Revenue Act. That section is as follows:SEC. 134. On all valid perfected mining concessions granted prior to April eleventh, eighteen hundred and ninety-nine, there shall be levied and collected on the after January first, nineteen hundred and five, the following taxes:2. (a) On each claim containing an area of sixty thousand square meters, an annual tax of one hundred pesos; (b) and at the same rate proportionately on each claim containing an area in excess of, or less than, sixty thousand square meters.3. On the gross output of each an ad valorem tax equal to three per centum of the actual market value of such output.The defendant accordingly imposed upon these properties the tax mentioned in section 134, which tax, as has before been stated, plaintiff paid under protest.The only question in the case is whether this section 134 is void or valid.I. It is claimed by the plaintiff that it is void because it comes within the provision of section 5 of the act of Congress of July 1, 19021(32 U.S. Stat. L., 691), which provides "that no law impairing the obligation of contracts shall be enacted." The royal decree of the 14th of May, 1867, provided, among other things, as follows:ART. 76. On eachpertenencia minera(mining claim) of the area prescribed in the first paragraph of article 13 (sixty thousand square meters) there shall be paid annually a fixed tax of fortyescudos(about P20.00). Thepertenenciareferred to in the second paragraph of the same article, though of greater area than the others (one hundred and fifty thousand square meters), shall pay only twentyescudos(about P10.00).ART. 78. Pertenenciaof iron mines and mines of combustible minerals shall be exempt from the annual tax for a period of thirty years from the date of publication of this decree.ART. 80. A further tax of three per centum on the gross earnings shall be paid without deduction of costs of any kind whatsoever. All substances enumerated in section one shall be exempt from said tax of three per centum for a period of thirty years.ART. 81. No other taxes than those herein mentioned shall be imposed upon mining and metallurgical industries.The royal decree and regulation for its enforcement provided that the deeds granted by the Government should be in a particular form, which form was inserted in the regulations. It must be presumed that the deeds granted to the plaintiff were made as provided by law, and, in fact, one of such concessions was exhibited during the argument in this court, and was found to be in exact conformity with the form prescribed by law. The deed is as follows:Don Camilo Garcia de Polavieja, Marquez de Polavieja, Teniente General de los Ejercitos Nacionales, Caballero Gran Cruz de la Real y Militar Orden de San Hermenegildo, de la Real y distinguida de Isabel la Catolica, de la del Merito Militar Roja, de la de la Corona de Italia, Comendador de Carlos Tercero, Bennemerito de la Patria en grado eminente, condecorado con varias cruses de distincion por meritos de guerra, Capitan General y Gobernador General de Filipinas.Whereas I have granted to Don Joaquin Casanovas y Llovet and to Don Martin Buck the concession of a gold mine entitled "Nueva California Segunda" in the jurisdiction of Paracale, Province of Ambos Camarines: Now, therefore, in the name of His Majesty the King (whom God preserve), and pursuant to the provisions of article 37 of the royal decree of May 14, 1867, regulating mining in these Islands, I issue, this fifth day of November, eighteen hundred and ninety-six, this title deed to fourpertenencias, comprising an area of two hundred and forty thousand square meters, as shown in the attached sketch map drafted by the engineer Don Enrique Abella y Casariego, and dated at Manila December sixteenth of the said year, subject to the following general terms and conditions:1. That the mine shall be worked in conformity with the rules in mining, the grantee and his laborers to be governed by the police rules established by existing regulations.2. That the grantee shall be liable for all damages to third parties that may be caused by his operations.3. That the grantee shall likewise indemnify his neighbors for any damage they may suffer by reason of water accumulated on his works, if, upon being requested, he fail to drain the same within the time indicated.4. That he shall contribute for the drainage of the adjacent mines and for the general galleries for drainage or haulage in proportion to the benefit he derives therefrom, whenever, by authority of the Governor-General, such works shall be opened for a group ofpertenenciasor for the entire mining locality in which the mine is situated.5. That he shall commence work on the mine immediately upon receipt of this concession unless prevented byforce majeure.6. That he shall keep the mine in active operation by employing at the rate of at least four laborers for eachpertenenciafor at least six months of each year.7. That he shall strengthen the walls of the mine within the time indicated whenever, by reason of mismanagement of the work, it threatens to cave in, unless he be prevented byforce majeure.8. That he shall not render further profitable development of the mine difficult or impossible by avaricious operation.9. That he shall not suspend the operation of the mine with the intention of abandoning the same without first informing the Governor of his intention, in which case he must leave the mine in a good state of timbering.10. That he shall pay taxes on the mine and its output as prescribed in the royal decree.11. Finally, that he shall comply with all the requirements contained in the royal decree and in the regulations for concessions of the same nature as the present.Without special conditions.Now, therefore, by virtue of this title deed, I grant to Don Joaquin Casanovas y Llovet and to Don Martin Buck the ownership of the said mine for an unlimited period of time so long as they shall comply with the foregoing terms and conditions, to the end that they may develop the same and make free use and disposition of the output thereof, with the right to alienate the said mine subject to the provisions of existing laws, and to enjoy all the rights and benefits conceded to such grantees by the royal decree and by the mining regulations. And for the prompt fulfillment and observance of the said conditions, both on the part of the said grantees and by all authorities, courts, corporations, and private persons whom it may concern, I have ordered this title deed to be issued given under my hand and the proper seal and countersigned by the undersigned Director-General of Civil Administration.It seems very clear to us that this deed constituted a contract between the Spanish Government and the plaintiff, the obligation of which contract was impaired by the enactment of section 134 of the Internal Revenue Law above cited, thereby infringing the provisions above quoted from section 5 of the act of Congress of July 1, 1902. This conclusion seems necessarily to result from the decisions of the Supreme Court of the United States in similar cases. In the case of McGeevs.Mathis (4 Wallace, 143), it appeared that the State of Arkansas, by an act of the legislature of 1851, provided for the sale of certain swamp lands granted to it by the United States; for the issue of transferable scrip receivable for any lands not already taken up at the time of selection by the holder; for contracts for the making of levees and drains, and for the payment of contractors in scrip and otherwise. In the fourteenth section of this act it was provided that To encourage by all just means the progress and completion of the reclaiming of such lands by offering inducements to purchasers and contractors to take up said lands, all said swamp and overflowed lands shall be exempt from taxation for the term of ten years or until they shall be reclaimed.In 1855 this section was repealed and provision was made by law for the taxation of swamp and overflowed lands, sold or to be sold, precisely as other lands. McGee, before this appeal, had become the owner by transfer from contractors of a large amount of scrip issued under the Act of 1851, and with this scrip, after the repeal, took up and paid for many sections and parts of sections of the granted lands. Taxes were levied by the State on the lands so taken up by McGee. The Supreme Court held that these taxes could