FLORO CEMENT CORP. V GOROSPEFACTS:The municipality of Lugait, province of Misamis Oriental, filed a verified complaint for collection of manufacturer’s and exporter’s taxes against Floro Cement Corporation, engaged in the manufacture and selling, including exporting, of cement. The municipality alleged that the imposition and collection of these taxes is based on its Municipal Ordinance No. 5 (Municipal Revenue Code of 1974) which was passed pursuant to PD No.231 and also Municipal Ordinance No. 10 pursuant to PD No. 426, amending PD No. 231.Floro Cement Corporation set up the defense that it is not liable to pay manufacturer's and exporter's taxes alleging among others that the municipality’s power to levy and collect taxes, fees, rentals, royalties or charges of any kind whatsoever has been limited or withdrawn by Section 52 of PD No. 463.Sec. 52. Power to Levy Taxes on Mines, Mining Corporation and Mineral Products. Any law to the contrary notwithstanding, no province, city, municipality, barrio or municipal district shall levy and collect taxes, fees, rentals, royalties or charges of any kind whatsoever on mines, mining claims, mineral products, or on any operation, process or activity connected therewith.CFI: Ordered Floro Cement Corporation to pay the manufacturer’s and exporter’s taxes.ISSUE & HELD:WON Ordinances Nos. 5 and 10 of Lugait, Misamis Oriental apply to petitioner Floro Corporation notwithstanding the limitation on the taxing power of local government as provided for in Sec. 5 of P.D. 231 and Sec. 52 of P.D. 463 (Yes) RATIO:Cement is not a mineral product but rather a manufactured product.As the power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed and any reduction or diminution thereof with respect to its mode or its rate, must be strictly construed, and the same must be coached in clear and unmistakable terms in order that it may be applied. More specifically stated, the general rule is that any claim for exemption from the tax statute should be strictly construed against the taxpayer. He who claims an exemption must be able to point out some provision of law creating the right; it cannot be allowed to exist upon a mere vague implication or inference. It must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim. Floro Cement Corporation failed to meet this requirement.The exemption mentioned in Sec. 52 of P.D. No. 463 refers only to machineries, equipment, tools for production, etc., as provided in Sec. 53 of the same decree. The manufacture and the export of cement does not fall under the said provision for it is not a mineral product. It is not cement that is mined only the mineral products composing the finished product.By the parties’ own stipulation of facts submitted before the CFI, it is admitted that Floro Cement Corporation is engaged in the manufacturing and selling, including exporting of cement. As such, and since the taxes sought to be collected were levied on these activities pursuant to Sec. 19 of P.D. No. 231, Ordinances Nos. 5 and 10, which were enacted pursuant to P.D. No. 231 and P.D. No. 426, respectively, properly apply to Floro Cement Corporation.

LUZON STEVEDORING CORP. V. CTA & CIRFACTS: LUSTEVECO imported engines for the repair of its tugboats. It claimed a refund from the compensating tax it paid for the engines, based on NIRC, Sec. 190, which provides that when articles to be used by the importer himself as passenger and/or cargo vessel, whether coastwise or oceangoing, including engines and spare parts of said vessel, the importer is exempt from compensating tax.The CIR disagreed, arguing that LUSTEVECO is neither engaged in coastwise or oceangoing shipping, nor can tugboats be considered as cargo or passenger vessel.ISSUE: WoN LUSTEVECO is entitled to the exemption.RULING: Yes. This Court has laid down the rule that as the power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or its rate, must be strictly construed, and the same must be coached in clear and unmistakable terms in order that it may be applied. More specifically stated, the general rule is that any claim for exemption from the tax statute should be strictly construed against the taxpayer. As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be declared exempt from the compensating tax, it is indispensable that the requirements of the amendatory law be complied with, namely: (1) the engines and spare parts must be used by the importer himself as a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo vessel must be used in coastwise or oceangoing navigation. As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows: A tugboat is a strongly built, powerful steam or power vessel, used for towing and, now, also used for attendance on vessel. A tugboat is a diesel or steam power vessel designed primarily for moving large ships to and from piers for towing barges and lighters in harbors, rivers and canals. A tug is a steam vessel built for towing, synonymous with tugboat. Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where a provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense being entertained to justify non-compliance. All that has to be done is to apply it in every case that falls within its terms. And, even if construction and interpretation of the law is insisted upon, following another fundamental rule that statutes are to be construed in the light of purposes to be achieved and the evils sought to be remedied, it will be noted that the legislature in amending Sec. 190 of the Tax Code by RA 3176, as appearing in the records, intended to provide incentives and inducements to bolster the shipping industry and not the business of stevedoring, as manifested in the sponsorship speech of Senator Gil Puyat. On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found that no evidence was adduced by petitioner-appellant that tugboats are passenger and/or cargo vessels used in the shipping industry as an independent business. On the contrary, petitioner-appellant's own evidence supports the view that it is engaged as a stevedore, that is, the work of unloading and loading of a vessel in port; and towing of barges containing cargoes is a part of petitioner's undertaking as a stevedore. In fact, even its trade name is indicative that its sole and principal business is stevedoring and lighterage, taxed under Sec. 191 of the National Internal Revenue Code as a

contractor, and not an entity which transports passengers or freight for hire which is taxed under Sec. 192 of the same Code as a common carrier by water.

MANILA ELECTRIC COMPANY VS VERAG.R. No. L-29987 October 22, 1975

Facts: MERALCO, holder of a franchise to construct, maintain and operate an electric light, heat and power system in the City of Manila, imported copper wires, transformers and insulators for use in the operation of its business in 1962. In 1963, it again imported copper wires, transformers and insulators to be used therein. Both importation is subject to taxes. So MERALCO, after payment thereof claimed its refund which was denied first by the BIR and later, on appeal by the CTA. MERALCO claims that the importations are tax-exempt under its franchise.

Issue: WON the MERALCO is tax-exempt from the said importation.

Ruling: Negative. One who claims to be exempt from payment of the particular tax must do so under clear and unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer, they being highly disfavoured and may almost be said to be odious to the law.Petitioner’s franchise exempts it from the payment of property tax on its poles, wires, transformers and insulators, but not from payment of taxes, like one in question which, by mere necessity or consequence alone, fall upon property.It is well settled rule that a compensating tax is not a property tax but an excise tax. An excise tax is one that is imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege. A property tax is a direct tax, whereas one levied on property because of its use, is an excise tax.

SSS VS. BACOLOD CITY Facts: The Social Security System (SSS) is a government agency created under RA 1161. In pursuance of its operations, SSS maintains a number of regional offices, one of which is a 5-storey building occupying 4 parcels of land in Bacolod City. Said building and lands were assessed for taxation. For failure to pay the realty taxes thereon, the city levid upon said properties. SSS sought reconsideration on the ground that SSS is a government-owned and -controlled corporation and is exempt from payment of real estate taxes.

Issue: Whether SSS property in Bacolod City is tax-exempt.

Held: The distinction whether the government-owned or controlled corporation exercises ministrant or proprietory function is of no relevance as the exemption does not relate to legal fees but on realty taxes. The Charter of Bacolod City does not contain any qualification whatsoever in providing fro the exemption from real estate taxes of lands and building owned by the Government/ It is axiomatic that when public property is involved, exemption is the rule and taxation is the exception. PD 24, amending the Social Security Act of 1954, has already removed all doubts as to the exemption of the SS from taxation (Section 16).

CAGAYAN ELECTRIC POWER & LIGHT CO. VS. COMMISSIONERGR L-60126, 25 September 1985

Facts: Cagayan Electric is a holder of a legislative franchise under Republic Act 3247 where payment of 3% tax on gross earnings is in lieu of all taxes and assessments upon privileges, etc. In 1968, RA 5431 amended the franchise by making all corporate taxpayers liable for income tax except those indicated in paragraph (c) (1) of Section 24 of the Tax Code. In 1969, through RA 6020, its franchise was extended to two other towns and the tax exemption was reenacted. In 1973, the Commissioner required the company to pay deficiency income taxes for 1968 to 1971.

Issue: Whether the withdrawal of the franchise’s tax exemption violates the non-impairment clause of the Constitution.

Held: Congress could impair the company’s legislative franchise by making it liable for income tax. The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires. RA 3247 itself provides that the franchise is subject to amendment, etc. by Congress. The enactment of RA 5431 had the effect of withdrawing the company’s exemption from income tax. The exemption was restored by the enactment of RA 6020. The company is liable only for the income tax for the period of 1 January to 3 August 1969.

SURIGAO CONSOLIDATED MINING VS. COLLECTORGR L-14878, 26 December 1963

Facts: Before the outbreak of the War, the Surigao Consolidated Mining Co. was operating its mining concessions in Mainit, Surigao. Due to the interruption of communications at the outbreak of the war, the company lost contact with its mines and never received the production reports for the 4th quarter of 1941. To avoid incurring any tax liability or penalty, it deposited of check payable to and indorsed in favor of the City Treasurer, in payment of ad valorem taxes for the said period. After the war, the company filed its ad valorem tax for the said period pursuant to Commonwealth Act 772. Its return was revised, until eventually the company claimed a refund of P17,158.01. The collector of Internal Revenue denied the request for refund.

Issue: Whether Surigao Consolidated may recover its tax payment in light of the condonation made under a subsequent law, RA 81.

Held: RA 81, Section 1(d) provided that “all unpaid royalties, ad valorem or specific taxes on all minerals mined from mining claims or concessions existing and in force on 1 January 1942, and which minerals were lost by reason of war, of circumstance arising therefrom are condoned…” The provision refers to the condonation of unpaid taxes only. The condonation of a tax liability is equivalent and is in the nature of tax exemption. Being so, it should be sustained only when expressed in explicit terms, and it cannot be extended beyond the plain meaning of those terms. He who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him. The company failed to show any portion of the law that explicitly provided for a refund of those taxpayers who had paid their taxes on the items.

VISAYAS CEBU TERMINAL VS. COMMISSIONERGR L-19530 and L-19444, 27 February 1965

Facts: Visayan CebuTerminal Co. was appointed the sole manager of the Irrastre Service at the Port of Cebu, after a public bidding in 1957, covering import cargoes, including transit import cargoes. In 1958, the Bureau of Internal Revenue (Manila) demanded the payment of percentage taxes and penalties due to the Government. Subsequently, however, BIR examiners stated that the company was not subjected of the 3% percentage tax, it has been paying 28% of the gross receipts to the Bureau of Customs.

Issue: Whether Visayas Cebu Terminal Co. In c. is exempted from the percentage tax.

