digested tax cases

8/13/2019 digested tax cases

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CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATION, INC. VS. EXECUTIVE SECRETARY-

MINIMUM CORPORATE INCOME TAX

FACTS:

CREBA assails the imposition of the minimum corporate income tax (MCIT) as being violative of

the due process clause as it levies income tax even if there is no realized gain. They also

question the creditable withholding tax (CWT) on sales of real properties classified as ordinary

assets stating that (1) they ignore the different treatment of ordinary assets and capital assets;

(2) the use of gross selling price or fair market value as basis for the CWT and the collection of

tax on a per transaction basis (and not on the net income at the end of the year) are

inconsistent with the tax on ordinary real properties; (3) the government collects income tax

even when the net income has not yet been determined; and (4) the CWT is being levied upon

real estate enterprises but not on other enterprises, more particularly those in the

manufacturing sector.

MCIT

Under the tax code a corporation can become subject to the mcit at the rate of

2% of Gross income, beginning on the 4th

year immediately following the year in which it

commenced its business operations, when such mcit is greater that the normal corporate

income tax. If the regular income tax is higher than the mcit , the corporation does not pay the

mcit.

ISSUE:

Are the impositions of the MCIT on domestic corporations and CWT on income from sales of

real properties classified as ordinary assets unconstitutional?

HELD:

NO. MCIT does not tax capital but only taxes income as shown by the fact that the MCIT is

arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the costof goods and other direct expenses from gross sales. Besides, there are sufficient safeguards

that exist for the MCIT: (1) it is only imposed on the 4th year of operations; (2) the law allows

the carry forward of any excess MCIT paid over the normal income tax; and (3) the Secretary of

Finance can suspend the imposition of MCIT in justifiable instances.


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The regulations on CWT did not shift the tax base of a real estate business income tax from net

income to GSP or FMV of the property sold since the taxes withheld are in the nature of

advance tax payments and they are thus just installments on the annual tax which may be due

at the end of the taxable year. As such the tax base for the sale of real property classified as

ordinary assets remains to be the net taxable income and the use of the GSP or FMV is because

these are the only factors reasonably known to the buyer in connection with the performance

of the duties as a withholding agent.

Neither is there violation of equal protection even if the CWT is levied only on the real industry

as the real estate industry is, by itself, a class on its own and can be validly treated different

from other businesses.

PEPSI COLA VS MUNICIPALITY OF TANUAN

Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September 1962, the

Municipality approved Ordinance No. 23 which levies and collects from soft drinks producers

and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink

corked.

In December 1962, the Municipality also approved Ordinance No. 27 which levies and collects

on soft drinks produced or manufactured within the territorial jurisdiction of this municipality

a tax of one centavo P0.01) on each gallon of volume capacity.

Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute doubletaxation in two instances: a) double taxation because Ordinance No. 27 covers the same subject

matter and impose practically the same tax rate as with Ordinance No. 23, b) double taxation

because the two ordinances impose percentage or specific taxes.

Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the

delegation of taxing powers to local government units; that allowing local governments to tax

companies like Pepsi Cola is confiscatory and oppressive.

The Municipality assailed the arguments presented by Pepsi Cola. It argued, among others, that

only Ordinance No. 27 is being enforced and that the latter law is an amendment of Ordinance

No. 23, hence there is no double taxation.

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

double taxation.

HELD: No. There is no undue delegation. The Constitution even allows such delegation.

Legislative powers may be delegated to local governments in respect of matters of local

concern. By necessary implication, the legislative power to create political corporations for

purposes of local self-government carries with it the power to confer on such local

governmental agencies the power to tax. Under the New Constitution, local governments are

granted the autonomous authority to create their own sources of revenue and to levy taxes.


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Section 5, Article XI provides: Each local government unit shall have the power to create its

sources of revenue and to levy taxes, subject to such limitations as may be provided by law.

Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the

sphere of the legislative power to enact and vest in local governments the power of local

taxation.

There is no double taxation. The argument of the Municipality is well taken. Further, PepsiColas assertion that the delegation of taxing power in itself constitutes double taxation cannot

be merited. It must be observed that the delegating authority specifies the limitations and

enumerates the taxes over which local taxation may not be exercised. The reason is that the

State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in

general, is not forbidden by our fundamental law unlike in other jurisdictions. Double taxation

becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same

governmental entity or by the same jurisdiction for the same purpose, but not in a case where

one tax is imposed by the State and the other by the city or municipality.

QUEZON CITY VS. ABS-CBN BROADCASTING CORPORATION - LOCAL FRANCHISE TAX

FACTS:

ABS-CBN was granted a franchise which provides that it shall pay a 3% franchise tax and the

said percentage tax shall be in lieu of all taxes on this franchise or earnings thereof. It thus

filed a complaint against the imposition of local franchise tax.

ISSUE:

Does the in lieu of all taxes provision in ABS-CBNs franchise exempt it from payment of the

local franchise tax?

HELD:

NO. The right to exemption from local franchise tax must be clearly established beyond

reasonable doubt and cannot be made out of inference or implications.

The uncertainty over whether the in lieu of all taxes provision pertains toexemption from

local or national taxes, or both, should be construed against Respondent who has the burden to

prove that it is in fact covered by the exemption claimed. Furthermore, the in lieu of all taxes

clause in Respondents franchise has become ineffective with the abolition of the franchise tax

on broadcasting companies with yearly gross receipts exceeding P10 million as they are now

subject to the VAT.


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COMMISSIONER v. ALGUE, INC.

GR No. L-28896, February 17, 1988

158 SCRA 9

FACTS: Private respondent corporation Algue Inc. filed its income tax returns for 1958 and

1959showing deductions, for promotional fees paid, from their gross income, thus lowering

their taxable income. The BIR assessed Algue based on such deductions contending that the

claimed deduction is disallowed because it was not an ordinary, reasonable and necessary

expense.

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

computation of income taxes, corollary to the doctrine that taxes are the lifeblood of the

government?

HELD: No. Private respondent has proved that the payment of the fees was necessary and

reasonable in the light of the efforts exerted by the payees in inducing investors and prominent

businessmen to venture in an xperimental enterprise and involve themselves in a new business

requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently

recompensed.

It is well-settled that taxes are the lifeblood of the government and so should be collected

without unnecessary hindrance On the other hand, such collection should be made in

accordance with law as any arbitrariness will negate the very reason for government itself. It is

therefore necessary to reconcile the apparently conflicting interests of the authorities and the

taxpayers so that the real purpose of taxation, which is the promotion of the common good,

may be achieved.But even as we concede the inevitability and indispensability of taxation, it is a requirement in

all democratic regimes that it be exercised reasonably and in accordance with the prescribed

procedure. If it is not, then the taxpayer has a right to complain and the courts will then come

to his succor. For all the awesome power of the tax collector, he may still be stopped in his

tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

PHIL. GUARANTY CO., INC. v. CIR

GR No. L-22074, April 30, 196513 SCRA 775

FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered

into reinsurance

contracts with foreign insurance companies not doing business in the country, thereby ceding

to foreign


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reinsurers a portion of the premiums on insurance it has originally underwritten in the

Philippines. The premiums

paid by such companies were excluded by the petitioner from its gross income when it file its

income tax returns

for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR

assessed againstthe petitioner withholding taxes on the ceded reinsurance premiums to which the latter

protested the

assessment on the ground that the premiums are not subject to tax for the premiums did not

constitute income

from sources within the Philippines because the foreign reinsurers did not engage in business in

the Philippines,

and CIR's previous rulings did not require insurance companies to withhold income tax due

from foreign

companies.

ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded

to foreign

insurance companies, which deprives the government from collecting the tax due from them?

HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from

necessity. It is a

necessary burden to preserve the State's sovereignty and a means to give the citizenry an army

to resist an

aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public

improvement

designed for the enjoyment of the citizenry and those which come within the State's territory,and facilities and

protection which a government is supposed to provide. Considering that the reinsurance

premiums in question

were afforded protection by the government and the recipient foreign reinsurers exercised

rights and privileges

guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of

maintaining the

state.

The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding

of tax due onreinsurance premiums may free the taxpayer from the payment of surcharges or penalties

imposed for failure to

pay the corresponding withholding tax, but it certainly would not exculpate it from liability to

pay such

withholding tax. The Government is not estopped from collecting taxes by the mistakes or

errors of its agents.


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FELS ENERGY INC. VS THE PROVINCE OF BATANGAS

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW

diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract,

denominated as an Energy Conversion Agreement5(Agreement), was for a period of five years.

Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import

duties, fees, charges and other levies imposed by the National Government of the Republic of

the Philippines or any agency or instrumentality thereof to which POLAR may be or become

subject to or in relation to the performance of their obligations under this agreement (other

than (i) taxes imposed or calculated on the basis of the net income of POLAR and Personal

Income Taxes of its employees and (ii) construction permit fees, environmental permit fees and

other similar fees and charges) and (b) all real estate taxes and assessments, rates and other

charges in respect of the Power Barges.6

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC

initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.

On August 7, 1995, FELS received an assessment of real property taxes on the power barges

from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise

covered those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter

to NPC, reminding it of its obligation under the Agreement to pay all real estate taxes. It then

gave NPC the full power and authority to represent it in any conference regarding the real

property assessment of the Provincial Assessor.

In a letter7dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors

decision to assess real property taxes on the power barges. However, the motion was denied

on September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment.8This

prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the

setting aside of the assessment and the declaration of the barges as non-taxable items; it also

prayed that should LBAA find the barges to be taxable, the Provincial Assessor be directed to

make the necessary corrections.9

In its Answer to the petition, the Provincial Assessor averred that the barges were real property

for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that

the Department of Finance (DOF) had rendered an opinion10

dated May 20, 1996, where it is

clearly stated that power barges are not real property subject to real property assessment.

On August 26, 1996, the LBAA rendered a Resolution11

denying the petition.

Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals (CBAA).
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On April 6, 2000, the CBAA rendered a Decision17

finding the power barges exempt from real

property tax.

The Provincial Assessor filed a motion for reconsideration, which was opposed by FELS and

NPC.

In a complete volte face, the CBAA issued a Resolution20

on July 31, 2001 reversing its earlier

decision

Dissatisfied, FELS filed a petition for review before the CA

Twelfth Division of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the

petition on the ground of prescription.

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court.

Issues:

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES ARE NOT

SUBJECT TO REAL PROPERTY TAXES.

Ruling:

Petitioners maintain nevertheless that the power barges are exempt from real estate tax under

Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used bypetitioner NPC, a government- owned and controlled corporation engaged in the supply,

generation, and transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is

petitioner FELS, which in fine, is the entity being taxed by the local government. As stipulated

under Section 2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures,

fittings, machinery and equipment on the Site used in connection with the Power Barges which

have been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power

Barges for the purpose of converting Fuel of NAPOCOR into electricity.52

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of

the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the

Power Barges to convert such Fuel into electricity in accordance with Part A of Article 7.53
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It is a basic rule that obligations arising from a contract have the force of law between the

parties. Not being contrary to law, morals, good customs, public order or public policy, the

parties to the contract are bound by its terms and conditions.54

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the

exception.55

The law does not look with favor on tax exemptions and the entity that would seekto be thus privileged must justify it by words too plain to be mistaken and too categorical to be

misinterpreted.56

Thus, applying the rule of strict construction of laws granting tax exemptions,

and the rule that doubts should be resolved in favor of provincial corporations, we hold that

FELS is considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be

responsible for the payment of all real estate taxes and assessments, does not justify the

exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant

is between FELS and NPC and does not bind a third person not privy thereto, in this case, the

Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in the

local governments deprivation of revenues. The power to tax is an incident of sovereignty and

is unlimited in its magnitude, acknowledging in its very nature no perimeter so that security

against its abuse is to be found only in the responsibility of the legislature which imposes the

tax on the constituency who are to pay for it.57

The right of local government units to collect

taxes due must always be upheld to avoid severe tax erosion. This consideration is consistent

with the State policy to guarantee the autonomy of local governments58

and the objective of

the Local Government Code that they enjoy genuine and meaningful local autonomy to

empower them to achieve their fullest development as self-reliant communities and make

them effective partners in the attainment of national goals.59

In conclusion, we reiterate that the power to tax is the most potent instrument to raise the

needed revenues to finance and support myriad activities of the local government units for the

delivery of basic services essential to the promotion of the general welfare and the

enhancement of peace, progress, and prosperity of the people.60

WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.

Gerochi vs. DOE

Facts: RA 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA),

which sought to impose a universal charge on all end-users of electricity for the purpose of

funding NAPOCORs projects, was enacted and took effect in 2001.
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Petitioners contest the constitutionality of the EPIRA, stating that the imposition of

the universal charge on all end-users is oppressive and confiscatory and amounts to taxation

without representation for not giving the consumers a chance to be heard and be represented.

Issue: Whether or not the universal charge is a tax.

Held: NO. The assailed universal charge is not a tax, but an exaction in the exercise of the

States police power. That public welfare is promoted may be gleaned from Sec. 2 of the EPIRA,

which enumerates the policies of the State regarding electrification. Moreover, the Special

Trust Fund feature of the universal charge reasonably serves and assures the attainment and

perpetuity of the purposes for which the universal charge is imposed (e.g. to ensure the

viability of the countrys electric power industry), furtherboosting the position that the same is

an exaction primarily in pursuit of the States police objectives

If generation of revenue is the primary purpose and regulation is merely incidental, the

imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally

raised does not make the imposition a tax.

The taxing power may be used as an implement of police power. The theory behind the

exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill

its mandate of promoting the general welfare and well-being of the people.

Caltex Philippines vs. COA

FACTS:

The Oil Price Stabilization Fund (OPSF) was created under Sec. 8, PD 1956, as amended by EO

137 for the purpose of minimizing frequent price changes brought about by exchange rate

adjustments. It will be used to reimburse the oil companies for cost increase and possible cost

underrecovery incurred due to reduction of domestic prices.