not be collected. The Court said at page 156:It seems quite clear that the Act of 1851 authorizing the issue of land scrip constituted a contract between the State and the holders of the land scrip issued under the act.In the case of the Home of the Friendlessvs.Rouse (8 Wallace, 430), it appeared that on the 3d day of February, 1853, the legislature of Missouri passed on act to incorporate the Home of the Friendless in the city of St. Louis. Section 1 of the act provided that All property of said corporation shall be exempt from taxation.The court held that the State had no power afterwards to pass laws providing for the levying of taxes upon this institution. The Court said among other things at page 438:The validity of this contract is questioned at the bar on the ground that the legislature had no authority to grant away the power of taxation. The answer to this position is, that the question is no longer open for argument here, for it is settled by the repeated adjudications of this court, that a State may be contract based on a consideration exempt the property of an individual or corporation from taxation, either for a specified period or permanently. And it is equally well settled that the exemption is presumed to be on sufficient consideration, and binds the State if the charter containing it is accepted.In the case of The Asylumvs.The City of New Orleans (105 U.S., 362), it appears that St. Ariva's Asylum was incorporated by an act of the legislature of Louisiana, approved April 29, 1853. The law incorporating it provided that it should enjoy the same exemption from taxation which was enjoyed by the Orphan Boys' Asylum of New Orleans. The law relating to the last named institution provided (page 364):That, from and after the passage of this act, all the property, real and personal, belonging to the Orphan Boys' Asylum of New Orleans be, and the same is hereby exempted from all taxation, either by the State, parish, or city in which it is situated, any law to the contrary notwithstanding.It was held that the State had no power by subsequent legislation to impose taxes upon the property of this institution.That the doctrine announced in these cases is still maintained in that court is apparent from the case of Powersvs.The Detroit, Grand Haven and Milwaukee Railway which was decided on the 16th of April, 1906, and reported in 201 U. S., 543. Section 9 of the act of the legislature of Michigan, incorporating the railway company, provided:Said company shall, on or before the 1st day of July, pay to the State treasurer, an annual tax of one per cent on the capital stock of said company, pain in, which tax shall be in lieu of all other taxation.The court said at page 556:It has often been decided by this court, so often that a citation on authorities in unnecessary, that the legislature of a State may, in the absence of special restrictions in its constitution, make a valid contract with a corporation in respect to taxation, and that such contract can be enforced against the State at the instance of the corporation.The case at bar falls within the cases hereinbefore cited. It is to be distinguished from the case of the Metropolitan Street Railway Companyvs.The New York State Board of Tax Commissioners (199 U.S., 1). In that case it was provided by various acts of the legislature, that the companies therein referred to, should pay annually to the city of New York, a fixed amount or percentage, varying from 2 to 8 per cent of their gross earnings additional taxes was sustained by the court. It was sustained on the ground that the prior legislation did not expressly say that the taxes thus provided for should be in lieu of all other taxes. The court said at page 37:Applying these well-established rules to the several contracts, it will be perceived that there was no express relinquishment of the right of taxation. The plaintiff in error must rely upon some implication, and not upon any direct stipulation. In each contract there was a grant of privileges, but the grant was specifically or privileges in respect to the construction, operation and maintenance of the street railroad. These were all that in terms were granted. As consideration for this grant, the grantees were to pay something, and such payment is nowhere said to be in lieu of, or as an equivalent or substitute of taxes. All that can be extracted from the language used, was a grant of privileges and a payment therefor. Other words must be written into the contract before there can be found any relinquishment of the power of taxation.But in the case at bar, there is found not only the provisions for the payment of certain taxes annually, but there is also found the provision contained in article 81, above quoted, which expressly declares that no other taxes shall be imposed upon these mines.The present case is to be distinguished also from that class of cases of which Grands Lodgevs.The City of New Orleans (166 U.S., 143) is a type, and which includes Salt Companyvs.East Saginaw (13 Wall., 373) and Welchvs.Cook (97 U.S., 541). In these cases the exemption was a mere bounty and did not form a part of any contract.The fact that this concession was made by the Government of Spain, and not by the Government of the United States, is not important. (Trustees of Dartmouth Collegevs.Woodward, 4 Wheaton, 518.)Our conclusion is that the concessions granted by the Government of Spain to the plaintiff, constitute contracts between the parties; that section 134 of the Internal Revenue Law impairs the obligation of these contracts, and is therefore void as to them.II. We think that this section is also void because in conflict with section 60 of the act of Congress of July 1, 1902. This section is as follows:That nothing in this Act shall be construed to effect the rights of any person, partnership, or corporation, having a valid, perfected mining concession granted prior to April eleventh, eighteen hundred and ninety-nine, but all such concessions shall be conducted under the provisions of the law in force at the time they were granted, subject at all times to cancellation by reason of illegality in the procedure by which they were obtained, or for failure to comply with the conditions prescribed as requisite to their retention in the laws under which they were granted:Provided,That the owner or owners of every such concession shall cause the corners made by its boundaries to be distinctly marked with permanent monuments within six months after this act has been promulgated in the Philippine Islands, and that any concessions, the boundaries of which are not so marked within this period shall be free and open to explorations and purchase under the provisions of this act.2This section seems to indicate that concessions, like those in question, can be canceledonlyby reason of illegality in the procedure by which they were obtained, or for failure to comply with the conditions prescribed as requisite for their retention in the laws under which they were granted. There is nothing in the section which indicates that they can be canceled for failure to comply with the conditions prescribed by subsequent legislation. In fact, the real intention of the act seems to be that such concession should be subject to the former legislation and not to any subsequent legislation. There is no claim in this case that there was any illegality in the procedure by which these concessions were obtained, nor is there any claim that the plaintiff has not complied with the conditions prescribed in the said royal decree of 1867.III. In view of the result at which we have arrived, it is not necessary to consider the further claim made by the plaintiff that the taxes imposed by article 134 above quoted, are in violation of the part of section 5 of the act of July 1, 1902, which declares "that the rule of taxation in said Islands shall be uniform."The judgment of the court below is reversed, and judgment is ordered in favor of the plaintiff and against the defendant for P9,600, with interest thereon, at 6 per cent, from the 21st day of February, 1906, and the costs of the Court of First Instance. No costs will be allowed to either party in this court.After the expiration of twenty days let judgment be entered in accordance herewith and ten days thereafter let the case be remanded to the court from whence it came for proper action. So ordered.