Held: The company is an arrastre contractor and is covered by Section 191 of the Tax Code. Section 191 of the Tax Code does not establish any distinction between an arrastre operator who handles only imported cargo in its arrastre operations, pursuant to RA 140, and those handling interisland cargo, so as to exempt the company from the percentage tax. It is a well settled rule that he who claims exemption should prove by convincing proofs that he is exempted. The company failed to present such proofs. Further, the recommendations of the examiners are subject to the review of their superiors, who may countermand or affirm them. The government is never estopped to collect legitimate taxes because of the error committed by its agents. However, as the company pays 28% of the total monthly gross receipts derived from the arrastre service to the Bureau of Customs, to hold the company liable for the payment of percentage tax is unjust and notcontemplated by Section 191 of the Tax Code.

COMMISSIONER OF INTERNAL REVENUE VS COURT OF APPEALS AND A. SORIANO CORP.

Don Andres Soriano (American), founder of A. Soriano Corp. (ASC) had a total shareholdings of 185,154 shares. Broken down, the shares comprise of 50,495 shares which were of original issue when the corporation was founded and 134,659 shares as stock dividend declarations. So in 1964 when Soriano died, half of the shares he held went to his wife as her conjugal share (wife’s “legitime”) and the other half (92,577 shares, which is further broken down to 25,247.5 original issue shares and 82,752.5 stock dividend shares) went to the estate. For sometime after his death, his estate still continued to receive stock dividends from ASC until it grew to at least 108,000 shares.

In 1968, ASC through its Board issued a resolution for the redemption of shares from Soriano’s estate purportedly for the planned “Filipinization” of ASC.  Eventually, 108,000 shares were redeemed from the Soriano Estate. In 1973, a tax audit was conducted. Eventually, the Commissioner of Internal Revenue (CIR) issued an assessment against ASC for deficiency withholding tax-at-source. The CIR explained that when the redemption was made, the estate profited (because ASC would have to pay the estate to redeem), and so ASC would have withheld tax payments from the Soriano Estate yet it remitted no such withheld tax to the government.

ASC averred that it is not duty bound to withhold tax from the estate because it redeemed the said shares for purposes of “Filipinization” of ASC and also to reduce its remittance abroad.

ISSUE: Whether or not ASC’s arguments are tenable.

HELD: No. The reason behind the redemption is not material. The proceeds from a redemption is taxable and ASC is duty bound to withhold the tax at source. The Soriano Estate definitely profited from the redemption and such profit is taxable, and again, ASC had the duty to withhold the tax. There was a total of 108,000 shares redeemed from the estate. 25,247.5 of that was original issue from the capital of ASC. The rest (82,752.5) of the shares are deemed to have been from stock dividend shares. Sale of stock dividends is taxable. It is also to be noted that in the absence of evidence to the contrary, the Tax Code presumes that every distribution of corporate property, in whole or in part, is made out of corporate profits such as stock dividends.

It cannot be argued that all the 108,000 shares were distributed from the capital of ASC and that the latter is merely redeeming them as such. The capital cannot be distributed in the form of redemption of stock dividends without violating the trust fund doctrine — wherein the capital stock, property and other assets of the corporation are regarded as equity in trust for the payment of the corporate creditors. Once capital, it is always capital. That doctrine was intended for the protection of corporate creditors.

NITAFAN VS. COMMISSIONERGR L-78780, 23 July 1987

Facts: The Chief Justice has previously issued a directive to the Fiscal Management and Budget Office to continue to deduct withholding taxes from the salaries of the Justices of the Supreme Court and other members of the judiciary. This was affirmed by the Supreme Court En Banc on 4 December 1987. RTC judges seek to prohibit or enjoin the Commissioner of the Internal Revenue and the Financial Officer of the Supreme Court from making any deduction of withholding taxes from their salaries.

Issue: Whether the salaries of judges are subject to tax.

Held: The salaries of members of the Judiciary are subject to the general income tax applied to all taxpayers. Although such intent was somehow and inadvertently not clearly set forth in the final text of the 1987 Constitution, the deliberations of the 1986 Constitutional Commission negate the contention that the intent of the framers is to revert to the original concept of “non-diminution” of salaries of judicial officers. Hence, the doctrine in Perfecto v. Meere and Endencia vs. David do not apply anymore. Justices and judges are not only the citizens whose income have been reduced in accepting service in government and yet subject to income tax. Such is true also of Cabinet members and all other employees.

COMMISSIONER VS. MANILA JOCKEY CLUBGR L-8755, 23 March 1956

Facts: The Manila Jockey Club is the owner of the San Lazaro Hippodrome, which is used for holding horse races either by the club itself or by the Philippine Charity Sweepstakes Office (PCSO) or other charitable institutions authorized by law to hold horse races. On 1951 and 1952, the PCSO held benefit races for charitable, relief and civic purposes in which the Club was paid in the form of rentals, which was included in its declared income taxes in its return for said years. The Club claimed for refund of the sum collected by the Commissioner as to the rentals, contending that it is exempt under Section 3 of RA 79.

Issue: Whether the Club is exempt from income derived from the PCSO races.

Held: The exemption does not refer to any income tax that may be imposed on the rentals that may be paid for the use of racing tracks and other paraphernalia. The income earned by the Club herein did not come from the horse races held by said club but it came to it as rentals paid for the use of its property. The tax paid for such income cannot be considered as one connected with those races within the purview of the exemption clause in RA 79. By its very nature, the law that exempts one from tax must be clearly expressed because the exemption must be able to justify his claim by the clearest grant of organic or statute law.

REPUBLIC VS. MAMBULAO LUMBERGR L-17725, 28 February 1962

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 company’s 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 setoff, 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.

PHILEX MINING CORP. v. CIRGR No. 125704, August 28, 1998294 SCRA 687

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2 nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities.

ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner?

HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence. To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted.Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx 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.

HILADO VS. COLLECTORGR L-9408, 31 October 1956Facts: Facts: Emilio Hilado filed his income tax return for 1951 with the treasurer of Bacolod City, claiming a deductible item of P12,837.65 from his gross income pursuant to General Circular V-123 issued by the Collector of Internal Revenue. The Secretary of Finance, through the Collector, issued General Circular V- 139 which revoked and declared void Circular V-123; and laid down the rule[s] that losses of property which occurred in World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible in the year of actual loss or destruction of said property. The deductions were disallowed.

Issue: Whether Internal Revenue Laws were enforced during the war and whether Hilado can claim compensation for destruction of his property during the war.

Held: Philippines Internal Revenue Laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. Such tax laws are deemed to be laws of the occupied territory and not of the occupying enemy. As of the end of 1945, there was no law which Hilado could claim for the destruction of his properties during the battle for the liberation of the Philippines. Under the Philippine Rehabilitation Act of 1948, the payment of claims by the War Damage Commission depended upon its discretions non-payment of which does not give rise to any enforceable right. Assuming that the loss (deductible item) represents a portion of the 75% of his war damage claim, the amount would be at most a proper deduction of his 1950 gross income (not on his 1951 gross income) as the last installment and notice of discontinuation of payment by the War Damage Commission was made in 1950.

Lorenzo vs. Posadas,64 Phil 353

Facts:Thomas Hanley died in 1922 in Zamboanga leaving a will w/c provided that:

Any money left be given to nephew Matthew. All real estate shall not be sold or disposed of 10 years after his death. Itshall be managed by the executors. The proceeds shall be given to nephew Matthew in Ireland to be used only for the education of Hanley’s brother's children and their descendants. 10 years after Thomas’ death, his property be given to Matthew to be disposed of in the way he thinks most advantageous.In 1924, the CFI appointed an administrator, Moore, eventually replaced by Lorenzo (after Moore resigned). CIR assessed the estate inheritance taxes from the time of Thomas’ death including penalties for deliquency in payment (P2k+). CIR filed a motion before the CFI praying that the Lorenzo be ordered to pay the said amount. The motion was granted. Lorenzo paid under protest and asked for a refund.CIR refused to refund.Issues:(a) When does the inheritance tax accrue and when must it be satisfied?(b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later?

Held:- UPON DEATH. Lorenzo asserts that article 657 of the Civil Code (―the rights to the succession of a person are

transmitted from the moment of his death‖) operates only in so far as forced heirs are concerned. HOWEVER, there is no distinction between different classes of heirs. The Administrative Code imposes the tax upon the transmission of property of a decedent, made effective by his death. An excise or privilege tax is imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death. Since Thomas Hanley died on May 27, 1922, the inheritance tax accrued as of the date. However, it does not follow that the obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is fixed by the Revised Administrative Code w/c provides that the payment must be made before entrance into possession of the property of the fideicommissary or cestui que trust. Thus, the tax should have been paid before the delivery of the properties to Moore as trustee in 1924.

- AT THE TIME OF DEATH. Plaintiff contends that the estate of Thomas Hanley could not legally pass to Matthew until after the expiration of 10 years from the death of the testator in 1922 and the inheritance tax should

be based on the value of the estate in 1932.Upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly. The tax should be measured by the value of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency value of any subsequent increase or decrease in value, or the postponement of the actual possession or enjoyment of the estate by the beneficiary.

REPUBLIC VS. VDA. DE FERNANDEZGR L-9141, 25 September 1956

Facts: Olimpio Fernandez and his wife Angelina Oasan had a net worth of P8, 000 on 8 December 1941. During the Japanese occupation, the spouses acquired several real properties. At the time of the husband’s death in 1945, he had a net worth of P31,489. The Collector of Internal Revenue assessed a war profits tax (RA 55) on the estate of the deceased at P7, 614.00, which was administrative refused to pay. The validity of RA 55 was questioned, as well as the validity and the legality of the assessment.

Issue: Whether the War Profits tax Law may be retroactively applied without violating the Constitution (especially the provision on ex-post facto laws).

Held: The prohibition against the ex facto laws applies only to criminal or penal matters, and not to laws which concern civil matters or proceedings generally, or which affect or regulate civil or private right. Ex post facto is confined to laws respecting criminal punishments, and had no relation whatever to retrospective legislation of any other description. Retrospective laws, when not of a criminal nature, do not come in conflict with the Constitution, unless obnoxious to its provisions on other grounds than their respective character. The law may not be considered harsh and oppressive because of the force of its impact fell on those who had amassed wealth or increased their wealth during the war, but did not touch the less fortunate. The policy followed is the same as that which underlies the Income Tax Law, imposing the burden upon those who have and relieving those who have not.

COLLECTOR VS LA TONDENA, 5 SCRA 665 (1962)

LT is engaged in the business of manufacturing wines and liquor with a distillery in Manila. It purchases alcohol from Negros Occidental and from Batangas and has been removing this alcohol from the centrals to resp distillery under joint bonds without prepayment of specific taxes. Quantity of alcohol purchased and received-entered into the BIR Official Register Books.