COA sent a letter to Caltex directing the latter to remit to the OPSF its collection. Caltex

requested COA for an early release of its reimbursement certificates which the latter denied.

COA disallowed recover of financing charges, inventory losses and sales to marcopper and atlas

but allowed the recovery of product sale or those arising from export sales.

Petitioners Contention:


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Department of Finance issued Circular No. 4-88 allowing reimbursement. Denial of claim for

reimbursement would be inequitable. NCC (compensation) and Sec. 21, Book V, Title I-B of the

Revised Administrative Code (Retention of Money for Satisfaction of Indebtedness to

Government) allows offsetting.

Amounts due do not arise as a result of taxation since PD 1956 did not create a source of

taxation, it instead established a special fund. This lack of public purpose behind OPSF exactions

distinguishes it from tax.

Respondents Contention:

Based on Francia v. IAC, theres no offsetting of taxes against the the claims that a taxpayer

may have against the government, as taxes do not arise from contracts or depend upon the will

of the taxpayer, but are imposed by law.

ISSUE: WON Caltex is entitled to offsetting

DECISION: NO. COA AFFIRMED

HELD:

It is settled that a taxpayer may not offset taxes due from the claims that he may have against

the government. Taxes cannot be subject of compensation because the government and

taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such

a debt, demand, contract or judgment as is allowed to be set-off.

Technically, the oil companies merely act as agents for the Government in the latters collection

since the taxes are, in reality, passed unto the end-usersthe consuming public. Their primary

obligation is to account for and remit the taxes collection to the administrator of the OPSF.

There is not merit in Caltexs contention that the OPSF contributions are not for a public

purpose because they go to a special fund of the government. Taxation is no longer envisioned

as a measure merely to raise revenue to support the existence of the government; taxes may

be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of

a threatened industry which is affected with public interest as to be within the police power of

the State.

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

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

PLANTERS PRODUCTS, INC., vs. FERTIPHIL CORPORATION. [G.R. No. 166006. March 14, 2008.]


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Facts:President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which

provided, among others, for the imposition by the Fertilizer Pesticide Authority (FPA) of a

capital recovery component (CRC) on the domestic sale of all grades of fertilizers in the

Philippines. The goal is to make and keep respondent PPI viable. After the 1986 EdsaRevolution, FPA voluntarily stopped the imposition of the P10 levy. With the return of

democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI No. 1465,

but PPI refused to accede to the demand

Fertiphil filed a complaint for collection and damages against FPA and PPI with the RTC in

Makati. It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable,

oppressive, invalid and an unlawful imposition that amounted to a denial of due process of law.

FPA, through the Solicitor General, countered that the issuance of LOI No. 1465 was a valid

exercise of the police power of the State in ensuring the stability of the fertilizer industry in the

country

Issue/Held:Whether the levy is in exercise of police power or taxation power- TAXATION

Ratio:We agree with the RTC that the imposition of the levy was an exercise by the State of its

taxation power. While it is true that the power of taxation can be used as an implement of

police power, the primary purpose of the levy is revenue generation. If the purpose is primarily

revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is

properly called a tax. An inherent limitation on the power of taxation is public purpose. Taxes

are exacted only for a public purpose. They cannot be used for purely private purposes or for

the exclusive benefit of private persons. The purpose of a law is evident from its text or

inferable from other secondary sources. Here, we agree with the RTC and that CA that the levy

imposed under LOI No. 1465 was not for a public purpose because it expressly provided that

the levy be imposed to benefit PPI, a private company. The purpose is explicit from Clause 3 of

the law

PHILEX MINING CORP VS CIR 1998

Facts:

From July 1, 1980 to December 31, 1981, Philex Mining Corp. purchased from several oil

companies, refined and manufactured minerals, motor fuels, and diesel fuel oils. Specific taxes of

P2,492,677.22 were paid. On October 22, 1982, the company availed of the provisions of RA

1435 granting refund of 25% of the tax paid and provided proof of the use of the oils, as

required. Pending such claim for refund (P623,169.30 representing the 25%) with the CIR, the


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company filed another claim for refund with the same amount plus 20% interest thereon with

the CTA on November 16, 1982. The CTA granted the refund but only P16,747.36 which was

based on the amount deemed paid under Sections 1 & 2 of RA 1435. Philex contends the refund

should be based on the actual specific taxes paid as per the increased rates provided in Sections

142 and 145 (which became Sections 153 and 156) of the NIRC.

Held: CTA is incorrect. In 1977, PD 1158 codified all existing laws. Sections 142 and 145 of the Tax

Code, as amended by Sections 1 and 2 of RA 1435 were re-numbered to Sections 153 and 156.

Later, these sections were amended by PD 1672 and subsequently by EO 672 increasing the tax

rates for certain oil and fuel products. In effect, the reason for the refund ceased to exist. (The

purpose of the tax was for Highway Special Fund which was abolished in 1985). SC affirmed

therefore the decision of the CA & CTA that the basis of tax refund under RA 1435 is computed

on the basis of the specific tax deemed paid under Sections 1 & 2 and not the increased rates

actually paid under the 1977 NIRC, citing several cases in support thereof.

Further, although Philex paid the taxes on their oil and fuel purchases based on the increased

rates, the latter law did not specifically provide for a refund based on the increased rates. Since

the grant of refund privileges must be strictly construed against the taxpayer, the basis for the

refund remains to be the amounts deemed paid under Sections 1 and 2 of RA 1435. Also, there is

no merit to petitioners assertion that equity and justice demands that the computation for tax

refunds be based on actual amounts paid under Sections 153 and 156 of the NIRC, there being

no tax exemption solely on the ground of equity.

SC finally held: The rule is that no interest on refund of tax can be awarded unless authorized by

law of the collection of the tax was attended by arbitrariness. An action is not arbitrary when

exercised honestly and upon due consideration where there is room for two opinions, however

much of it may be believed that an erroneous conclusion was reached. Arbitrariness

presupposes inexcusable or obstinate disregard of legal provisions. None of the exceptions are

presents in this case. Respondents decision was based on an honest interpretation of the law.

We see no reason why there should be payment of interest.

In Misamis Oriental Association of Coco Traders vs Department of Finance, the Supreme Court

ruled a legislative rule is in the nature of subordinate legislation, designed to implement a

primary legislation by providing details thereof. In the same way that laws must have the benefit

of public hearing, it is generally required that before a legislative rule is adopted, there must be a

hearing.


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Meanwhile, in Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance

Secretary,[17] we said:

xxx [A] legislative rule is in the nature of subordinate legislation, designed to implement a

primary legislation by providing the details thereof. xxx

In addition such rule must be published. On the other hand, interpretative rules are designed to

provide guidelines to the law which the administrative agency is in charge of enforcing.

Accordingly, in considering a legislative rule a court is free to make three inquiries: (i) whether

the rule is within the delegated authority of the administrative agency; (ii) whether it is

reasonable; and (iii) whether it was issued pursuant to proper procedure. But the court is not

free to substitute its judgment as to the desirability or wisdom of the rule for the legislative

body, by its delegation of administrative judgment, has committed those questions toadministrative judgments and not to judicial judgments. In the case of an interpretative rule, the

inquiry is not into the validity but into the correctness or propriety of the rule. As a matter of

power a court, when confronted with an interpretative rule, is free to (i) give the force of law to

the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some

intermediate degree of authoritative weight to the interpretative rule.