(2) Read Case No. 13 in Constitutional Limitations, Equal Protection of the Law(3) G.R. No. L-60126 September 25, 1985CAGAYAN ELECTRIC POWER & LIGHT CO., INC.,petitioner,vs.COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS,respondents.AQUINO,J.:This is about the liability of petitioner Cagayan Electric Power & Light Co., Inc. for income tax amounting to P75,149.73 for the more than seven-month period of the year 1969in addition to franchise tax.The petitioner is the holder of a legislative franchise, Republic Act No. 3247, under which its payment of 3% tax on its gross earnings from the sale of electric current is "in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted" (Sec. 3).On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by making liable for income taxall corporate taxpayersnot specifically exempt under paragraph (c) (1) of said section and section 27 of the Tax Code notwithstanding the "provisions of existing special or general laws to the contrary". Thus, franchise companies were subjected toincome tax in addition to franchise tax.However, in petitioner's case, its franchise was amended by Republic Act No. 6020, effectiveAugust 4, 1969,by authorizing the petitioner to furnish electricity to the municipalities of Villanueva and Jasaan, Misamis Oriental in addition to Cagayan de Oro City and the municipalities of Tagoloan and Opol. The amendmentreenactedthe tax exemption in its original charter or neutralized the modification made by Republic Act No. 5431 more than a year before.By reason of the amendment to section 24 of the Tax Code, the Commissioner of Internal Revenue in a demand letter dated February 15, 1973 required the petitioner to pay deficiency income taxes for1968-to 1971. The petitioner contested the assessments. The Commissioner cancelled the assessments for 1970 and 1971 but insisted on those for 1968 and 1969.The petitioner filed a petition for review with the Tax Court, which on February 26, 1982 held the petitioner liable only for theincome tax for the period from January 1 to August 3, 1969or before the passage of Republic Act No. 6020 which reiterated its tax exemption. The petitioner appealed to this Court.It contends that the Tax Court erred (1) in not holding that the franchise tax paid by the petitioner is a commutative tax which already includes the income tax; (2) in holding that Republic Act No. 5431 as amended, altered or repealed petitioner's franchise; (3) in holding that petitioner's franchise is a contract which can be impaired by an implied repeal and (4) in not holding that section 24(d) of the Tax Code should be construed strictly against the Government.We hold that Congress could impair petitioner's legislative franchise by making it liable for income tax from which heretofore it was exempted by virtue of the exemption provided for in section 3 of its franchise.The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires (Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV, 1973 Constitution),Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject to the provisions of the Constitution and to the terms and conditions established in Act No. 3636 whose section 12 provides that the franchise is subject to amendment, alteration or repeal by Congress.Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income tax all corporate taxpayers not expressly exempted therein and in section 27 of the Code, had the effect ofwithdrawing petitioner's exemption from income tax.The Tax Court acted correctly in holding that the exemption was restored by the subsequent enactment on August 4, 1969 of Republic Act No. 6020 which reenacted the said tax exemption. Hence, the petitioner is liable only for the income tax for the period from January 1 to August 3, 1969 when its tax exemption was modified by Republic Act No. 5431.It is relevant to note that franchise companies, like the Philippine Long Distance Telephone Company, have been paying income tax in addition to the franchise tax.However, it cannot be denied that the said 1969 assessment appears to be highly controversial. The Commissioner at the outset was not certain as to petitioner's income tax liability. It had reason not to pay income tax because of the tax exemption in its franchise.For this reason, it should be liable only fortax properand should not be held liable for the surcharge and interest. (Advertising Associates, Inc. vs. Commissioner of Internal Revenue and Court of Tax Appeals, G. R. No. 59758, December 26, 1984,133 SCRA 765; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue, 125 Phil. 1024; C.M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71 SCRA 511.)WHEREFORE, the judgment of the Tax Court is affirmed with the modification that the petitioner is liable only for the tax proper and that it should not pay the delinquency penalties. No costs.SO ORDERED.