In the manufacture of Manila Rum, LR uses as basic materials low test alcohol, purchased in crude form from the suppliers which it re-rectifies or subjects to further rectification or distillation==from this process, losses through evaporation incurs, for which CIR had given resp allowance of not exceeding 7% for said losses.

In May 1954, CIR wrote demand letter to LT for payment of specific taxes on alcohol lost by evaporation thu re-rectification or re-distillation from June 1950 to Feb 1954. LT protested and CIR refused to reconsider the assessment. LT appealed to the Conference Staff of the BIR. It was ordered to comply with DOF 213 to deposit ½ of the amount in cash and the balance by a surety bond.

LT action to CTA. CTA ordered LT to pay P672.15 by way of specific tax. The amount of P154K which corresponds to the period after January 1951 and up to Feb. 1954, pursuant to RA 592=LT is exempt from liability assessed therefor. CIR appealed to SC.

Issue: WON LT should pay the specific tax.

Held: No. Sec. 133 of the Tax code states liability shall attach to the susbstance as soon as it is in existence as such, whether it be subsequently separated as pure or impure spirits. However RA 592 took effect on Jan. 1, 1951 which amended 133 deleting the all embracing clause which subjects to tax all kinds of alcoholic substances but only distilled spirits as finished products. This is in harmony with Sec. 129 of the Tax code which states that only the finished product is subject.

August 1956, RA 1608 was passed restoring the same clause which was eliminated. From Jan. 1951 to Aug. 1956, the tax on alcohol did not attach as soon as it was in existence as such but on the finished product.

In every case of doubt, tax statues are construed most strongly against the government and in favor of the citizens, because burdens are not to be imposed beyond what the statutes expressly and clearly import. The new law should not be given retroactive effect.

COMMISSIONER VS. PHOENIX ASSURANCEGR L-19727, 20 May 1965Facts: Phoenix assurance is a foreign insurance corporation organized under the laws of Great Britain,licensed to do business in the Philippines. Through its head office in London, it entered into worldwide reinsurance treaties with various foreign insurance companies. It agreed to cede a portion of premiums received on original insurances underwritten by its head office, subsidiaries, and branch offices around the world, in consideration for assumption by the foreign insurance

companies of n equivalent portion of the liability form such original insurances. Pursuant to such treaties, the company ceded portions of its premiums it earned from its underwriting business in the Philippines, upon which assessed withholding tax. The company thereafter amended its tax returns (1950-1954) excluding reinsurance premium and items of deduction attributable to such premium. The Commissioner assessed deficiency income tax against the company.

Issue: Whether the Commissioner is justified in the assessment of deficiency tax.

Held: The changes and alteration embodied in the amended tax return consisted of the exclusion of reinsurance premium received from domestic insurance companies by the company’s head office, reinsurance premium ceded to foreign insurers not doing business in the Philippines and various items of deductions attributable to such excluded reinsurance premiums, thereby substantially modifying the original return. As amended return is substantially different from the original return, the period of limitation of the right to issue the same should be counted from the filing of the amended income tax return. The right of the Commissioner to assess the deficiency tax on the amended return has not prescribed. To hold otherwise would pave the way for taxpayer to evade the payment of taxes simply reporting in their original return heavy losses and amending the same more than 5 years later when the Commissioner has lost his authority to assess the proper tax there under. The object of the tax code is to impose taxes for the needs of the government, not to enhance tax avoidance to its prejudice.

MADRIGAL v RAFFERTY

FACTS: In 1915, Vicente Madrigal filed a sworn declaration with the CIR showing a total net income for the year 1914 the sum of P296K. He claimed that the amount did not represent his own income for the year 1914, but the income of the conjugal partnership existing between him and his wife, Susana Paterno. He contended that since there exists such conjugal partnership, the income declared should be divided into 2 equal parts in computing and assessing the additional income tax provided by the Act of Congress of 1913. The Attorney-General of the Philippines opined in favor of Madrigal, but Rafferty, the US CIR, decided against Madrigal.

After his payment under protest, Madrigal instituted an action to recover the sum of P3,800 alleged to have been wrongfully and illegally assessed and collected, under the provisions of the Income Tax Law. However, this was opposed by Rafferty, contending that taxes imposed by the Income Tax Law are taxes upon income, not upon capital or property, and that the conjugal partnership has no bearing on income considered as income. The CFI ruled in favor of the defendants, Rafferty.

ISSUE: Whether Madrigal’s income should be divided into 2 equal parts in the assessment and computation of his tax

HELD: NO. Susana Paterno, wife of Vicente Madrigal, still has an inchoate right in the property of her husband during the life of the conjugal partnership. She has an interest in the ultimate property rights and in the ultimate ownership of property acquired as income after such income has become capital. Susana has no absolute right to one half the income of the conjugal partnership. Not being seized of a separate estate, she cannot make a separate return in order to receive the benefit of exemption, which could arise by reason of the additional tax. As she has no estate and income, actually and legally vested in her and entirely separate from her husband’s property, the income cannot be considered the separate income of the wife for purposes of additional tax. Income, as contrasted with capital and property, is to be the test. The essential difference between capital and income is that capital is a fund; income is a flow. A fund of property existing at an instant of time is called capital. A flow of services rendered by that capital by the payment of money from it or any other benefit rendered by a fund of capital in relation to such fund through a period of time is called income. Capital is wealth, while income is the service of wealth. A tax on income is not tax on property.

COMMISSIONER VS. FIREMAN’S FUND INSURANCEGR L-30644, 9 March 1987

Facts: Fireman’s Funds Insurance is a resident foreign insurance corporation organized under the laws of the United States, authorized and duly licensed to do business in the Philippines. From 1952-1958, the company entered into various insurance contracts involving causality, fire and marine risks, for which the corresponding insurance policies were issued. From 1952-1956, documentary stamps were bought and affixed to the corresponding pages of the policy register, instead of on the insurance policies issued. The Commissioner assessed and demanded from the company the payment of documentary stamps for the years 1952-1958, plus compromise penalties.

Issue: Whether the affixture of documentary stamp on pages other than those authorized by law is tantamount to failure to pay the same.

Held: Although the documentary stamps were affixed to papers other than those authorized by law, it is not tantamount to failure to pay the same as the company purchased and paid the documentary stamps corresponding to the various insurance policies. Sections 210, 232, 221, 237 and 239 of the Tax Code have the overriding purpose to collect taxes, and the steps involving documentary taxes (purchase, affixture, and cancellation) are but a means to that end. Although the insurance policies with the corresponding documentary stamps affixed are the best evidence to prove payment of said documentary stamp tax, it does not preclude the admissibility of other proofs which are uncontradicted and considerable weight. Still, whenever the interpretation of statute levying taxes or duties are in doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or citizens, because burdens are not to be imposed, nor

presumed to be imposed beyond what statutes expressly and clearly import. There is no justification for the government which has already realized the revenue, which is the object of the imposition of the subject stamp tax, to require payment of the same tax for the same documents.

THE COMMISSIONER OF INTERNAL REVENUE, vs. P. J. KIENER COMPANY, LTD.

Respondent P.J. Kiener Company, Ltd. is a domestic limited co-partnership, doing business in the Philippines, while respondent International Construction Corporation is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, likewise engaged in business in the Philippines. On or about December 14, 1957, respondent companies entered into a joint venture with respondent Gavino T. Unchuan, a licensed Filipino civil engineer, to bid for the construction of the Mactan Airfield in Mactan Island, Municipality of Opon (now Lapu-lapu City), Cebu. Respondents won the bid. And so, on February 19, 1958, the Republic of the Philippines, represented by Lt. Gen. Alfonso Arellano, then Chief of Staff, Armed Forces of the Philippines, entered into a contract with private respondents, Article I of which provides, inter alia, "... That the ... general conditions ... are hereby made integral parts of this contract by incorporation and reference respectively." Of these "General Conditions", Section 3-19 provides:

3.19. Taxes — In accordance with the Mutual Defense Agreement between the United States of America and the Republic of the Philippines, no tax of any kind or description will be levied on any material, equipment or supplies which may be purchased or otherwise acquired in connection with the project under contract, which material, equipment or supplies are required solely for such project.

This is the root of the controversy.

Towards the middle of 1958, private respondents commenced construction of the Mactan Airfield and started purchasing "petroleum products to run and maintain their machineries and equipment" from Caltex (Phil.) Inc. 4 During the period of February 1, 1960 through April 11, 1960, they likewise purchased motor gasoline, kerosene, lubricating and/or motor oil, and diesel fuel from Caltex(Phil.) Inc. For these petroleum products, Caltex (Phil.) Inc. paid the Bureau of Internal Revenue P21,478.31 of specific taxes. This amount was, in turn, included in the prices of the petroleum products paid by private respondents to Caltex (Phil.) Inc.

On 29 December 1960, private respondents wrote petitioner, requesting it to refund to Caltex (Phil.) Inc. the amount of P21,478.31. 6 Caltex (Phil.) Inc. followed the request with a formal claim for tax credit on January 12, 1961. Since no answer was forthcoming, private respondents instituted on January 31, 1962, a petition for review with the respondent Court of Tax Appeals. They prayed that they be credited the amounts of P21,478.31 and P151.65, specific and sales taxes, respectively, plus interest at the legal rate from that date until the grant of the tax credit. 7 However, before the trial of the case, the sales tax of P151.65 was credited in favor of Caltex (Phil.) Inc.

Subsequently, or on 7 January 1963, petitioner formally denied the request of Caltex (Phil.) Inc. stating that as per the ruling of the Department of Finance in its answer to the query of the Philippine Electrical Supply, dated July 18, 1962:

Oils used by contractors in the operation of their machines or other equipment in pursuance of their contract are not materials to be solely used for the aforesaid military projects but petroleum products to be used in the operation of contractor's machines or equipment. Consequently, the same cannot be exempted from local taxes as well as customs duties and special import tax.

After trial, the Tax Court rendered the judgment appealed from. It deducted from the P21,478.31 claimed for the specific tax of P908.40 (petroleum products used in the demolition of the Opon Church in Mactan) and the specific tax of P2,297.74 paid on January, 15, and 25, 1960 for being barred by prescription (claim for refund was filed only on January 31, 1962.

Petitioner delimits its issue or question to the dispositive portion of the Tax Court decision ordering petitioner "to give tax credit to [private respondents] in the amount of P18,272.21 ..." 10 and assigns that the Tax Court erred —

I... IN HOLDING THAT UNDER THE MUTUAL DEFENSE AGREEMENT BETWEEN THE UNITED STATES OF AMERICA AND THE REPUBLIC OF THE PHILIPPINES THE PETROLEUM PRODUCTS IN QUESTION ARE EXEMPT FROM THE PAYMENT OF THE SPECIFIC TAX.