FRANCIA VS IA7 1998

Facts: On October 15, 1977, a 125 square meter portion of Francia's property was expropriated

by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount

equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive,

Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at

public auction by the City Treasurer of Pasay City pursuant to Section 73 ofPresidential Decree

No. 464known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00.

Issue: May compensation take place?

Ruling: There can be no off-setting of taxes against the claims that the taxpayer may have

against the government. A person cannot refuse to pay a tax on the ground that the

government owes him an amount equal to or greater than the tax being collected. The

collection of a tax cannot await the results of a lawsuit against the government.
http://philippinelaw.info/statutes/pd464.htmlhttp://philippinelaw.info/statutes/pd464.htmlhttp://philippinelaw.info/statutes/pd464.htmlhttp://philippinelaw.info/statutes/pd464.htmlhttp://philippinelaw.info/statutes/pd464.htmlhttp://philippinelaw.info/statutes/pd464.html


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A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off

under the statutes of set-off, which are construed uniformly, in the light of public policy, to

exclude the remedy in an action or any indebtedness of the state or municipality to one who is

liable to the state or municipality for taxes.

Government and taxpayer are not mutually creditors and debtors of each other under Article

1278 of the Civil Code and a claim for taxes is not such a debt, demand, contract or judgment as

is allowed to be set-off.

REPUBLIC VS MAMBULAO

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

charges. Having found liable for an aggregate amount of P4,802.37 for forest charges, it

contended that since the Republic (Government) has not made use of the reforestation charges

for reforesting the denuded area of the land covered by the companys license, the Republic

should refund said amount or, if it cannot be refunded, at least the company should be

compensated with what it owed the Republic for reforestation charges.

ISSUE:

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

HELD:

Internal revenue taxes, such as forest charges, cannot be the subject of set-off or

compensation. A claim for taxes is not such a debt, demand, contract or judgment as is allowed

to be set-off under the statutes of set-off, which are construed uniformly, in the light of public

policy, to exclude the remedy in an action or any indebtedness of the State or municipality to

one who is liable to the State or municipality for taxes. Neither are they subject of recoupment

since they do not arise out of the contract or transaction sued on.

Taxes are not in the nature of contracts between the parties but grow out of a duty to, and are

the positive acts of the government, to the making and enforcing of which, the personal

consent of individual taxpayers is not required.

REAGAN VS CIR

Reagan is a US citizen assigned at Clark Air Base to help provide technical assistance to the US

Air Force. In April 1960 Reagan imported a 1960 Cadillac car valued at $6443.83. Two months

later, he got permission to sell the same car provided that he would sell the car to a US citizen


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or a member of the USAF. He sold it to Willie Johnson Jr for $6600.00 as shown by a Bill of Sale.

The sale took place within Clark Air Base. As a result of this transaction, the Commissioner of

Internal Revenue calculated the net taxable income of Reagan to be at P17912.34 and that his

income tax would be P2797.00. Reagan paid the assessed tax but at the same time he sought

for a refund because he claims that he is exempt. Reagan claims that the sale took place in

foreign soil since Clark Air Base, in legal contemplation is a base outside the Philippines.Reagan also cited that under the Military Bases Agreement, he, by nature of his employment, is

exempt from Philippine taxation.

ISSUE:Is the sale considered done in a foreign soil not subject to Philippine income tax?

HELD:The Philippines is independent and sovereign, its authority may be exercised over its

entire domain. There is no portion thereof that is beyond its power. Within its limits, its decrees

are supreme, its commands paramount. Its laws govern therein, and everyone to whom it

applies must submit to its terms. That is the extent of its jurisdiction, both territorial and

personal. On the other hand, there is nothing in the Military Bases Agreement that lendssupport to Reagans assertion. The Base has not become foreign soil or territory. This countrys

jurisdictional rights therein, certainly not excluding the power to tax, have been preserved, the

Philippines merely consents that the US exercise jurisdiction in certain casesthis is just a

matter of comity, courtesy and expediency. It is likewise noted that he indeed is employed by

the USAF and his income is derived from US source but the income derived from the sale is not

of US source hence taxable.

COMMISSIONER OF INTERNAL REVENUE,petitionervs. CENTRAL LUZON DRUG

CORPORATION, respondent G.R. No. 148512, June 26, 2006, Azcuna, J.

Just like the first case herein discussed, this case delves on the 20% discount granted to

senior citizens. The respondent filed a claim for refund on the unutilized portion for the

discount which it claimed as a tax credit. The CTA ruled that the tax credit benefit is only to the

extent of respondents tax liability during the year, hence the claim for refund is not allowed.

The CA modified that decision and ruled that the unutilized portion can be carried over to the

next taxable period if there is no current tax liability. This ruling by the CA was affirmed by the

SC.

In bringing the case to the SC, the CIR maintains that the discount should only beallowed as a deduction from gross income and not a reduction from the tax liability. The law

(R.A. No. 7432) provides that the discount is available as a tax credit. However, the

implementing regulations (RR No. 2-94) treat it as a deduction from gross income following the

customary treatment of a sales discount. On this apparent conflict between the law and its

implementing rules, the SC said that when the law says that the cost of the discount may be

claimed as a tax credit, it means that the amountwhen claimedshall be treated as


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reduction from any tax liability. The law cannot be amended by a mere regulation. The

administrative agencies issuing these regulations may not enlarge, alter or restrict the

provisions of the law they administer. In fact, a regulation that operates to create a rule out of

harmony with the statute is a mere nullity. (CIR vs. Vda. De Prieto, 109 Phil. 592)

The SC also touched on the nature of the benefit granted to the establishment selling tosenior citizens. It emphasized that the tax credit benefit granted to the establishment can be

deemed as their just compensation for private property taken by the State for public use. The

privilege enjoyed by the senior citizens does not come directly from the State, but rather from

the private establishments concerned. To deprive the taxpayer of their right to apply the tax

credit against future tax liability will be to deny them the just compensation for the property

taken.

WALTER LUTZ VS. ANTONIO ARANETA 1955

FACTS: This case was initiated in the Court of First Instance of Negros Occidental to test thelegality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar

Adjustment Act.

Promulgated in 1940, the due to the threat to our industry by the imminent imposition of

export taxes upon sugar as provided in the Tydings-McDuffe Act, and the "eventual loss of its

preferential position in the United States market"; wherefore, the national policy was

expressed "to obtain a readjustment of the benefits derived from the sugar industry by the

component elements thereof" and "to stabilize the sugar industry so as to prepare it for the

eventuality of the loss of its preferential position in the United States market and the

imposition of the export taxes."

In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the

manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section

3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and

ceded to others for a consideration, on lease or otherwise a tax equivalent to the difference

between the money value of the rental or consideration collected and the amount representing

12 per centum of the assessed value of such land.