(4) Phil Power and Devt Co v. CIR, CTA Case No. 1152, October 31, 1965. Read the PDF Ill upload with this Doc. Wara kasi ak nahanap nga iba nga file, PDF la talaga.

E. BILLS TO ORIGINATE FROM THE HOUSE OF REPRESENTATIVES

Read Case No. 13 in Constitutional Limitations, Equal Protection of the Law

F. TAXATION AND THE FREEDON OF THE PRESS

Read Case No. 13 in Constitutional Limitations, Equal Protection of the Law

G. TAX EXEMPTION OF PROPERTIES USED FOR RELIGIOUS, CHARITABLE, AND EDUCATIONAL PURPOSES

(1) G.R. No. L-39086 June 15, 1988ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA,petitioner,vs.HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE, respondents.PARAS,J.:This is a petition for review on certiorari of the decision*of the defunct Court of First Instance of Abra, Branch I, dated June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented by Pedro V. Borgonia, plaintiff vs. Armin M. Cariagaas Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of Bangued, Abra and Paterno Millare, defendants," the decretal portion of which reads:IN VIEW OF ALL THE FOREGOING, the Court hereby declares:That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the Provincial Treasurer of said province against the lot and building of the Abra Valley Junior College, Inc., represented by Director Pedro Borgonia located at Bangued, Abra, is valid;That since the school is not exempt from paying taxes, it should therefore pay all back taxes in the amount of P5,140.31 and back taxes and penalties from the promulgation of this decision;That the amount deposited by the plaintaff him the sum of P60,000.00 before the trial, be confiscated to apply for the payment of the back taxes and for the redemption of the property in question, if the amount is less than P6,000.00, the remainder must be returned to the Director of Pedro Borgonia, who represents the plaintiff herein;That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the trial must be returned to said Municipal Treasurer of Bangued, Abra;And finally the case is hereby ordered dismissed with costs against the plaintiff.SO ORDERED. (Rollo, pp. 22-23)Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in the courta quoto annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot and building covered by Original Certificate of Title No. Q-83 duly registered in the name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served upon the petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of said college lot and building, which sale was held on the same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly accepted. The certificate of sale was correspondingly issued to him.On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a motion to dismiss the complaint.On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This was followed by an amended answer (Annex "3,"ibid, Rollo, pp. 101-103) on August 31, 1972.On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5,"ibid; Rollo, pp. 106-108).On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6,"ibid; Rollo, pp. 109-110) the respondents provincial and municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, petitioner, through Director Borgonia, deposited with the trial court the sum of P6,000.00 evidenced by PNB Check No. 904369.On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. Said Stipulations reads:STIPULATION OF FACTSCOME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into the following agreed stipulation of facts:1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is admitted; but the particular person of Mr. Armin M. Cariaga is to be substituted, however, by anyone who is actually holding the position of Provincial Treasurer of the Province of Abra;2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings thereon located in Bangued, Abra under Original Certificate of Title No. 0-83;3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused to be served upon the Abra Valley Junior College, Inc. a Notice of Seizure on the property of said school under Original Certificate of Title No. 0-83 for the satisfaction of real property taxes thereon, amounting to P5,140.31; the Notice of Seizure being the one attached to the complaint as Exhibit A;4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at public auction for the satisfaction of the unpaid real property taxes thereon and the same was sold to defendant Paterno Millare who offered the highest bid of P6,000.00 and a Certificate of Sale in his favor was issued by the defendant Municipal Treasurer.5. That all other matters not particularly and specially covered by this stipulation of facts will be the subject of evidence by the parties.WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this stipulation of facts on the point agreed upon by the parties.Bangued, Abra, April 12, 1973.Sgd. Agripino BrillantesTyp AGRIPINO BRILLANTESAttorney for PlaintiffSgd. Loreto RoldanTyp LORETO ROLDANProvincial FiscalCounsel for DefendantsProvincial Treasurer ofAbra and the MunicipalTreasurer of Bangued, AbraSgd. Demetrio V. PreTyp. DEMETRIO V. PREAttorney for DefendantPaterno Millare (Rollo, pp. 17-18)Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is recognized by the government and is offering Primary, High School and College Courses, and has a school population of more than one thousand students all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and about 120 meters from the Court of First Instance building; (c) that the elementary pupils are housed in a two-storey building across the street; (d) that the high school and college students are housed in the main building; (e) that the Director with his family is in the second floor of the main building; and (f) that the annual gross income of the school reaches more than one hundred thousand pesos.From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether or not the lot and building in question areused exclusively for educational purposes. (Rollo, p. 20)The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein they opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school building and school lot used for educational purposes of the Abra Valley College, Inc., are exempted from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school for residential purposes. He thus ruled for the government and rendered the assailed decision.After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its appeal (Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant petition for review oncertiorariwith prayer for preliminary injunction before this Court, which petition was filed on August 17, 1974 (Rollo, p.2).In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo, p. 58). Respondents were required to answer said petition (Rollo, p. 74).Petitioner raised the following assignments of error:ITHE COURTA QUOERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.IITHE COURTA QUOERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.IIITHE COURTA QUOERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES.IVTHE COURTA QUOERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)The main issue in this case is the proper interpretation of the phrase "used exclusively for educational purposes."Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use thereof, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and sale of subject college lot and building, which are contrary thereto as well as to the provision of Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal basis and therefore void.On the other hand, private respondents maintain that the college lot and building in question which were subjected to seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for commercial purposes because the ground floor of the college building is being used and rented by a commercial establishment, the Northern Marketing Corporation (See photograph attached as Annex "8" (Comment; Rollo, p. 90]).Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption from realty taxes for "Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvementsused exclusivelyfor religious, charitable or educational purposes ...Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409, otherwise known as the Assessment Law, provides:The following are exempted from real property tax under the Assessment Law:xxx xxx xxx(c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvementsused exclusivelyfor religious, charitable, scientific or educational purposes.xxx xxx xxxIn this regard petitioner argues that the primary use of the school lot and building is the basic and controlling guide, norm and standard to determine tax exemption, and not the mere incidental use thereof.As early as 1916 inYMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court ruled that while it may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still these do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for religious, charitable and educational purposes, and as such, it is entitled to be exempted from taxation.In the case of Bishop ofNueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified that the term "used exclusively" considers incidental use also. Thus, the exemption from payment of land tax in favor of the convent includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes incidental use in religious functions.The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases ofHerrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961] andCommissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes, such as in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such as "Athletic fields" including "a firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430).The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purposeeducational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.It will be noted however that the aforementioned lease appears to have been raised for the first time in this Court. That the matter was not taken up in the to court is really apparent in the decision of respondent Judge. No mention thereof was made in the stipulation of facts, not even in the description of the school building by the trial judge, both embodied in the decision nor as one of the issues to resolve in order to determine whether or not said properly may be exempted from payment of real estate taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even after it was raised in this Court.Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal. Nonetheless, as an exception to the rule, this Court has held that although a factual issue is not squarely raised below, still in the interest of substantial justice, this Court is not prevented from considering a pivotal factual matter. "The Supreme Court is clothed with ample authority to review palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved.PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner.SO ORDERED.