II... IN HOLDING THAT UNDER THE "AIDE MEMOIRE" OF APRIL 27, 1955, BETWEEN THE PHILIPPINE REPUBLIC AND THE UNITED STATES OF AMERICA, THE PETROLEUM PRODUCTS IN QUESTION ARE EXEMPT FROM THE PAYMENT OF SPECIFIC TAX.

III... IN HOLDING THAT THE PETROLEUM PRODUCTS IN QUESTION COME WITHIN THE PURVIEW OF THE WORDS "MATERIAL" OR "SUPPLIES" MENTIONED IN THE "AIDE MEMOIRE" OF APRIL 27, 1955, BETWEEN THE PHILIPPINE REPUBLIC AND THE UNITED STATES OF AMERICA, AND OF SECTION 3-19 OF THE GENERAL CONDITIONS ATTACHED TO THE SPECIFICATION FOR MACTAN AIRFIELD WHICH WAS MADE AN INTEGRAL PART OF THE CONTRACT BETWEEN THE PHILIPPINE GOVERNMENT AND THE RESPONDENTS P.J. KIENER COMPANY, LTD., INTERNATIONAL CONSTRUCTION CORPORATION AND GAVINO T. UNCHUAN.

IV... IN HOLDING THAT THE RESPONDENTS P.J. KIENER COMPANY LTD., INTERNATIONAL CONSTRUCTION CORPORATION AND GAVINO T. UNCHUAN ARE ENTITLED TO CLAIM FOR TAX CREDIT OF THE SPECIFIC TAXES WHICH THEY ALLEGEDLY PAID ON THE PETROLEUM PRODUCTS IN QUESTION; AND

V... IN ORDERING THE HEREIN PETITIONER TO GIVE TAX CREDIT TO THE RESPONDENTS IN THE AMOUNT OF P18,272.21.

The matrix of these imputations, however, is whether the Petroleum products in question are "materials" or "supplies" purchased or otherwise acquired "in connection with the construction of the Mactan Airfield and which "materials" or "supplies" are required "solely" for such project.

Private respondents flawlessly narrate that when they began construction towards the middle of 1958, they started purchasing the petroleum Products from Caltex (Phil.) Inc. "to run and maintain their machineries and equipment used in the construction." The "equipment" refers to fuel pumping machineries, radar facilities, and the like. Purchase went through April 11, 1960, when months thereafter the conflict on the tax credit arose. Private respondents would deliver the conclusion that these petroleum products are tax-exempt since they have been "... purchased or otherwise acquired in connection with the project ..." The fact that they are not incorporated into the Mactan Airbase would not defeat the exemption.

The sense which private respondents proffer to attach to the terms "materials" and "supplies" eludes the link welded into the Military Bases Agreement and "Aide Memoire" and recognized in Section 3-19 of the "General Conditions". The Military Bases Agreement states that "No import, excise, consumption or other tax ... shall be charged on material, equipment, supplies or goods ... for exclusive use in the construction ... of the bases ..." (Art. V, footnote 1). The "Aide Memoire" provides: "... no internal taxes of any kind or description, except income taxes, shall be levied on any materials, equipment, supplies and/or services which may be purchased or otherwise acquired in connection with the [construction of the Mactan Airfield] ..." (Sec. 6, Footnote 2). Section 13-9 of the "General Condition" stipulates that "... no tax of any kind or description will be levied on any material, equipment or supplies which may be purchased or otherwise acquired in connection with the project ... " Reduced into simple terms, the underscored phrases continuously used in the two treaties and in the contract could only mean, collectively. "construction" materials or supplies which must necessarily be incorporated in the construction of the Airfield. For the terms "materials" and "supplies" refer to something "going into or consumed" in the performance of the work 12 such as mortar, cement, sand, bricks, lumber 13 or nails, glass, hardware, and a thousand other things that might be meant, which are necessary to the complete direction of a building or structure. 14 Thus, examined, the petroleum products purchased by the private respondents "to run and maintain their machineries and equipment" cannot be categorized as "materials" or "supplies" since they do not go into or are consumed in the construction, but in the machineries and equipment.

Nonetheless, private respondents would unwrap a thesis that if Section 13-9 of the "General Conditions" intended to refer only to "materials" or "supplies" which form part and/or incorporated into the project, the said section would have so stated, just like when it provided that "Only equipment which will be incorporated in the construction" are tax free. 15 They would thus seize the absence of such proviso as a recognition of the tax-exemption of those "materials" or "supplies" not necessarily incorporated in the construction. The argument misses the point. In its textual completeness, Section 13-9 provides: "Only equipment which will be incorporated in the construction can be imported tax free on certification of the Engineer." (Last sentence, 2nd par.) It deals centrally on the importation of equipment. The Government had conceded the privilege of exemption to this item because the same may not be economically procurable in terms of price and quality within the Philippines." (See. 2, "Aide Memoire"). To assure, however, that the privilege is not abused or circumvented, the Government has stipulated in Section 13-9 of the "General Conditions" that the equipment "[must] be incorporated in the construction ..."It was intended by the Government as an open restraint against possible detour of the revenue and customs laws. The reason is easily discernible. There still pervaded even at that time the sentiment of preference to local products, as can be plucked from the ultimate sentence of Section 2, "Aide Memoire", thus:

Locally produced materials, however, shall be used wherever such materials are of satisfactory quality and are available at reasonable, comparable prices.

Under these circumstances, the contractual proviso in Section 13-9 (supra) cannot be isolated and stretched to mean that " materials" and "supplies" need not be incorporated in the construction to be tax-exempt. It is essentially non sequitur.

Private respondents would, however, seek a final refuge in the Commissioner of Customs vs. Caltex (Phil.) Inc., No. L-13067, December 29, 1959 ruling that "gasoline and oil furnished [Caltex] drivers during the construction job come within the import of the "material or supplies" ". In that case, Caltex (Phil.) Inc. was granted by the Secretary of Agriculture and Natural resources a petroleum refining concession with the right to establish and operate a petroleum refinery in the municipalities of Bauan and Batangas, province of Batangas. The concession made the provisions of Republic Act No. 387 16 as an integral part. In its operation, Caltex (Phil.) Inc. used as basic material crude oil imported from abroad. Customs duties were imposed on this imported crude oil and so, Caltex sought for refund. The Court of Tax Appeals ordered a refund. On petition for review, the Supreme Court held that under Article 103 of the Act 17 the petroleum products imported by respondent Caltex(Phil.) Inc. for its use during the construction of the refinery are exempt

from the customs duties and that gasoline and oil furnished its drivers during the construction job come within the import of the words "material" or "supplies".

It bears emphasis, however, that the words "material" or supplies" in that ruling were interpreted in relation to the provisions of the Act, particularly Article 103. Unlike the treaties and contract in the case at bar, no express provision 18 is therein contained that the "materials" or "supplies" must be "for exclusive use in the construction" (Art. V, Military Bases Agreement) or "in connection with the [construction] ... which materials ... supplies are required solely for such projects." (Cf. Sec. 6, "Aide Memoire" and See. 13-9 of "General Conditions").1äwphï1.ñët It is understandable why. At that time there was no Philippine crude petroleum available for the use of any refinery in the Philippines, and so imported crude petroleum was allowed so as not to defeat the objective of the Act which has to promote and encourage the exploration, development, production and utilization of the petroleum resources of the Philippines. Thus far, the importation of these "materials" and" supplies" was only circumscribed by a liberal proviso that the exemption shall not be allowed on "goods imported by the concessionaire for his personal use or that of any others." 19 Beyond that, the exemption operates. As far as the "materials" and "supplies" are concerned, they need not be incorporated into the construction to fall within the province of the exemption.

The present case is situated on a different plane. Explicitly, the "materials" and "supplies' must be for exclusive use in, in connection with, and required solely for the construction of the Mactan Airfield. In short, the "materials" and "supplies" need be incorporated in the construction for the exemption to apply. It, therefore, results that the Caltex ruling cannot be invoked as it is o be interpreted within the context of Republic Act 387.

Anent this, the Secretary of Finance in its letter of July 18, 1962 to the Philippine Electrical Supply Co., Inc. ruled that "Oils used by contractors in the operation of their machines or other equipment ... are not materials to be used solely for ... military projects but petroleum products to be used in the operation of the contractor's machines or equipment. 20 They are, consequently, not tax-exempt. The ruling commands much respect and weight, since it proceeds from the official of the government called upon to execute or implement administrative laws 21 and it lays down a sound rule on the matter.

Nor could the ambiguity that thus sprang from the tax-exemption provision in the Military Bases Agreement and in the "Aide Memoire" in accordance with which 23 the contract in question was entered into be interpreted in favor of the American Government or, for that matter, any party claiming under it, like private respondents. 24 Lauterpacht says that "if two meanings of a stipulation are admissible, that which is least to the advantage of the party for whose benefit the stipulation was inserted in the treaty should be preferred. 25 Especially when it is considered that for the Philippine Government, "the exception contained in the tax statutes must be strictly construed against the one claiming the exemption" 26 because the law "does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted."

An error has been assigned by petitioner that while the petroleum products were all purchased by private respondents from the Caltex (Phil.) Inc., for which the latter paid the specific taxes and sales taxes, private respondents did not come up with proofs that the specific taxes of P21,478.31 were included in the purchase price paid by them, and that the phrase "Statement of Specific Tax Excluded from Sales to P.J. Kiener Co. Ltd." appearing in both Exhibits A and B of private respondents means that the purchase price did not include said taxes. 28 The Court of Tax Appeals, however, found that the tax of P21,478.31 has been shifted by Caltex (Phil.) Inc. to private respondents. 29 This finding of the Tax Court must be accorded deference, "being well-nigh conclusive" upon the Supreme Court.

IN VIEW OF THE FOREGOING, the judgment of the Court of Tax Appeals ordering petitioner "to give tax credit to [private respondents] the amount of P18,272.21" is reversed and set aside. In all other respects the judgment appealed from is affirmed. Without pronouncement as to costs.

WONDER MECHANICAL ENGINEERING VS. COURT OF TAX APPEALSGR L-22805 and L-27858, 30 June 1975

Facts: Wonder Mechanical Engineering Corp. was granted tax exemption privilege under RA 35 in respect to the “manufacture of machines for making cigarette papers, pails, washers, rivets, nails, candies, chairs, etc.” The tax exemption expired on 30 May 1951. In 1953, the company applied with the secretary of Finance for the reinstatement of the exemption privilege under the provisions of RA 901, the reinstatement to commence on the date RA 901 took effect. The company was given a Certificate of Tax Exemption on 7 July 1954, exemption it similarly as in RA 35 until 31 December 1958, with diminishing exemption until 20 June 1955. The Commissioner assessed sales tax on gross sales of articles manufactured by it, including steel chairs. The company appealed to the Court of Tax Appeals.