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of AntonioJayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40

paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-

1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of

the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax

may be constitutionally levied. The action having been dismissed by the Court of First Instance,

the plaintiffs appealed the case directly to this Court (Judiciary Act, section 17).


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ISSUE:Whether or not the CA No. 567 or Sugar Adjustment Act is constitutional and for public

purpose.

HELD:The basic defect in the plaintiff's position is his assumption that the tax provided for in

Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and

particularly of section 6, will show that the tax is levied with a regulatory purpose, to provide

means for the rehabilitation and stabilization of the threatened sugar industry. In other words,

the act is primarily an exercise of the police power.

This Court can take judicial notice of the fact that sugar production is one of the great industries

of our nation, sugar occupying a leading position among its export products; that it gives

employment to thousands of laborers in fields and factories; that it is a great source of the

state's wealth, is one of the important sources of foreign exchange needed by our government,

and is thus pivotal in the plans of a regime committed to a policy of currency stability. Itspromotion, protection and advancement, therefore redounds greatly to the general welfare.

Hence it was competent for the legislature to find that the general welfare demanded that the

sugar industry should be stabilized in turn; and in the wide field of its police power, the

lawmaking body could provide that the distribution of benefits therefrom be readjusted among

its components to enable it to resist the added strain of the increase in taxes that it had to

sustain.

Once it is conceded, as it must, that the protection and promotion of the sugar industry is a

matter of public concern, it follows that the Legislature may determine within reasonable

bounds what is necessary for its protection and expedient for its promotion. Here, the

legislative discretion must be allowed fully play, subject only to the test of reasonableness; and

it is not contended that the means provided in section 6 of the law bear no relation to the

objective pursued or are oppressive in character. If objective and methods are alike

constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their

prosecution and attainment. Taxation may be made the implement of the state's police power.

Republic vs. Bacolod-Murcia Milling Co. 1999

Facts:

RA 632 created the Philippine Sugar Institute, a semi-public corporation. In 1951, the Institute

acquired the Insular Sugar Refinery for P3.07 million payable in installments from the proceeds

of the sugar tax to be collected under RA 632. The operation of the refinery for 1954 to 1957 was

disastrous as the Institute suffered tremendous losses. Contending that the purchase of the

refinery with money from the Institutes fund was not authorized under RA 632, and that the


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continued operation of the refinery is inimical to their interest, Bacolod-Murcia Milling Co., Ma-

ao Sugar Central, Talisay-Silay Milling Co. and the Central Azucarera del Danao refused to

continue with their contribution to said fund. The trial court found them liable under RA 632.

Issue:

Whether the taxpayers may refuse to pay the special assessment, allegedly distinct from an

ordinary tax which no one can refuse to pay.

Held:

The nature of a special assessment similar to the case has been discussed and explained in Lutz

vs.Araneta. The special assessment or levy for the Philippine Sugar Institute (Philsugin) Fund is

not so much an exercise of the power of taxation, nor the imposition of a special assessment, but

the exercise of police power for the general welfare of the entire country. It is, therefore, an

exercise of a sovereign power which no private citizen may lawfully resist. Section 2a of the

Charter authorizing Philsugin to conduct research work for the sugar industry in all its phases,

either agricultural or industrial, for the purpose of introducing into the sugar industry such

practices or processes that will reduce the cost of production and achieve greater efficiency in

the industry, justifies the acquisition of the refinery in question. The financial loss resulting from

the operation thereof is no means an index that the industry did not profit therefrom, as other

gains of a different nature(such as experience) may have been realized.

MATALIN COCONUT V. MUNICIPAL COUNCIL OF MALABANG,

LANAO DEL SUR

143 SCRA 404

FACTS:

Municipal Council of Malabang, Lanao del Sur, invoking the authority of Section 2 of Republic

Act No. 2264, otherwise known as the Local Autonomy Act, enacted Municipal Ordinance No.

45-46, entitled "AN

ORDINANCE IMPOSING A POLICE INSPECTION FEE OF P.30 PER SACK OF CASSAVA STARCHPRODUCED AND SHIPPED OUT OF THE MUNICIPALITY OF MALABANG AND IMPOSING

PENALTIES

FOR VIOLATIONS THEREOF." The ordinance made it unlawful for any person, company or group

of persons "to ship out of the Municipality of Malabang, cassava starch or flour without paying

to the Municipal


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Treasurer or his authorized representatives the corresponding fee fixed by (the) ordinance." It

imposed a "police inspection fee" of P.30 per sack of cassava starch or flour, which shall be paid

by the shipper before the same is transported or shipped outside the municipality. Any person

or company or group of individuals violating the ordinance "is liable to a fine of not less than

P100.00, but not more than P1,000.00, and to pay Pl.00 for every sack of flour being illegally

shipped outside the municipality, or to suffer imprisonment of 20 days, or both, in thediscretion of the court.

This ordinance is now being questioned as unconstitutional.

HELD:

The amount collected under the ordinance in question partakes of the nature of a tax, although

denominated as "police inspection fee" since its undeniable purpose is to raise revenue.

However, we cannot agree with

the trial court's finding that the tax imposed by the ordinance is a percentage tax on sales

which is beyond the scope of the municipality's authority to levy under Section 2 of the Local

Autonomy Act. Under the

said provision, municipalities and municipal districts are prohibited from imposing" any

percentage tax on sales or other taxes in any form based thereon. " The tax imposed under the

ordinance in question is not a

percentage tax on sales or any other form of tax based on sales. It is a fixed tax of P.30 per bag

of cassava starch or flour "shipped out" of the municipality. It is not based on sales.

However, the tax imposed under the ordinance can be stricken down on another ground.

According to Section 2 of the abovementioned Act, the tax levied must be "for public purposes,

just and uniform" (Emphasis

supplied.) As correctly held by the trial court, the so-called "police inspection fee" levied by theordinance is "unjust and unreasonable." Said the court a quo:

... It has been proven that the only service rendered by the Municipality of Malabang, by way of

inspection, is for the policeman to verify from the driver of the trucks of the petitioner passing

by at the police checkpoint

the number of bags loaded per trip which are to be shipped out of the municipality based on

the trip tickets for the purpose of computing the total amount of tax to be collect (sic) and for

no other purpose. The

pretention of respondents that the police, aside from counting the number of bags shipped out,

is also inspecting the cassava flour starch contained in the bags to find out if the said cassavaflour starch is fit for

human consumption could not be given credence by the Court because, aside from the fact

that said purpose is not so stated in the ordinance in question, the policemen of said

municipality are not competent to

determine if the cassava flour starch are fit for human consumption. The further pretention of

respondents that the trucks of the petitioner hauling the bags of cassava flour starch from the

mill to the bodega at the beach of Malabang are escorted by a policeman from the police


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CHAVEZ VS. ONGPIN

FACTS:

This is a petition seeking to declare unconstitutional the following EO:

EXECUTIVE ORDER No. 73

PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES

BASED ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED

FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE, AS

AMENDED

WHEREAS, the collection of real property taxes is still based on the 1978

revision of property values;

WHEREAS, the latest general revision of real property assessments

completed in 1984 has rendered the 1978 revised values obsolete;

WHEREAS, the collection of real property taxes based on the 1984 real

property values was deferred to take effect on January 1, 1988 instead of

January 1, 1985, thus depriving the local government units of an

additional source of revenue;

WHEREAS, there is an urgent need for local governments to augment

their financial resources to meet the rising cost of rendering effectiveservices to the people;

NOW, THEREFORE, I. CORAZON C. AQUINO, President of the

Philippines, do hereby order:

SECTION 1. Real property values as of December 31, 1984 as

determined by the local assessors during the latest general revision of

assessments shall take effect beginning January 1, 1987 for purposes of

real property tax collection.