(2) G.R. No. L-19201 June 16, 1965REV. FR. CASIMIRO LLADOC,petitioner,vs.The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX APPEALS,respondents.PAREDES,J.:Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for the construction of a new Catholic Church in the locality. The total amount was actually spent for the purpose intended.On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29, 1960, the respondent Commissioner of Internal Revenue issued an assessment for donee's gift tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest. The tax amounted to P1,370.00 including surcharges, interests of 1% monthly from May 15, 1958 to June 15, 1960, and the compromise for the late filing of the return.Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and the motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The petitioner appealed to the Court of Tax Appeals on November 2, 1960. In the petition for review, the Rev. Fr. Casimiro Lladoc claimed, among others, that at the time of the donation, he was not the parish priest in Victorias; that there is no legal entity or juridical person known as the "Catholic Parish Priest of Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also asserted that the assessment of the gift tax, even against the Roman Catholic Church, would not be valid, for such would be a clear violation of the provisions of the Constitution.After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below:... . Parish priests of the Roman Catholic Church under canon laws are similarly situated as its Archbishops and Bishops with respect to the properties of the church within their parish. They are the guardians, superintendents or administrators of these properties, with the right of succession and may sue and be sued.x x x x x x x x xThe petitioner impugns the, fairness of the assessment with the argument that he should not be held liable for gift taxes on donation which he did not receive personally since he was not yet the parish priest of Victorias in the year 1957 when said donation was given. It is intimated that if someone has to pay at all, it should be petitioner's predecessor, the Rev. Fr. Crispin Ruiz, who received the donation in behalf of the Catholic parish of Victorias or the Roman Catholic Church. Following petitioner's line of thinking, we should be equally unfair to hold that the assessment now in question should have been addressed to, and collected from, the Rev. Fr. Crispin Ruiz to be paid from income derived from his present parish where ever it may be. It does not seem right to indirectly burden the present parishioners of Rev. Fr. Ruiz for donee's gift tax on a donation to which they were not benefited.x x x x x x x x xWe saw no legal basis then as we see none now, to include within the Constitutional exemption, taxes which partake of the nature of an excise upon the use made of the properties or upon the exercise of the privilege of receiving the properties. (Phipps vs. Commissioner of Internal Revenue, 91 F [2d] 627; 1938, 302 U.S. 742.)It is a cardinal rule in taxation that exemptions from payment thereof are highly disfavored by law, and the party claiming exemption must justify his claim by aclear, positive, or express grantof such privilege by law. (Collector vs. Manila Jockey Club, G.R. No. L-8755, March 23, 1956; 53 O.G. 3762.)The phrase "exempt from taxation" as employed in Section 22(3), Article VI of the Constitution of the Philippines, should not be interpreted to mean exemption from all kinds of taxes. Statutes exempting charitable and religious property from taxation should be construed fairly though strictly and in such manner as to give effect to the main intent of the lawmakers. (Roman Catholic Church vs. Hastrings 5 Phil. 701.)x x x x x x x x xWHEREFORE, in view of the foregoing considerations, the decision of the respondent Commissioner of Internal Revenue appealed from, is hereby affirmed except with regard to the imposition of the compromise penalty in the amount of P20.00 (Collector of Internal Revenue v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and the petitioner, the Rev. Fr. Casimiro Lladoc is hereby ordered to pay to the respondent the amount of P900.00 as donee's gift tax, plus the surcharge of fiveper centum(5%) asad valorempenalty under Section 119 (c) of the Tax Code, and oneper centum (1%) monthly interest from May 15, 1958 to the date of actual payment. The surcharge of 25% provided in Section 120 for failure to file a return may not be imposed as the failure to file a return was not due to willful neglect.( ... ) No costs.The above judgment is now before us on appeal, petitioner assigning two (2) errors allegedly committed by the Tax Court, all of which converge on the singular issue of whether or not petitioner should be liable for the assessed donee's gift tax on the P10,000.00 donated for the construction of the Victorias Parish Church.Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries,churchesand parsonages or convents, appurtenant thereto, and alllands,buildings, and improvements used exclusively for religious purposes. The exemption is only from the payment of taxes assessed on such properties enumerated, as property taxes, as contra distinguished from excise taxes. In the present case, what the Collector assessed was a donee's gift tax; the assessment was not on the properties themselves. It did not rest upon general ownership; it was an excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of giftinter vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an impairment of the Constitution. As well observed by the learned respondent Court, the phrase "exempt from taxation," as employed in the Constitution (supra) should not be interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or express grant of such privilege by law, in favor of petitioner, the exemption herein must be denied.The next issue which readily presents itself, in view of petitioner's thesis, and Our finding that a tax liability exists, is, who should be called upon to pay the gift tax? Petitioner postulates that he should not be liable, because at the time of the donation he was not the priest of Victorias. We note the merit of the above claim, and in order to put things in their proper light, this Court, in its Resolution of March 15, 1965, ordered the parties to show cause why the Head of the Diocese to which the parish of Victorias pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it appearing that the Head of such Diocese is the real party in interest. The Solicitor General, in representation of the Commissioner of Internal Revenue, interposed no objection to such a substitution. Counsel for the petitioner did not also offer objection thereto.On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present whatever legal issues and/or defenses he might wish to raise, to which resolution counsel for petitioner, who also appeared as counsel for the Head of the Diocese, the Roman Catholic Bishop of Bacolod, manifested that it was submitting itself to the jurisdiction and orders of this Court and that it was presenting, by reference, the brief of petitioner Rev. Fr. Casimiro Lladoc as its own and for all purposes.In view here of and considering that as heretofore stated, the assessment at bar had been properly made and the imposition of the tax is not a violation of the constitutional provision exempting churches, parsonages or convents, etc. (Art VI, sec. 22 [3], Constitution), the Head of the Diocese, to which the parish Victorias Pertains, is liable for the payment thereof.The decision appealed from should be, as it is hereby affirmed insofar as tax liability is concerned; it is modified, in the sense that petitioner herein is not personally liable for the said gift tax, and that the Head of the Diocese, herein substitute petitioner, should pay, as he is presently ordered to pay, the said gift tax, without special, pronouncement as to costs.