Issue: Whether the company is exempted from the tax imposed on the manufacture and sale of articles, such as steel chairs.

Held: The company was granted tax exemption in the manufacture and sale of “machines for making cigarette paper, pails, etc.” but not for the manufacture and sale of articles produced by those machines. The manufacture of steel chairs, jeep parts, and other articles not constituting machines for making certain products would not fall under the classification of “new and necessary” industries envisioned in RA 35 and 901 as to entitle the company to tax exemption. Exemptions are highly disfavored in law and he who claims tax exemption must be able to justify his claim or right thereto by the

clearest grant of organic or statute law. Tax exemption must be clearly expressed and cannot be established by implication.

HYDRO RESOURCES CONTRACTORS CORPORATION V. CTA

FACTS: The National Irrigation Administration (NIA) a government owned and controlled corporation, entered into an agreement, sometime in August 1978, with Hydro Resources Contractors Corporation, for the construction of the Magat River Multipurpose Project in Isabela. In the same year and in 1979, the NIA imported construction equipment for the use of Hydro.

HYDRO had fully repaid the value of the construction equipment so much so that on December 6, 1982 and March 24, 1983, NIA executed deeds of sale covering the same and transferring the ownership thereof in favor of petitioner.

Upon the transfer of the ownership of the said equipment HYDRO was assessed by the Bureau of Customs the corresponding customs duty and compensating tax, which Hydro paid. An additional 3% ad valorem duty in the amount of P281,591.00 was further assessed as prescribed in Executive Order 860. Hydro paid the ad valorem duty under protest.

The Commissioner of Customs and Minister of Finance ruled in favor of Hydro, ordering the refund of the ad valorem duty. However, the Court of Tax Appeals (CTA) reversed this decision.

ISSUE: WHETHER the sale or transfer of the construction equipment to Hydro is subject to the imposition of 3% additional ad valorem duty

HELD: NO. The amount paid by Hydro should be refunded.

RATIO: The CTA erroneously held that the subsequent executions of the Deeds of Sale of the equipment in question on December 6, 1982 and March 24, 1983 imposed upon Hydro the obligation to pay the 3% ad valorem duty under Executive Order 860.

These dates are not relevant and material in the consideration of the application of Executive Order No. 860 because said Deeds of Sale were mere formalities in the implementation of the contract executed on August 1978, which should be reckoned and construed as the actual date of sale.

In 1978, there was already a perfected contract of sale subject to a suspensive condition, the full payment by HYDRO of the consideration for the subject of the contract is the operative act to compel NIA to effect the transfer of absolute ownership thereof to HYDRO. Following Article 1187 of the Civil Code: The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation.

Article 4 of the Civil Code states that laws shall have no retroactive effect, unless the contrary is provided. Except for a statement providing for its immediate execution, Executive Order No. 860 does not provide for its retroactivity. The Deputy Minister of Finance in an Indorsement to the Central Bank has already clarified that letters of credit opened prior to the effectivity of E.O. 860 are not subject to the provisions thereof.

Thus, the importations in question which arrived in 1977 and 1978 are not subject to the 3% additional ad valorem duty, the same being imposed only on those whose letter of credit were opened after the promulgation of Executive Order 860.

THE COMMISSIONER OF INTERNAL REVENUE, vs. ILAGAN ELECTRIC & ICE PLANT, INC. and COURT OF TAX APPEALS, 

Respondent Ilagan Electric and Ice Plant, Inc. is the holder of a franchise under Acts Nos. 3407 and 3494, as amended by C.A. No. 258, to operate and maintain an electric light, heat and power system in the Municipality of Ilagan, Isabela. On the strength of the letter-ruling of the Deputy Collector of Internal Revenue dated December 8, 1954, informing respondent that it was liable only for the 2% franchise tax under the provisions of its legislative franchise, rather than the higher 5% franchise tax imposed under Section 259 of the National Internal Revenue Code respondent paid its franchise tax at the lower rate of 2% on its gross receipts for the period from October 1, 1955 to September 30, 1959. Prior thereto, respondent had paid its franchise tax at the higher rate of 5% provided by the Tax Code. Upon respondents' claim for refund, petitioner refunded to it the sum of P2,520.67, representing the difference between the 5% franchise tax actually paid and the lesser rate of 2% tax for which respondent should have been liable under the said ruling of the Deputy Collector, corresponding to the period from the 4th quarter of 1952 to the 4th quarter of 1954.

Subsequently, however, petitioner in an assessment dated July 27, 1961, held respondent liable for franchise tax at the higher rate of 5% provided in Section 259 of the Tax Code instead of the lower rate of 2% provided in its legislative franchise, in pursuance of this Court's decision on May 25, 1959 in Hoa Hin Co., Inc. vs. Collector of Internal Revenue 1 that the higher rate imposed by the Tax Code is binding upon franchise grantees in the absence of exemption clauses in their legislative franchises precluding the imposition of a higher tax. This doctrine has since then been re-affirmed by this Court in a number of cases.  2 Petitioner consequently demanded the repayment of the sum of P2,520.67

which he had previously refunded on March 21, 1956 to respondent.  3This assessment having been disputed by respondent, petitioner issued under date of January 5, 1962 a final assessment and demanded from respondent the payment of the sum of P8,495.23 as deficiency franchise tax for the period from October 1, 1955 to September 30, 1959, plus 25% surcharge and repayment of P2,520.67 previously refunded to respondent.

Respondent, as petitioner in the Tax Court, filed on February 16, 1962, its petition for review of the Commissioner's assessment and decision. During the course of the hearing, respondent accepted its liability for the deficiency franchise tax (the difference between 5% under the Tax Code and 2% under its franchise) in the amount of P8,495.23. The Tax Court, however, eliminated the 25% surcharge, correctly holding in line with decisions of this Court,  4 that it would be unfair and unjust to penalize respondent with the surcharge, for falling into error to which it had been misled by the mistaken view of petitioner's deputy. Petitioner has in turn acquiesced to this portion of the Tax Court's decision. 5

The Tax Court also sustained respondent's contention that petitioner Commissioner's right to assess and collect the sum of P2,520.67 representing the franchise tax refunded to respondent — erroneously, as it turned out after this Court's decision in the Hoa Hin case, supra, that the higher rate of 5% by way of franchise tax imposed by the Tax Code is collectible from franchise grantees in the absence of express exemption clauses in their franchises is barred by the prescriptive five-year period provided in Sections 331 and 332(c) of the Tax Code. The Tax Court thus rendered judgment ordering respondent to pay petitioner "within 30 days from the date this decision becomes final, deficiency franchise tax for the period from October 1, 1955 to September 30, 1959, in the amount of P8,495.23." 6

The only issue before us is whether or not the recovery of the sum of P2,520.67 alleged as erroneously refunded franchise tax is barred by the five-year prescriptive period of the Tax Code. On appeal, petitioner pursues its contention that the Tax Court should have applied, not the prescriptive five-year period provided in Section 331 of the Tax Code, but rather the six-year prescriptive period for quasi-contracts provided in Article 1145 of the Civil Code, contending that "Article 2155, in relation to Article 2154, both of the Civil Code, which provides that where payment has been made by reason of a mistake in the construction or application of a doubtful or difficult question of law, the obligation on the part of the recipient to return it arises, applies to the case at bar. In other words, there exists a quasi-contract relationship between the government and the taxpayer as a result of the fund known as 'solutio indebiti.' " 7

This contention of petitioner has been squarely ruled out by this Court in the earlier case of Guagua Electric Light Co., Inc. vs. Collector of Internal Revenue 8 involving identical relevant facts and legal issues, where we held that such a demand on the part of the Collector (now Commissioner) of Internal Revenue for payment of an erroneously refunded franchise tax "is in effect an assessment for deficiency franchise tax. And being so, the right to assess or collect the same is governed by Section 331 of the Tax Code rather than by Article 1145 of the Civil Code. A special law (Tax Code) shall prevail over a general law (Civil Code)." This Court there held that the government is right to assess and collect the total sum of P16,593.87 representing franchise tax allegedly refunded erroneously as overpayment of the franchise holder was barred by the five-year prescriptive period provided in Section 331 of the Tax Code and ordered the elimination thereof from the judgment of the Tax Court.

The Tax Court, therefore, correctly ruled that under the specific limitations on assessment provided in Section 331 of the Tax Code, the petitioner was restricted to a period of five years from the filing of the quarterly returns of respondent, the latest being on the 4th quarter of 1954, within which to assess anew respondent for payment of the amount of P2,520.67, which petitioner had refunded on March 21, 1956 as overpayment of franchise tax corresponding to the period from the 4th quarter of 1952 to the 4th quarter of 1954; that since the assessment was made only on July 27, 1961 and was received by respondent on August 11, 1961, the assessment was made beyond the five-year period prescribed by the Tax Code; and that consequently, the right of petitioner to assess having been barred by prescription, no action to recover the said amount could now be taken under Section 332(c) of the same Code.

ACCORDINGLY, the judgment appealed from is hereby affirmed. Without costs.

TANADA VS. TUVERAGR L-63915, 24 April 1985

Facts: Invoking the people’s right to be informed on matters of public concern as well as the principle thatlaws to be valid and enforceable must be published in the Official Gazette or otherwise effectively promulgated, Tañada, et.al. seek a writ of mandamus to compel public officials to publish presidential decrees, letters of instructions, general orders, proclamation, executive orders, letter of implementation and administrative orders.

Issue: Whether the unpublished laws have binding force and effect.

Held: The publication in the Official Gazette is required to give the general public adequate notice of the various laws which are to regulate their actins and conduct as citizens. Publication is necessary to apprise the public of the contents of regulations and make penalties binding on the person affected thereby. The publication of all presidential issuances of a “public nature” or “of general applicability” is a mandated by law, and is a requirement of due process. Presidential decrees that provide for fines, forfeitures or penalties for their violation or otherwise impose a burden on the people, such

as tax and revenue measures fall within this category. Before a person may be bound by law, he must be first be officially and specifically informed of its contents. When not published, such shall have no force and effect. However, the implementation/enforcement of the presidential decrees prior to their publication in the Gazette is anoperative facts, which may have consequences which cannot be justly ignored.