SEC. 2. The Minister of Finance shall promulgate the necessary rules

and regulations to implement this Executive Order.

SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby

repealed.

EC. 4. All laws, orders, issuances, and rules and regulations or parts


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thereof inconsistent with this Executive Order are hereby repealed or

modified accordingly.

SEC. 5. This Executive Order shall take effect immediately.

Petitioner averred that such accelerated the general revision of assessments with respect totax, causing undue burden to people.

HELD:

Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73

insofar as the revision of the assessments and the effectivity thereof are concerned. It should

be emphasized that Executive Order No. 73 merely directs, in Section 1 thereof, that:

SECTION 1. Real property values as of December 31, 1984 as

determined by the local assessors during the latest general revision of

assessments shall take effect beginning January 1, 1987 for purposes of

real property tax collection. (emphasis supplied)

The general revision of assessments completed in 1984 is based onSection 21 of Presidential

Decree No. 464 which provides, as follows:

SEC. 21. General Revision of Assessments. Beginning with the assessor

shall make a calendar year 1978, the provincial or city general revision of

real property assessments in the province or city to take effect January 1,

1979, and once every five years thereafter: Provided; however, That if

property values in a province or city, or in any municipality, have greatly

changed since the last general revision, the provincial or city assesormay, with the approval of the Secretary of Finance or upon bis direction,

undertake a general revision of assessments in the province or city, or in

any municipality before the fifth year from the effectivity of the last

general revision.

Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No.

73 has no legal basis as the general revision of assessments is a continuing process mandated

by Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464

which should be challenged as constitutionally infirm. However, Chavez failed to raise anyobjection against said decree. Furthermore, Presidential Decree No. 464 furnishes the

procedure by which a tax assessment may be questioned.

TOLENTINO VS. SECRETARY OF FINANCE

A case concerning the unconstitutionality of the Expanded VAT Law.


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Alleged violations of the due process, equal protection and contract clauses and the rule on

taxation. CREBA asserts that R.A. No. 7716 (1)impairs the obligations of contracts, (2) classifies

transactions as covered

or exempt without reasonable basis and (3) violates the rule that taxes should be uniform and

equitable and that Congress shall "evolve a progressive system of taxation."

HELD:

Equality and uniformity of taxation means that all taxable articles or kinds of property of the

same class be taxed at the same rate. The taxing power has the authority to make reasonable

and natural classifications

for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance

applies equally to all persons, forms and corporations placed in similar situation. (City of Baguio

v. De Leon, supra; Sison, Jr. v. Ancheta, supra)

Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted.

R.A. No. 7716 merely expands the base of the tax. The validity of the original VAT Law was

questioned in Kapatiran ng

Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds similar to

those made in these cases, namely, that the law was "oppressive, discriminatory, unjust and

regressive in violation of

Art. VI, 28(1) of the Constitution." (At 382) Rejecting the challenge to the law, this Court held:

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .

The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public,

which are not exempt, at the constant rate of

0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by

persons engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small

corner sari-sari stores are

consequently exempt from its application. Likewise exempt from the tax are sales of farm and

marine products, so that the costs of basic food and other necessities, spared as they are from

the incidence of the VAT, are

expected to be relatively lower and within the reach of the general public.

(The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Unionof the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the

mandate of Congress to provide for a progressive system of taxation because the law imposes a

flat rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to

pay.

The Constitution does not really prohibit the imposition of indirect taxes


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which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a

progressive system of taxation." The constitutional provision has been interpreted to mean

simply that "direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should

be minimized." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed.

(1977)). Indeed, the mandate to Congress

is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, whichperhaps are the oldest form of indirect taxes, would have been prohibited with the

proclamation of Art. VIII, 17(1) of the 1973

Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if

not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay.

In the case of the VAT,

the law minimizes the regressive effects of this imposition by providing for zero rating of certain

transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while granting exemptions to

other transactions. (R.A. No.

7716, 4, amending 103 of the NIRC).

On the other hand, the transactions which are subject to the VAT are those which involve goods

and services which are used or availed of mainly by higher income groups. These include real

properties held

primarily for sale to customers or for lease in the ordinary course of trade or business, the right

or privilege to use patent, copyright, and other similar property or right, the right or privilege to

use industrial,

commercial or scientific equipment, motion picture films, tapes and discs,radio, television,

satellite transmission and cable television time, hotels, restaurants and similar places,securities, lending investments, taxicabs,

utility cars for rent, tourist buses, and other common carriers, services of franchise grantees of

telephone and telegraph.

The problem with CREBA's petition is that it presents broad claims of constitutional violations

by tendering issues not at retail but at wholesale and in the abstract. There is no fully

developed record which can impart to adjudication the impact of actuality. There is no factual

foundation to show in the concrete the application of the law to actual contracts and exemplify

its effect on property rights. For the fact is that petitioner's members have not even been

assessed the VAT. Petitioner's case is not made concrete by a series of hypothetical questionsasked which are no different from those dealt with in advisory opinions.

The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere

allegation, as here, does not suffice. There must be a factual foundation of such

unconstitutional taint. Considering that petitioner here would condemn such a provision as void

on its face, he has not made out a case. This is merely to adhere to the authoritative doctrine

that where the due process and equal protection clauses are invoked, considering that they are


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not fixed rules but rather broad standards, there is a need for proof of such persuasive

character as would lead to such a conclusion. Absent such a showing, the presumption of

validity must prevail. (Sison, Jr. v. Ancheta, 130 SCRA at 661)

Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues.Otherwise, adjudication would be no different from the giving of advisory opinion that does not

really settle legal issues.

CIR VS. FORTUNE TOBACCO 2008

Facts:Respondent FTC is a domestic corporation that manufactures cigarettes packed by

machine under several brands. Prior to January 1, 1997, Section 142 of the 1977 Tax Code

subjected said cigarette brands to ad valorem tax. Annex D of R.A. No. 4280 prescribed thecigarette brands tax classification rates based on their netretail price. On January 1, 1997, R.A.

No. 8240 took effect. Sec. 145 thereof now subjects the cigarette brands to specific tax and also

provides that: (1) the excise tax from any brand of cigarettes within the next three (3) years

from the effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each

brand on October 1, 1996; (2) the rates of excise tax oncigarettes enumerated therein shall be

increased by 12% on January 1, 2000; and (3) the classification of each brand of cigarettes

based on its average retail price as of October 1, 1996, as set forth in Annex D shall remain in

force until revised by Congress.