(3) G.R. No. L-7988 January 19, 1916THE YOUNG MEN'S CHRISTIAN ASSOCIATION OF MANILA,plaintiff-appellant,vs.THE COLLECTOR OF INTERNAL REVENUE,defendant-appellee.MORELAND,J.:The question at issue in this case is whether or not the building and grounds of the Young Men's Christian Association of Manila are subject to taxation, under section 48 of the charter of the city of Manila quoted in the footnote [syllabus].The city of Manila, contending that the property is taxable, assessed it and levied a tax thereon. It was paid under protest and this action begun to recover it on the ground that the property was exempt from taxation under the charter of the city of Manila. The decision was for the city and the association appealed.The Young Men's Christian Association came to the Philippine with the army of occupation in 1898. When the large body of troops in Manila was removed to permanent quarters at Fort William McKinley in February, 1905, an independent association for Manila was organized under the direction of the Army and navy departments. Shortly after the organization of the association the directors made a formal request to the international committee of the Young Men's Christian Association in New York City for the assistance and cooperation of its foreign department. I response to this request Mr. John R. Mott, general secretary of the foreign department, visited Manila in January 1907. After a conference with the directors and interested friends it was decided to conduct a campaign to secure funds for an adequate and permanent association. In the name of the international committee and friends in America Mr. Mott guaranteed P170,000 for the construction of a building on condition that friend in the Philippines secure the site and adequately furnish the building. The campaign for funds was begun here on February 15, 1907, and, by the 15th of March following, P83,000 was subscribed, nearly one thousand different persons contributing. Thereupon the Young Men's Christian Association of Manila was incorporated under the law of the Philippine Islands and received its character in June, 1907.A site for the new building was selected on Calle Concepcion, Ermita, and the building contract was let on the 8th of January following. The cornerstone was laid with appropriate ceremonies on July 10, 1908, and the building was formally dedicated on October 20, 1909.The building is composed of three parts. The main structure, located in the center, is three stories high and includes a reception hall, social hall and game rooms, lecture room, library, reading room and rooming apartments. The small building lying to the left of the principal structure, as one faces the front from Called Concepcion, is the kitchen and servant's quarters. The large wing to the right is known as the athletic building, where the bowling alleys, swimming pool, locker rooms and gymnasium-auditorium are located. The construction is of reinforced concrete with steel trussed roof covered with interlocking red tiles.The main or central portion of the building is 150 by 45 feet and stands 20 meters back from the sidewalk. An iron canopy, suspended by brackets, projects over the driveway which lies in front and shelters the main entrance. A wide arched doorway opens into a large reception room, on the left of which is the public office and the secretary's private office, while on the right is the reading and writing rooms, and beyond that the library, each about 30 feet square. From the reception room, on the left, a broad concrete stairway leads to the second floor.Passing out of the rear of the reception hall one enters upon a veranda some 15 feet in width running the full length of the main structure which looks out on the tennis courts and affords an excellent place for lounging, games and general social purposes. To the left of the entrance hall and also opening upon the veranda are two large rooms of about the same size as those on the right of the reception hall, the first being the billiard room and the other the restaurant. The athletic building is entered from the rear veranda. It is a two story wing 68 by 85 feet. Passing from the veranda into the athletic hall one finds first, on the left, the toilet room, and beyond this, to the rear, the shower baths and locker rooms. The swimming pool is in the center of the athletic wing and is 60 by 19 feet in size, lined with cement. To the right of the swimming pool are the bowling alleys. A wide stairways leads to the second floor. Above the swimming-pool and bowling alley is a large room 50 by 85 feet which is the gymnasium and also the auditorium when occasion requires. About one-third of the roof converting the athletic wing is used as a roof garden.The second and third floors of the main building are given over almost wholly to rooming apartments and baths. On the second floor over the entrance hall is a members' parlor, from which a small balcony projects over the main entrance. The remainder of the second floor and all to the third are composed of the living rooms. These apartments, of which there are 14 on the second and 20 on the third floor are approximately 18 by 14 feet each. They provide accommodations for 64 men.The purposes of the association, as set forth in its charter and constitution, are:To develop the Christian character and usefulness of its members, to improve the spiritual, intellectual, social and physical condition of young men, and to acquire, hold, mortgage, and dispose of the necessary lands, buildings and personal property for the use of said corporation exclusively for religious, charitable and educational purposes, and not for investment or profit.The purposes of this association shall be exclusively religious, charitable and educational, in developing the Christian character and usefulness of its members and in improving the spiritual, mental, social and physical condition of young men.Speaking generally, the association claims exemption from taxation on the ground that it is a religious, charitable and educational institution combined. That it has an educational department is not denied. It is undisputed that the aim of this department is to furnish, at much less than cost, instruction in subjects that will greatly increase the mental efficiency and wage-earning capacity of young men, prepare them in special lines of business and offer them special lines of study. Attention is given to subjects included in civil service and consular examinations both here and in the United States. The courses offer commercial subjects, as well as many others, and include stenography and typewriting, bookkeeping, arithmetic, English composition, foreign languages, including elementary and advanced Spanish and Tagalog, special courses in Philippine history, public speaking, surveying, horticulture, tropical dependencies, and the group of subjects required for entrance into the consular services, such as political economy, American and modern history. Courses are also offered in law, social, ethics, political economy and other subjects.The institution has also its religious department. In that department there are, generally speaking, three main lines of work Bible study, religious meetings and special classes. Course are offered in the Life of Christ and the Old Testament and in the larger social significance of the teachings of Jesus. Meetings are held on Sunday afternoons and several times during the week and courses are offered in the study of missions, in the method of teaching the Bible and kindred subjects.The atmosphere of the Young Men's Christian Association is distinctly religious and there is constant effort on the part of the officials to create a religious spirit; and to that end there is continuous pressure to induce members to attend not only the religious services of the association but also those of one or another of the churches of Manila. While the association is nonsectarian, it is preeminently religious; and the fundamental basis and groundwork is the Christian religion. All of the officials of the association are devoted Christians, members of a church, and have dedicated their lives to the spread of the Christian principles and building of Christian character.The institution also has charitable features. It makes no profit on any of its activities. The professors and instructors in all departments serve without pay and freely give of their time and ability to further the purposes of the institution. The chief secretary and his assistant receive no salary from the institution. Whatever they are paid comes from the United States. In estimating the cost of instruction in the various departments, or of the other things for which pay is received, no account is taken of the interest on the money invested in the grounds and building, of deterioration in value resulting from the lapse of time, or of the fact that the professors and instructors and certain officials receive no pay. We have, then, a building and grounds, professors and instructors, and certain institution officials, furnished free of charge, and which makes no profit even on that basis. This, it would seem, would lend some color to the claim that the association takes on some of the aspect of a charitable institution. While it appears that the association is notexclusivelyreligious or charitable or educational, it is demonstrated that it is a happy combination of all three, giving to its membership the religious opportunities of the church, the educational opportunities of the school and the blessings of charity where needed without the recipient feeling or even knowing that he is the object of charity.It is claimed, however, that the institution is run as a business in that it keeps a lodging and boarding house. It may be admitted that there are 64 persons occupying rooms in the main building as lodgers or roomers and that they take their meals at the restaurant below. These facts, however, are far from constituting a business in ordinary acceptation of the word. In the first place, no profit is realized by the association in any sense. In the second place, it is undoubted, as it is undisputed, that the purpose of the association is not, primarily, to obtain the money which comes from the lodgers and boarders. The real purpose is to keep the membership continually within the sphere of influence of the institution; and thereby to prevent, as far as possible, the opportunities which vice president to young men in foreign countries who lack home or other similar influences. We regard this feature of the institution not as a business or means of making money, but, rather, as a very efficient means of maintaining the influence of the institution over its membership. As we held in the case of the Columbia Club, religious and moral teachings do not always stop with the spoken word; but to be effective in the highest degree they must follow the young man through as many moments of his life as possible. To this end the feature of the Young Men's Christian Association to which objection is made lends itself with great effect; and we are, accordingly, forced to regards this activity of the institution not as a business but as a method by which the institution maintains its influence and conserves the benefits which its organization was designed to confer.As we have seen in the description already given of the association building and grounds, no part is occupied for any but institutional purposes. From end to end the building and grounds are devoted exclusively to the purposes stated in the constitution of the association. The library and reading rooms, the game and lounging halls, the lecture rooms, the auditorium, the baths, pools, devices for physical development, and the grounds, are all dedicated exclusively to the objects and purpose of the association the building of Christian character and the creation of moral sentiment and fiber in men. It is the belief of the Young Men's Christian Association that a Christian man, a man of moral sentiment and firm moral fiber, is yet a better man for being also all-round man one who is sound not only according to Christian principles and the highest moral conceptions, but physically and mentally; whose body and mind act in harmony and within the limits which the rights of others set; who are gentleman in physical and mental struggles, as well as in religious service; who have self-respect and self-restraint; who can hit hard and still kindly; who can lose without envy; who can congratulate his conqueror with sincerity; who can vie without temper, contend without malice, concede without regret; who can win and still be generous, in short, one who fights hard but square. To the production of such men the association lends all its efforts, husbands all its resources.We are aware that there are many decisions holding that institutions of this character are not exempt from taxation; but, on investigation, we find that the majority of them are based on statutes much narrower than the one under consider and that in all probability the decisions would have been otherwise if the court had been passing on a statute similar to ours. On the other hand, there are many decisions of the courts in the United States founded on statutes like the Philippine statute which hold that associations of this class are exempt from taxation. We have examined all of the decisions, both for and against, with care and deliberation, and we are convinced that the weight of authority sustains the positions we take in this case.There is no doubt about the correctness of the contention that an institution must devote itself exclusively to one or the other of the purpose mentioned in the statute before it can be exempt from taxation; but the statute does not say that it must be devotedexclusivelyto anyoneof the purposes therein mentioned. It may be a combination of two or three or more of those purposes and still be entitled to exempt. The Young Men's Christian Association of Manila cannot be said to be an institution usedexclusivelyfor religious purposes, or an institution used exclusively for charitable purposes, or an institution devoted exclusively to educational purposes; but we believe it can be truthfully said that it is an institution used exclusively for all three purposes, and that, as such, it is entitled to be exempted from taxation.The judgment appealed from is reversed and the cause remanded with instructions to enter a judgment against the city of Manila and in favor of the Young Men's Christian Association of Manila in the sum of P6,221.35. Without costs in this instance. So ordered.