LA SUERTE CIGAR AND CIGARETTE FACTORY, BATAAN CIGAR AND CIGARETTE FACTORY, INC., vs CTA

On August 22, 1967, respondent Commissioner of Internal Revenue issued Memorandum Circular No. 30-67 2 requiring the inspection of (a) all locally produced leaf tobacco and partially manufactured tobacco intended for domestic sale, for factory use or for export; (b) all manufactured products of tobacco contemplated in Sec. 194(m) of the Tax Code intended for domestic sale; and (c) all imported foreign leaf tobacco and partially manufactured tobacco for domestic sale or factory use, and the collection of the corresponding inspection fees.

Pursuant to said Memorandum respondent collected from petitioners, over the latter's vehement protests, the following inspection fees:

(a) 199,632.19 during the period from September 1967 to April 1969, in CTA Case No. 2031; 

(b) 1,406,877.64 during the period from September 1967 to August 1969, in CTA Case No. 2048.

Petitioner sought the refund of the aforementioned inspection fees collected from them was submitted by petitioners for summary judgment. In a decision CTA denied the claim for the refund of the amount of P199,632.19.

Before the finality of the said decision, however, petitioners moved for a reconsideration thereby praying that in case of a denial, CTA Case No. 2031 be reopened for the reception of evidence in support of their argument that there was no inspection made by the BIR nor were inspection labels affixed to the boxes and packages containing the cigars and cigarettes which would warrant the imposition and collection of the disputed tobacco inspection fees.

On September 28, 1971, the CTA granted petitioners' motion to reopen but denied the motion for reconsideration. Said court likewise ordered that CTA Cases Nos. 2048 and 2031 be heard jointly. After hearing, the CTA on December 15, 1972 denied both claims.

Republic Act No. 31, Under Section 6 of the Tobacco Inspection Law (Act No. 2613), the Collector of Internal Revenue is authorized to promulgate rules relative to the classification, marking and packaging of leaf tobacco for domestic sale or for exportation in order to insure the use of leaf tobacco of good quality and its handling under sanitary conditions. Section 1 of the attached bill seeks to extend this regulatory power of the Collector of Internal Revenue to leaf tobacco intended for factory use.

Under the present law only leaf and manufactured tobacco for export to the United States are subject to inspection. Under the proposed amendment, the standard type and packing of all leaf and manufactured tobacco for export to any foreign country will come under the regulatory power of the Collector of Internal Revenue.

It was petitioners' contention that the amendatory portion reading "or to tobacco for domestic sale or factory use" in Sec. 6(c) of Act 2613, refers to leaf tobacco whether for local sale or factory use and does not include cigars and cigarettes for domestic sale or consumption.

We do not agree.

Prior to the amendment of said Act, Sec. 6 and 7 thereof, already covered the inspection of leaf tobacco, partially manufactured tobacco or local sale and leaf tobacco and its products for export. If the intention of Congress was to apply the amendment to those items already covered by Act 2613, then the word "leaf" should have been easily included to modify the term "tobacco". The omission of the word "leaf" is a clear indication that Congress intended to include within the purview of the law a new item; namely, manufactured tobacco products for domestic sale and imported tobacco for factory use.

If Congress of the Philippines really intended to restrict the meaning of the word 'tobacco' under Republic Act No. 31, which took effect on October 1, 1946, in order to limit the scope of the term tobacco under the law originally passed in 1916 and its implementing Regulations Nos. 17 and 47, it could have easily inserted the word "leaf" to modify "tobacco" contained in the amendatory law. An examination of Sections 6(a), 6(b) and 7, supra, reveals that, if our lawmaking body intended to limit the coverage of said sections to either leaf or manufactured tobacco, it qualified the word 'tobacco' with such antecedent words. In Section 6(c) of Act 2613, as amended, no such qualification was made by Congress, thereby showing the broad scope and meaning of the word tobacco. For the Court to adopt petitioners' construction that tobacco means 'leaf tobacco' would be engaging in unauthorized judicial legislation by rewriting the law and inserting words and phrases not found in it.

Settled is the rule that where the law does not distinguish, we should not distinguish. 3 

The validity and efficacy of Revenue Memorandum Circular No. 30-67 is now being assailed by petitioners on the ground that it is not a regulation promulgated by the Secretary of Finance (now Minister of Finance) and that it has never been published in the Official Gazette as required by the Civil Code and the Revised Administrative Code.

As herein earlier mentioned, the word "leaf", although used to modify the term "tobacco" only in the Explanatory Note to then House Bill No. 735 was omitted when the Bill was signed into law (RA 31). However, when General Circular No. V-27 dated October 29, 1946 was issued by then Collector of Internal Revenue Bibiano L. Meer to implement the provisions of Sections 6, 7 and 14 of Act 2613 (Tobacco Inspection Law), the word "leaf" was erroneously included therein, causing damage to the financial stability of the Government as the inspection fees due on cigars and cigarettes for domestic sale and imported leaf and partially manufactured tobacco for factory use were not collected for more than twenty (20) years. Such error was only discovered when an Assistant Chief of the Tobacco Inspection Service of the BIR appeared in a public hearing of the Joint Legislative-Executive Tax Commission. As a result thereof, the Philippine Tobacco Board, a policy making body of the National Government on Tobacco Authority, adopted Resolution No. 2-67 interpreting the phrase "tobacco for domestic sale" as referring to wholesale disposal of tobacco products by cigar and cigarettes factories to its dealers while the phrase "tobacco for factory use" meant "imported leaf tobacco" intended for use by cigar and cigarette factories in the manufacture of tobacco products. The approval of this Resolution on May 31, 1967 prompted respondent Commissioner to promulgate Memorandum Circular No. 30-67 which was approved by then Secretary of Finance Eduardo Z. Romualdez and the effectivity of which is specifically dated September 1, 1967 and not contingent on its publication in the Official Gazette.

Thus, the assailed Revenue Memorandum Circular was issued to rectify the error in General Circular No. V-27 and to interpret the phrase "tobacco for domestic sale or factory use" with the view of arresting huge losses of tobacco inspection fees which were not collected and imposed since the said Circular (No. V-27) took effect. Furthermore, the questioned Revenue Memorandum Circular was also issued to apprise those concerned of the construction and interpretation which should be accorded to Act No. 2613, as amended, and which respondent is duty bound to enforce. It is an opinion on how the law should be construed and there was no attempt whatsoever to enlarge or restrict the meaning of the law.

The basis for the issuance of said Memorandum Circular was so stated in Resolution No. 2-67 of the Tobacco Board, wherein petitioners as members of the Manila Tobacco Association, Inc. were duly represented, the pertinent portions of which read:

WHEREAS, tills original recommendation of Mr. Hernandez was perfectly in accordance with eating law, more particularly Sec. 1 of Republic Act No. 31 which took effect since September 25, 1946, but perhaps thru oversight by the former Commissioners and officers of the Tobacco Inspection Service the property and legality of effecting the inspection of tobacco products for local sales and imported leaf tobacco for factory use might have overlooked resulting in huge losses of tobacco inspection fees ... (Emphasis supplied)

As admitted by counsel for petitioners, the latter were each furnished with a copy of the Revenue Memorandum Circular in question and the purpose of the law, that is to inform or notify those who may be affected, has been substantially complied with. Since it was further admitted by petitioners that said Memorandum is but a "Memorandum Circular for purposes of the internal administration of the BIR and not a regulation within the contemplation of Sections 4 and 338 of the NIRC and Section 79(b) of the Revised Administrative Code", said circular needs no publication in the Official Gazette as erroneously argued by the petitioners.

Section 79(b) of the Revised Administrative Code so provides:

Chiefs, of bureaus or offices, may, however, be authorized to promulgate circulars or information or instructions for the government of the officers and employees in the interior administration of the business of each bureau or office, and in such case said circular shall not be required to be published.

When an administrative agency renders an opinion by means of a circular or Memorandum, it merely interprets a pre-existing law, and no publication is necessary for its validity. 4 Construction by an executive branch of government of a particular law although not binding upon courts must be given weight as the construction come from the branch of the government called upon to implement the law. 5 

The promulgation of Revenue Memorandum Circular No. 30-67 being in accordance with the Revised Administrative Code, having been issued by the Commissioner of Internal Revenue with the approval of the Secretary (now Minister) of Finance for the implementation of the Tobacco Inspection Law, has therefore the force and effect of law.

Tobacco Inspection fees are undoubtedly National Internal Revenue taxes, they being one of the miscellaneous taxes provided for under the Tax Code. Section 228 (formerly Section 302) of Chapter VII of the Code specifically provides for the collection and manner of payment of the said inspection fees. It is within the power and duty of the Commissioner to collect the same, even without inspection, should tobacco products be removed clandestinely or surreptitiously from the establishment of the wholesaler, manufacturer or redrying plant and from the customs custody in case of imported leaf tobacco. Errors, omissions or flaws committed by BIR inspectors and representatives while in the performance of their

duties cannot be set up as estoppel nor estop the Government from collecting a tax legally due.  6 Tobacco inspection fees are levied and collected for purposes of regulation and control and also as a source of revenue since fifty percentum (50%) of said fees shall accrue to the Tobacco Inspection Fee Fund created by Sec. 12 of Act No. 2613, as amended and the other fifty percentum to the Cultural Center of the Philippines. (Sec. 88, Chapter VII, NIRC) 

Under the circumstances, a refund of the tobacco inspection fees collected from petitioners is not legally warranted.

As disclosed by the records, the party-litigants agreed that Mr. Vicente Chua's, (Production Manager of La Suerte Cigar & Cigarette Factory) testimony shall be considered as the Procedure of inspection followed in all factories of petitioners, thus: 7

... before the cigarettes were removed from the factory, they were invoiced by the revenue agents assigned there to check on the number of cases of cigarettes to be removed; revenue agents checked the quantity of cigarettes manufactured, quantity of cigarettes removed, strip stamps affixed; and early in the morning before the start of the operation, the revenue agents checked the cigarette bobbins strip stamps and saw to it that cigarettes removed were properly recorded in the books.

From the testimonies of other witnesses for petitioners, it was shown that revenue agents and tobacco inspectors "saw to it that an raw materials for use in the manufacture of the finished products were duly recorded; and in the process of manufacture, all tobacco products found unfit for sales were segregated by the factory employees thru the supervision of the revenue agents." 

The CTA held that the foregoing belie petitioners' assertions that no actual inspection was conducted to justify the collection of the tobacco inspection fees. The findings of the Tax Court are duly supported by evidence. We find no cogent reason to disturb the same. They are therefore binding on this Court.c

Accordingly, the petition for review is hereby DISMISSED. Costs against petitioners.

SO ORDERED.