The Secretary of Finance issued RR No. 17-99 to implement the provision for the 12% excise tax

increase. RR No. 17-99 added thequalification that the new specifictax rate xxx shall not be

lower than the excise tax that is actually being paid prior to January 1, 2000. In effect, it

provided that the 12% tax increase must be based on the excise tax actually being paid prior to

January 1, 2000 and not on their actual net retail price.

FTC filed 2 separate claims for refund or tax credit of its purportedly overpaid excise taxes for

the month of January 2000 and for the period January 1-December 31, 2002. It assailed the

validity of RR No. 17-99 in that it enlarges Section 145 by providing the aforesaidqualification. In

this petition, petitioner CIR alleges that the literal interpretation given by the CTA and the CA of

Section 145 would lead to a lower tax imposable on 1 January 2000 than that imposable during

the transition period, which is contrary to the legislative intent to raise revenue.


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Issue:Should the 12% tax increase be based on the net retail price of the cigarettes in the

market as outlined in Section 145 of the 1997 Tax Code?

Held:YES. Section 145 is clear and unequivocal. It states that during the transition period, i.e.,

within the next 3 years from the effectivity of the 1997 Tax Code, the excise tax from any brandof cigarettes shall not be lower than the tax due from each brand on 1 October 1996.

This qualification, however, is conspicuously absent as regards the 12% increase which is to be

applied on cigars and cigarettes packed by machine, among others, effective on 1 January

2000.

Clearly, Section 145 mandates a new rate of excise tax for cigarettes packed by machine due to

the 12% increase effective on 1 January 2000 without regard to whether the revenue collection

starting from this period may turn out to be lower than that collected prior to this date.

The qualification added by RR No. 17-99 imposes a tax which is the higher amount between

the ad valorem tax being paid at the end of the 3-year transition period and the specific tax

under Section 145, as increased by 12%a situation not supported by the plain wording of

Section 145 of the 1997 Tax Code. Administrative issuances must not override, supplant or

modify the law, but must remain consistent with the law they intend to carry out.

Revenue generation is not the sole purpose of the passage of the 1997 Tax Code. The shift from

the ad valorem system to the specific tax system in the Code is likewise meant to promote fair

competition among the players in the industries concerned and to ensure an equitable

distribution of the tax burden.

CIR VS BRITISH OVERSEAS AIRWAYS CORP

Facts:British Overseas Airways Corp (BOAC) is a 100% British Government-owned corporation

engaged in international airlinebusiness and is a member of the Interline Air Transport

Association, and thus, it operates air transportation services and sells

transportation tickets over the routes of the other airline members.

From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus,

did not carry passengers and/or cargo to or from the Philippines but maintained a general sales

agent in the Philippines - Warner Barnes & Co. Ltd. and later, Qantas Airways - which was


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responsible for selling BOAC tickets covering passengers and cargoes. The Commissioner of

Internal Revenue assessed deficiency income taxes against BOAC.

Issue:Whether the revenue derived by BOAC from ticket sales in the Philippines, constitute

income of BOAC from Philippine sources, and accordingly taxable.

Held:The source of an income is the property, activity, or service that produced the income.

For the source of income to be considered as coming from the Philippines, it is sufficient that

the income is derived from activity within the Philippines. Herein, the sale of tickets in the

Philippines is the activity that produced the income. The tickets exchanged hands here and

payment for fares were also made here in the Philippine currency.

The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and

occurred within Philippine territory, enjoying the protection accorded by the Philippine

government. In consideration of such protection, the flow of wealth should share the burden of

supporting the government. PD 68, in relation to PD 1355, ensures that international

airlines are taxed on their income from Philippine sources. The 2 1/2% tax on gross billings is an

income tax. If it had been intended as an excise tax or percentage tax, it would have been

placed under Title V of the Tax Code covering taxes on business.

Sison vs. Ancheta 1985

Facts:Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1)

unduly discriminated against him by the imposition of higher rates upon his income as a

professional, that it amounts to class legislation, and that it transgresses against the equal

protection and due process clauses of theConstitution as well as the rule requiring uniformity

in taxation.

Issue:

Whether BP 135 violates the due process and equal protection clauses, and the rule on

uniformity in taxation.

Held:

There is a need for proof of such persuasive character as would lead to a conclusion that there

was a violation of the due process and equal protection clauses. Absent such showing, the

presumption of validity must prevail. 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.

Where the differentitation conforms to the practical dictates of justice and equity, similar to


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the standards of equal protection, it is not discriminatory within the meaning of the clause and

is therefore uniform. Taxpayers may be classified into different categories, such as recipients of

compensation income as against professionals. Recipients of compensation income are not

entitled to make deductions for income tax purposes as there is no practically no overhead

expense, while professionals and businessmen have no uniform costs or expenses

necessaryh to produce their income. There is ample justification to adopt the gross systemof income taxation to compensation income, while continuing the system of net income

taxation as regards professional and business income.

American Bible Society vs. City of Manila, [G.R. No. L-9637 April 30, 1957]

Facts:Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation

duly registered and doing business in the Philippines through its Philippine agency established

in Manila in November, 1898. The defendant appellee is a municipal corporation with powers

that are to be exercised in conformity with the provisions of Republic Act No. 409, known as the

Revised Charter of the City ofManila.

During the course of its ministry, plaintiff sold bibles and other religious materials at a very

minimal profit.

On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff that it was

conducting the business of general merchandise since November, 1945, without providing itself

with the necessary Mayor's permit and municipal license, in violation of Ordinance No. 3000, as

amended, and Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure, within

three days, the corresponding permit and license fees, together with compromise covering the

period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45

(Annex A).

Plaintiff now questions the imposition of such fees.

Issue: Whether or not the said ordinances are constitutional and valid (contention: it restrains

the free exercise and enjoyment of the religious profession and worship of appellant).

Held:Section 1, subsection (7) of Article III of the Constitution, provides that:

(7) No law shall be made respecting an establishment of religion, or prohibiting the free
http://coffeeafficionado.blogspot.com/2012/03/american-bible-society-vs-city-of.htmlhttp://coffeeafficionado.blogspot.com/2012/03/american-bible-society-vs-city-of.htmlhttp://coffeeafficionado.blogspot.com/2012/03/american-bible-society-vs-city-of.html


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exercise thereof, and the free exercise and enjoyment of religious profession and worship,

without discrimination or preference, shall forever be allowed. No religion test shall be required

for the exercise of civil or political rights.

The provision aforequoted is a constitutional guaranty of the free exercise and enjoyment of

religious profession and worship, which carries with it the right to disseminate religious

information.

It may be true that in the case at bar the price asked for the bibles and other religious

pamphlets was in some instances a little bit higher than the actual cost of the same but this

cannot mean that appellant was engaged in the business or occupation of selling said

"merchandise" for profit. For this reason. The Court believe that the provisions of City

of Manila Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it

would impair its free exercise and enjoyment of its religious profession and worship as well as

its rights of dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, the Court do not find that it imposes any

charge upon the enjoyment of a right granted by the Constitution, nor tax the exercise of

religious practices.

It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional,

however inapplicable to said business, trade or occupation of the plaintiff. As to Ordinance No.