(4) G.R. No. L-27588 December 31, 1927THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA, as representative of the Roman Catholic Apostolic Church,plaintiff-appellant,vs.THE PROVINCIAL BOARD OF ILOCOS NORTE, ET AL.,defendants-appellants..AVANCEA,J.:The plaintiff, the Roman Catholic Apostolic Church, represented by the Bishop of Nueva Segovia, possesses and is the owner of a parcel of land in the municipality of San Nicolas, Ilocos Norte, all four sides of which face on public streets. On the south side is a part of the churchyard, the convent and an adjacent lot used for a vegetable garden, containing an area off 1,624 square meters, in which there is a stable and a well for the use of the convent. In the center is the remainder of the churchyard and the church. On the north is an old cemetery with two of its walls still standing, and a portion where formerly stood a tower, the base of which still be seen, containing a total area of 8,955 square meters.As required by the defendants, on July 3, 1925 the plaintiff paid, under protest, the land tax on the lot adjoining the convent and the lot which formerly was the cemetery with the portion where the tower stood.The plaintiff filed this action for the recovery of the sum paid by to the defendants by way of land tax, alleging that the collection of this tax is illegal. The lower court absolved the defendants from the complaint in regard to the lot adjoining convent and declared that the tax collected on the lot, which formerly was the cemetery and on the portion where the lower stood, was illegal. Both parties appealed from this judgment.The exemption in favor of the convent in the payment of the land tax (sec. 344 [c] Administrative Code) refers to the home of the parties who presides over the church and who has to take care of himself in order to discharge his duties. In therefore must, in the sense, include not only the land actually occupied by the church, but also the adjacent ground destined to the ordinary incidental uses of man. Except in large cities where the density of the population and the development of commerce require the use of larger tracts of land for buildings, a vegetable garden belongs to a house and, in the case of a convent, it use is limited to the necessities of the priest, which comes under the exemption.lawphi1.netIn regard to the lot which formerly was the cemetery, while it is no longer used as such, neither is it used for commercial purposes and, according to the evidence, is now being used as a lodging house by the people who participate in religious festivities, which constitutes an incidental use in religious functions, which also comes within the exemption.The judgment appealed from is reversed in all it parts and it is held that both lots are exempt from land tax and the defendants are ordered to refund to plaintiff whatever was paid as such tax, without any special pronouncement as to costs. So ordered.