PHIL PETROLEUM CORPORATION VS. MUN OF PILILIA, RIZAL

GR 90776 June 3, 1991 / 198 SCRA 82

Facts:

Petitioner, Philippine Petroleum Corporation (PPC) owns and maintains an oil refinery conducting business within the municipality of Pililia, Rizal. P.D. 231 or the local tax code of 1973 provide for the Municipality of impose taxes on business any article of commerce. Thereafter, Provincial Circular 26-73 was issued directing all provincial, City and municipal treasurers to refrain from collecting any local imposed in petroleum products. In 1974, P.D. 426 amended certain provisions of P.D. 231. The municipality of Pililia, through Municipal Tax ordinance 1, S-1974, imposed tax on business. In the RTC, respondent received a favorable decision, directing herein petitioner to pay the tax and fees impose unto it. Petitioner contended that Provincial Arcular 26-73 suspended the effectively of local tax ordinances of the local tax code.

ISSUE: Whether or not Provincial Circular No. 26-73 supersedes the provisions of P.D. 231 as amended by P.D. 426?

RULING: The court ruled in the negative, stating that “in case of discrepancy between the basic law and on implementing rule or regulation, the former prevails.” P.D. 426, amending the local tax code repealed P.C. No. 26-73 and 26-A73 where section 19 of which stated “the municipality may impose taxes on business… manufacturers importers or producers of any article of commerce of whatever kind or nature…”

Thus, the order of the lower court was affirmed by SC with certain modification. In the case at bar, the provisions of the local tax code of 1974 supersedes P.C. 26-73, likewise upholding the constitutional right granted to local autonomy to imposed taxes.

COMMISSIONER VS. BURROUGHS LTD.GR L-6653, 19 June 1986

Facts: Burroughs Ltd is a foreign corporation authorized to engage in business in the Philippines. Its branch office in Makati applied with the Central Bank for authority to remit to its parent company abroad, branch profits. It paid 15% branch profit remittance tax. The branch, however, later claimed for a refund or credit contending that the branch profit

remittance tax pursuant to a BIR ruling of 21 January 1980. The Court of Tax Appeals granted the company’s petition. The Commissioner filed a petition for certiorari, claiming Memorandum Circular 8-82 (17 March 1982) should apply.

Issue: Whether the Memorandum Circular 8-82 should be retroactively applied.

Held: Revenue Ruling of 21 January 1980 remains to apply in the case as the company paid the tax on 14 March 1979. Memorandum Circular 8-82 cannot be given retroactive effect in the light of Section 327 (non retroactively of rulings) of the tax code. The retroactive application of the Circular would deprive the company the substantial amount of P172,058.90. The misstates or omits material facts from his return or I any document required of him by the BIR, or where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based, or where the taxpayer acted in bad faith to allow the retroactive application of the circular.

CIR v. CA (Alhambra Industries)G.R. No. 117982; February 6, 1997

Facts:Private respondent Alhambra Industries, Inc., engaged in the manufacture and sale of cigar and cigarette products, received from Commissioner of Internal Revenue a letter stating that it has a deficiency Ad Valorem Tax of P488,396.62 on the removals of cigarette products from their place of production from November 2, 1990 to January 22, 1991. Alhambra filed a protest but the same was denied. CIR requested payment of the revised amount of P520,835.39. Without waiting for CIR’s reply to its reconsideration, Alhambra filed a petition for review with the Court of Tax Appeals. Meanwhile, CIR denied the request for reconsideration; Alhambra then paid the disputed ad valorem tax in the sum of P520,835.29 under protest. CTA, in its decision, ordered CIR to refund to Alhambra the amount erroneously paid, explaining that the subject deficiency excise tax assessment resulted from Alhambra’s use of the computation mandated by BIR Ruling473-88 dated October 4, 1988 as basis for computing the 15% ad valorem tax. BIR Ruling 017-91 revoked BIR Ruling 473-88 for being violative of Sec. 142 of the Tax Code; it included back the VAT to the gross selling price in determining the tax base for computing the ad valorem tax on cigarettes.

Issue: Whether or not private respondent's reliance on a void BIR ruling conferred upon the latter avested right to apply the same in the computation of its ad valorem tax and claim for tax refund?

Ruling: The present dispute arose from the discrepancy in the taxable base on which the excise tax is to apply on account of two incongruous BIR Rulings: (1) BIR Ruling 473-88 dated October 4, 1988 which excluded the VAT from the tax base in computing the 15% excise tax due; and, (2) BIR Ruling 017-91 dated February 11, 1991 which included back the VAT in computing the tax base for purposes of the 15% ad valorem tax. The question as to the correct computation of the excise tax on cigarettes in the case at bar has been sufficiently addressed by BIR Ruling 017-91 which revoked BIR Ruling 473-88.It is to be noted that Section 127 (b) of the Tax Code as amended applies in general to domestic products and excludes the value-added tax in the determination of the gross selling price, which is the tax base for purposes of the imposition of ad valorem tax. On the other hand, the last paragraph of Section 142 of the same Code which includes the value-added tax in the computation of the ad valorem tax refers specifically to cigar and cigarettes only. It does not include/apply to any other articles or goods subject to the ad valorem tax. Accordingly, Section142 must perforce prevail over Section 127 (b) which is a general provision of law insofar as the imposition of the ad valorem tax on cigar and cigarettes is concerned. Moreover, the phrase unless otherwise provided in Section 127 (b) purports of exceptions to the general rule contained therein, such as that of Section 142, last paragraph thereof which explicitly provides that in the case of cigarettes, the tax base for purposes of the advalorem tax shall include, among others, the value-added tax.

CITY OF MANILA VS. GOMEZFacts: Section 4 of the special education fund ( RA 5447) provides that an annual additional tax of 1% on the assessed value of the real property in addition to the real property tax levied under existing laws may be imposed, but such tax shall not exceed a maximum of 3%. That maximum limit gave the municipal board of manila the idea of fixing the realty tax at 3% thru ordinance # 7125 that imposed an additional ½ % realty tax.

Esso Phil., inc. paid under protest the additional ½ % tax for the third quarter of 1003 on its land and machineries then filed a complaint contending that such tax is void because it is not authorized by the city charter nor by law.

Issue: WON the imposition of additional ½ % realty tax is void.

Held: No. The doctrine of implications in statcon sustains the city of manila’s contention that the additional tax is sanctioned by sec. 4 of RA 5447 that ³the total realty tax shall not exceed a maximum of 3%´. While the 1949revised charter of manila fixed the realty tax at 1 ½%, on the other hand, the RA 5447 definitely fixed 3% as the maximum realty tax of which 1% would accrue to the SEF. The obvious implication is that an additional ½ % to tax could be imposed by municipal corporations. Inferentially, that law fixed at 2% the realty tax that would accrue to a city or municipality.

GOMEZ VS. PALOMARG.R. No. L-23645 October 29, 1968

Facts:

Petitioner questions the constitutionality of the statute, claiming that R.A. 1635 otherwise known as as the Anti-TB Stamp Law, is violative of the equal protection clause of the Constitution because it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the population and that even among postal patrons the statute discriminatory grant exemptions.

Moreover, petitioner contends that the statutory classification of taxpayers has no relation to the object sought by the Anti-TB law.

Issue: Whether or not the Anti-Tb law violates the equal protection clause of the constitution.

Ruling: No, Supreme Court reiterated that the legislature has the inherent power to select the subjects of taxation and to grant exemptions. The reason for this is that traditionally, classification has been a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden. The legislative classifications must be reasonable is of course undenied in this case.

The classification of mail users is not without any reason. It is based on ability to pay, let alone the enjoyment of a privilege, and on administrative convenience. The classification is likewise based on considerations of administrative convenience. For it is now a settled principle of law that "consideration of practical administrative convenience and cost in the administration of tax laws afford adequate ground for imposing a tax on a well recognized and defined class. Lastly, mail users were already a class by themselves even before the enactment of the statue and all that the legislature did was merely to select their class. Legislation is essentially empiric and Republic Act 1635, as amended, no more than reflects a distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in fact is living law; to disregard [them] and concentrate on some abstract identities is lifeless logic."

Petitioner's assertions that statutory classification of mail users must bear some reasonable relationship to the end sought to be attained, and that absent such relationship the selection of mail users is constitutionally impermissible does not hold water. This is altogether a different proposition, since explained by the court "that while the principle that there must be a reasonable relationship between classification made by the legislation and its purpose is undoubtedly true in some contexts, it has no application to a measure whose sole purpose is to raise revenue, so long as the classification imposed is based upon some standard capable of reasonable comprehension, be that standard based upon ability to produce revenue or some other legitimate distinction, equal protection of the law has been afforded."

MANILA GAS VS. COLLECTOR

FACTS: This is an action brought by the Manila Gas Corporation against the Collector of Internal Revenue for the recovery of P56,757.37, which the plaintiff was required by the defendant to deduct and withhold from the various sums paid it to foreign corporations as dividends and interest on bonds and other indebtedness and which the plaintiff paid under protest.

ISSUES: Won the Collector of Internal Revenue was justified in withholding income taxes on interest on bonds and other indebtedness paid to nonresident corporations

RULING: YES. The approved doctrine is that no state may tax anything not within its jurisdiction without violating the due process clause of the constitution. The taxing power of a state does not extend beyond its territorial limits, but within such it may tax persons, property, income, or business. If an interest in property is taxed, the situs of either the property or interest must be found within the state. If an income is taxed, the recipient thereof must have a domicile within the state or the property or business out of which the income issues must be situated within the state so that the income may be said to have a situs therein. Personal property may be separated from its owner, and he may be taxed on its account at the place where the property is although it is not the place of his own domicile and even though he is not a citizen or resident of the state which imposes the tax. But debts owing by corporations are obligations of the debtors, and only possess value in the hands of the creditors.

The Manila Gas Corporation operates its business entirely within the Philippines. Its earnings, therefore come from local sources. The place of material delivery of the interest to the foreign corporations paid out of the revenue of the domestic corporation is of no particular moment. The place of payment even if conceded to be outside of the country cannot alter the fact that the income was derived from the Philippines. The word "source" conveys only one idea that of origin, and the origin of the income was the Philippines. The Collector of Internal Revenue was justified in withholding income taxes on interest on bonds and other indebtedness paid to non-resident corporations because this income was received from sources within the Philippine Islands as authorized by the Income Tax Law.

COMMISSIONER VS. BRITISH OVERSEAS AIRWAYS CORP.GR L-65773-74, 30 April 1987

Facts: British Overseas Airways Corp. (BOAC) is a 100% Britis Government-owned corporation engaged in international airline business and is a member of the Interline Air Transport Association, and thus, it operates air transportation service 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 Airwayus -- which was 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 for air transportation, while having no landing rights 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 payments for fares were also made here in 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 or percentage tax, it would have been placed under Title V of the Tax Code covering taxes on business.