2529 of the City of Manila, as amended, is also not applicable, so defendant is powerless

to license or tax the business of plaintiff Society.

Reyes vs. Almanzor

GR 49839-46, 26 April 1991

Facts:

JBL, Edmundo and Milagros Reyes are owners of parcels of land in Manila which are leased andoccupied as dwelling sites by tenants. In 1971, RA 6359 was passed prohibiting an increase of

monthly rentals of dwelling units or of land on which another dwelling is located for one year

after effectivity for rentals not exceeding P300 but allowing an increase of rent thereafter by

not more than 10%. The Act also suspended the operation of Article 1673 of the Civil Code

(ejectment of lessess). PD 20 amended RA 6359 by absolutely prohibiting the increase and


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indefinitely suspending Article 1673. The Reyeses, thus, were precluded from raising the

rentals and from ejecting the tenants. In 1973, the City Assessor of Manila

reclassified and reassessed the value of the properties based on the schedule of market values

duly reviewed by the Secretary of Finance. As it entailed an increase of the corresponding tax

rates, the Reyeses filed a memorandum of disagreement with the Board of Tax Assessment

Appeals and averring therein that the reassessments were excessive, unwarranted,unequitable, confiscatory and unconstitutional inasmuch as the taxes imposed exceeded the

annual income derived from their properties; and that the income approach should have

been used in determining land values instead of the comparative sales approach which the

assessor adopted.

Issue:Whether the reassessment is unequitable

Held:

Taxation is equitable when its burden falls on those better able to pay. Taxation is progressive

when its rate goes up depending on the resources of the person affected. Taxes are uniform

when all taxable articles or kinds of property of the same class are taxed at the same rate. The

taxing power has the authority to make reasonable and natural classification for purposes of

taxation. Laws should operate equally and uniformly, however, on all persons under similar

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

different both in the privileges conferred and liabilities imposed. Finally, under the Real

Property Tax Code (PD 464), property must be appraised at its current and fair market value.

The market

value of the properties covered by PD 20, thus cannot be equated with the market value of

properties not so covered. The property covered by PD 20 has naturally a much lesser market

value in view of the rental restrictions. Although taxes are the lifeblood of the government and

should be collected without unnecessary hindrance, such collection should be made inaccordance with law as any arbitrariness will negate the very reason for government itself. As

the Reyeses are burdened by the Rent Freeze Laws (RA 6359 and PD 20), they should not be

penalized by the same government by the imposition of excessive taxes they cannot

afford and would eventually result in the forfeiture of their properties, under the principle of

social justice.

CIR VS. LINGAYEN GULF ELECTRIC 1988

Facts:

Lingayen Gulf Electric Power operates an electric power plant serving the municipalities ofLingayen and Binmaley, Pangaisnan, pursuant to municipal franchise granted it by the

respective municipal councils. The franchises provided that the grantee shall pay quarterly to

the Provincial Treasury of Pangasinan 1% of the gross earnings obtained through the privilege

for the first 20 years (from 1946), and 2% during the remaining 15 years of the life of the

franchise. In 1948, the Philippine President approved the franchise (RA3843). In 1955, the BIR

assessed and demanded against the company deficiency franchise taxes and surcharges


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culminating in the enactment of the law must substantially be the same as the House bill

would be to deny the Senate's power not only to "concur with amendments" but also to

"propose amendments." It would be to violate the coequality of legislative power of the two

houses of Congress and in fact make the House superior to the Senate.

II. SUBSTANTIVE ISSUES

A. Claims of Press Freedom, Freedom of Thought

and Religious Freedom

The PPI questions the law insofar as it has withdrawn the exemption previously granted to the

press under 103 (f) of the NIRC. Although the exemption was subsequently restored by

administrative regulation with respect to the circulation income of newspapers, the PPI presses

its claim because of the possibility that the exemption may still be removed by mere revocation

of the regulation of the Secretary of Finance. On the other hand, the PBS goes so far as to

question the Secretary's power to grant exemption for two reasons: (1) The Secretary of

Finance has no power to grant tax exemption because this is vested in Congress and requires

for its exercise the vote of a majority of all its members26

and (2) the Secretary's duty is to

execute the law.

These cases come down to this: that unless justified, the differential treatment of the press

creates risks of suppression of expression. In contrast, in the cases at bar, the statute applies to

a wide range of goods and services. The argument that, by imposing the VAT only on print

media whose gross sales exceeds P480,000 but not more than P750,000, the law

discriminates 33is without merit since it has not been shown that as a result the class subject to

tax has been unreasonably narrowed. The fact is that this limitation does not apply to the press

along but to all sales. Nor is impermissible motive shown by the fact that print media andbroadcast media are treated differently. The press is taxed on its transactions involving printing

and publication, which are different from the transactions of broadcast media. There is thus a

reasonable basis for the classification.

B. Claims of Regressivity, Denial of Due Process,

Equal Protection, and Impairment

of Contracts

There is basis for passing upon claims that on its face the statute violates the guarantees of

freedom of speech, press and religion. The possible "chilling effect" which it may have on the

essential freedom of the mind and conscience and the need to assure that the channels of

communication are open and operating importunately demand the exercise of this Court's

power of review.

There is, however, no justification for passing upon the claims that the law also violates the rule

that taxation must be progressive and that it denies petitioners' right to due process and that

equal protection of the laws. The reason for this different treatment has been cogently stated


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by an eminent authority on constitutional law thus: "[W]hen freedom of the mind is imperiled

by law, it is freedom that commands a momentum of respect; when property is imperiled it is

the lawmakers' judgment that commands respect. This dual standard may not precisely reverse

the presumption of constitutionality in civil liberties cases, but obviously it does set up a

hierarchy of values within the due process clause."41

Thus, the broad argument against the VAT is that it is regressive and that it violates the

requirement that "The rule of taxation shall be uniform and equitable [and] Congress shall

evolve a progressive system of taxation."

Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required

by the Constitution to do is to "evolve a progressive system of taxation." This is a directive to

Congress, just like the directive to it to give priority to the enactment of laws for the

enhancement of human dignity and the reduction of social, economic and political inequalities

(Art. XIII, 1), or for the promotion of the right to "quality education" (Art. XIV, 1). These

provisions are put in the Constitution as moral incentives to legislation, not as judicially

enforceable rights.

In truth, the Contract Clause has never been thought as a limitation on the exercise of the

State's power of taxation save only where a tax exemption has been granted for a valid

consideration.47

We are told, however, that the power of judicial review is not so much power as it is duty

imposed on this Court by the Constitution and that we would be remiss in the performance of

that duty if we decline to look behind the barriers set by the principle of separation of powers.

Art. VIII, 1, 2 is cited in support of this view:

Judicial power includes the duty of the courts of justice to settle actual

controversies involving rights which are legally demandable and enforceable,

and to determine whether or not there has been a grave abuse of discretion

amounting to lack or excess of jurisdiction on the part of any branch or

instrumentality of the Government..

It does not add anything, therefore, to invoke this "duty" to justify this Court's intervention in

what is essentially a case that at best is not ripe for adjudication. That duty must s

digested tax cases

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