(5) G.R. No. L-15270 September 30, 1961JOSE V. HERRERA and ESTER OCHANGCO HERRERA,petitioners,vs.THE QUEZON CITY BOARD OF ASSESSMENT APPEALS,respondent.CONCEPCION,J.:Appeal, by petitioners Jose V. Herrera and Ester Ochangco Herrera, from a decision of the Court of Tax Appeals affirming that of the Board of Assessment Appeals of Quezon City, which held that certain properties of said petitioners are subject to assessment for purposes of real estate tax.The facts and the issue are set forth in the aforementioned decision of the Court of Tax Appeals, from which we quote:On July 24, 1952, the Director of the Bureau of Hospitals authorized the petitioners to establish and operate the "St. Catherine's Hospital", located at 58 D. Tuazon, Sta. Mesa Heights, Quezon City (Exhibit "F-1", p. 7, BIR rec.). On or about January 3, 1953, the petitioners sent a letter to the Quezon City Assessor requesting exemption from payment of real estate tax on the lot, building and other improvements comprising the hospital stating that the same was established for charitable and humanitarian purposes and not for commercial gain (Exhibit "F-2", pp. 8-9, BIR rec.). After an inspection of the premises in question and after a careful study of the case, the exemption from real property taxes was granted effective the years 1953, 1954 and 1955.Subsequently, however, in a letter dated August 10, 1955 (Exhibit "E", p. 65, CTA rec.) the Quezon City Assessor notified the petitioners that the aforesaid properties were re-classified from exempt to "taxable" and thus assessed for real property taxes effective 1956, enclosing therewith copies of Tax Declarations Nos. 19321 to 19322 covering the said properties. The petitioners appealed the assessment to the Quezon City Board of Assessment Appeals, which, in a decision dated March 31, 1956 and received by the former on May 17, 1956, affirmed the decision of the City Assessor. A motion for reconsideration thereof was denied on March 8, 1957. From this decision, the petitioners instituted the instant appeal.1awphl.ntThe building involved in this case is principally used as a hospital. It is mainly a surgical and orthopedic hospital with emphasis on obstetrical cases, the latter constituting 90% of the total number of cases registered therein. The hospital has thirty-two (32) beds, of which twenty (20) are for charity-patients and twelve (12) for pay-patients. From the evidence presented by petitioners, it is made to appear that there are two kinds of charity patients (a) those who come for consultation only ("out-charity patients"); and (b) those who remain in the hospital for treatment ("lying-in-patients"). The out-charity patients are given free consultation and prescription, although sometimes they are furnished with free medicines which are not costly like aspirin, sulfatiazole, etc. The charity lying-in-patients are given free medical service and medicine although the food served to the pay-patients is very much better than that given to the former. Although no condition is imposed by the hospital on the admission of charity lying-in-patients, they however, usually give donations to the hospital. On the other hand, the pay-patients are required to pay for hospital services ranging from the minimum charge of P5.00 to the maximum of P40.00 for each day of stay in the hospital. The income realized from pay-patients is spent for the improvement of the charity wards. The hospital personnel is composed of three nurses, two graduate midwives, a resident physician receiving a salary of P170.00 a month and the petitioner, Dr. Ester Ochangco Herrera, as directress. As such directress, the latter does not receive any salary.Petitioners also operate within the premises of the hospital the "St. Catherine's School of Midwifery" which was granted government recognition by the Secretary of Education on February 1, 1955 (Exhibit "F-3", p. 10, BIR rec.) This school has an enrollment of about two hundred students. The students are charged a matriculation fee of P300.00 for 1- years, plus P50.00 a month for board and lodging, which includes transportation to the St. Mary's Hospital. The students practice in the St. Catherine's Hospital, as well as in the St. Mary's Hospital, which is also owned by the petitioners. A separate set of accounting books is maintained by the school for midwifery distinct from that kept by the hospital. The petitioners alleged that the accounts of the school are not included in Exhibits "A", "A-1", "A-2", "B", "B-1", "B-2", "C", "C-1" and "C-2" which relate to the hospital only. However, the petitioners have refused to submit a separate statement of accounts of the school. A brief tabulation indicating the amount of income of the hospital for the years 1954, 1955 and 1956, and its operational expenses, is as follows:1 9 5 4

IncomeExpensesDeficit

Charity WardPay WardP14,779.50P 5,280.04P10,803.26

P16,083.30P1,303.80

(Exhibits "A", "A-1" and "A-2")

1 9 5 5

IncomeExpensesDeficit

Charity WardPay WardP17,433.30P 6,859.3214,038.92

P20,898.24P3,464.94

(Exhibits "B", "B-1" and "B-2")

1 9 5 6

IncomeExpensesDeficit