WELLS FARGO VS. COLLECTOR OF INTERNAL REVENUEGR 46720, 28 June 1940

Facts: Birdie Lillian Eye died on 16 September 1932, at Los Angeles, California, the place of her alleged last residence and domicile. Among the properties she left was her 1/2 conjugal shares of stock in the Benguet Consolidated Mining Co., an anonymous partnership (sociedad anonima), organized under the laws of the Philippines. She left a will duly admitted to probate in California where her estate was administered and settled. Wells Fargo bank and Union Trust Co. was duly appointed trustee of the trust by the said will. The Federal and California State’s inheritance taxes due thereon have been duly paid. The Collector of Internal Revenue in the Philippines, however, sought to subject the shares of stock to inheritance tax, to which Wells Fargo objected.

Issue: Whether the shares of stock are subject to Philippine inheritance tax considering that the decedent was domiciled in California.

Held: Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax, and such situs is in the domicile of the decedent at the time of his or her death. But the rule has been relaxed. The maxim “mobila sequuntur personam,” upon which the rule rests, has been decried as a mere “fiction of law having its origin in considerations of general convenience and public policy, and cannot be applied to limit or control teh right of the State to tax property within its jurisdiction” and must “yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so would result in inescapable and patent injustice.” The relaxation of the original rule rests on either of two fundamental considerations: (1) upon the recognition of the inherent power of each government to tax persons, properties, and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that as to intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto. Herein, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. The certificates of stock remained in the Philippines up to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the corporation, to whom they have been delivered and indorsed in blank. McKee had the legal title to the certificates of stock held in trust for the true owner thereof. The owner residing in California has extended here her activities with respect to her intangibles so as to avail hereself of the protection and benefit of Philippine laws. Accordingly, th jurisdiction of the Philippine Government to tax must be upheld.

Bisaya Land Transportation Co., Inc. v. Collector of Internal Revenue, G.R. Nos. L-12100 & L-11812, May 29, 1959).

This case is intimately related to G. R. No. L-10095 and G. R No. L-10115, already resolved by Us in a decision promulgated last October 31, 1957. Insofar as this appeal is concerned, it appears that the PHILMAROA presented its demands for standardization and increase of salaries, sick and vacation leaves, hospitalization, and closed shop agreement on September 26, 1953. On October 24, 1953, notice of intention to strike was filed in the Conciliation Service Division of the Department of Labor against the petitioners herein. Pending the resolution of the dispute by the Court of Industrial Relations, by reason of the presidential certification to it of the said dispute, Benjamin Nadanza and Arcadio Ouano abandoned their ships, which belong to the petitioner, on November 30 and December 7, 1953, respectively. But some weeks thereafter said radio operators cameback and, upon their request, were readmitted by the company. In the court below the petitioner herein alleged that the strike was unlawful because no notice of the strike was served directly to it. It was also contended that with the reinstatement of the radio operators there was no longer any cause of action against the Bisaya Land Transportation Co., petitioner herein. The court a quo held that the illegality of the strike was waived by the Bisaya Land Transportation Company when it accepted the striking radio operators. As to the Absence of the cause of action against the petitioner herein, the court a quo held that this defense is good as against the reinstatement and backpay of the striking radio operators, but not as to the prosecution of the demands contained in the original petition of the union.

On this appeal the petitioner assigns the following errors:

"I. THE PETITIONER-UNION, NOW RESPONDENT, HAS NO CAUSE OF ACTION AGAINST THE BISAYA LAND TRANSPORTATION CO., INC. "II. THE PETITIONER-UNION BEING ONLY A CRAFT UNION HAS NO RIGHT OR POWER TO BARGAIN COLLECTIVELY. "III. THE PETITIONER-UNION HAS NO RIGHT OR POWER TO BARGAIN COLLECTIVELY FOR RADIO OPERATORS NADANZA AND OUANO AS BOTH OF THEM ARE AFFILIATED WITH ANOTHER LOCAL LABOR UNION IN CEBU, THE PHILIPPINE MARINE & SHIPPING EMPLOYEES ASSOCIATION (PHILMASEA), WITH WHICH THE GREAT MAJORITY OF THE EMPLOYEES OF THE BISAYA LAND TRANSPORTATION CO., INC. ARE AFFILIATED. "IV. THE STRIKE OR ABANDONING OF THEIR POSTS BY THE RADIO OPERATORS WAS NOT LEGAL. "V. THE CERTIFICATION OF THE CASE TO THE C.I.R. BY THE PRESIDENT OF THE PHILIPPINES WAS NULL AND VOID. "VI. THE COURT OF INDUSTRIAL RELATIONS HAD NO JURISDICTION OVER THE CASE

In support of the first assignment of error, it is claimed that when the radio operators employed by the petitioner went back to work and the latter reinstated them, the parties thereby waived any of the grounds that they may have had for striking. There is absolutely no merit in this contention. The strike in this case was adopted by the union to compel the respondent shipping company to accede to its demands. The strike was but one of the means employed to achieve its ends. When the radio officers returned back to work after the strike, such return did not imply the waiver of the original demands. The fact that the radio operators returned back to work and ended their strike only meant that they desisted from the strike; such desistance is a personal act of the strikers, and cannot be used against the union and interpreted as a waiver by it of its original demands for which the strike was adopted as weapon.

The second assignment of error is also without merit as held by the court below. A union craft, such as the one to which the radio operators belonged, is expressly recognized in the Industrial Peace Act (Sec. 9 [f], pars. 1 & 2 Rep. Act No. 875) and its right and power to bargain collectively is recognized.

In third assignment of error it is claimed that the PHILMAROA has no right to bargain collectively for the radio operators employed by the petitioner Bisaya Land Transportation Company, because these radio operators are affiliated with another local union to which union most of employees of the petitioner union are affiliated. This contention is also without merit. The PHILMAROA acted as representatives of the radio operators Nadanza and Ouano, as radio operators, not as mere employees of the Bisaya Land Transportation Company. There is no prohibition in the law against employees affiliating with a craft union as well as with an ordinary labor union. As the PHILMAROA represented the interest of Nadan and Ouano as radio operators, said union was fully competent to represent them in the proceedings in said capacity.

In the fourth assignment of error it is claimed that the strike was illegal. Admitting for the sake of argument that the strike was illegal for being premature, this defense was waived by the Bisaya Land Transportation Company when it voluntarily agreed to reinstate the radio operators.

The fifth assignment of error refers to the supposed invalidity of the presidential certification of the case to the Court of Industrial Relations. It is argued that the real purpose of certification is to avoid or prevent strikes and lockouts, but that since the strike in this case occurred before the certification, the latter was null and void. There is no reason or ground for the contention that presidential certification is limited to the prevention of strikes and lockouts. Even after a strike has been declared, where the President believes that public interest demands arbitration and conciliation, the President may certify the case for that purpose. The practice has been for the Court of Industrial Relations to order the strikers to return to work, pending final determination of the union demands that impelled the strike. There is nothing in the law to indicate that the practice is abolished.

The last assignment of error is so clearly unfounded as to deserve no consideration on Our part other than a statement that it is without merit. The petition is hereby denied and the resolution appealed from, affirmed. With costs against petitioner. Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A, Bautista Angelo, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.The issue herein raised is not new.

It has already been settled contrary to the contention of petitioner, in a series of decisions of this Court in cases involving similar factual situations, wherein it was held in effect that goods and materials while in the army bases or installations in the Philippines are, in contemplation of law, on foreign soil (Saura Import & Export Co. v. Meer, G.R. No. L-2927, February 26, 1951); that one who acquires title to surplus equipment found in U.S. Bases or installations within the Philippines by purchase, and then brings them out of those bases or depots, is an importer; that the bringing out of such goods and materials, after acquiring titles to such goods, is importation in the legal sense (A. Soriano y Cia v. Collector of Internal Revenue, G.R. No. L-5896, August 31, 1955); and that the said materials removed from these bases and depots were, for purposes of the internal revenue taxes, purchased or received from "outside the Philippines." (Bisaya Land Transportation Co., Inc. v. Collector of Internal Revenue, G.R. Nos. L-12100 & L-11812, May 29, 1959).

MITSUBISHI CORPORATION — MANILA BRANCH vs. COMMISSIONER OF INTERNAL REVENUE, [C.T.A. CASE NO. 6139. December 17, 2003.]

Facts: Petitioner is the Philippine Branch of Mitsubishi Corporation, a corporation duly organized and existing under the laws of Japan. Through an Exchange of Notes between the Government of Japan and the Government of the Philippines, it was agreed that a loan amounting to Forty Billion Four Hundred Million Japanese Yen (Y40,400,000,000) will be extended to the Republic of the Philippines by the then Overseas Economic Cooperation Fund.

The Government of the Republic of the Philippines, will, itself or through its instrumentalities, assume all fiscal levies or taxes imposed in the Republic of the Philippines on Japanese firms and nationals operating as suppliers, contractors or consultants on and /or in connection with any income that may accrue from the supply of products of Japan and services of Japanese nationals to be provided under the Loan.

On June 21, 1991, the National Power Corporation (hereinafter, "NPC") and Mitsubishi Corporation, petitioner's head office in Japan, entered into a contract for the engineering, supply, construction, installation, testing and commissioning of one (1) x 300 MW Batangas Coal-Fired Thermal Power Project II at Calaca, Batangas.

The Calaca II Project was completed by the petitioner on December 2, 1995 butwas only accepted by NPC on January 31, 1998.

On July 15, 1998, petitioner filed its Income Tax Return for the fiscal year ended March 31, 1998 with the Bureau of Internal In the return, petitioner (being the Manila Branch of Mitsubishi Corporation) reported an income tax due of P90,481,711.00.

On September 7, 1998, the respondent issued Bureau of Internal Revenue Ruling No. DA-407-98 (Exhibit K) where it held that "Mitsubishi has no liability for income tax and other taxes and fiscal levies since the said taxes were assumed by the Philippine Government."

On June 30, 2000, petitioner filed an administrative claim for refund and/or tax credit with respondent in the amount of P52,612,812.00, representing its erroneously paid income taxes in the amount of P44,288,712 and erroneously paid branch profit remittance tax in the amount of P8,324,100.00 corresponding to the OECF-funded portion of its Calaca II Project.

On July 13, 2000, petitioner, in order to suspend the running of the two-year period within which to file a judicial claim for refund, filed the instant petition for review pursuant to Section 229 of the Tax Code.

ISSUE: Whether or not Mitsubishi is entitled to tax refunds.

Ruling: YES. There was an erroneous payment of the subject taxes by petitioner for the reason that said taxes are to be assumed by the Government of the Philippines through its executing agency, the NPC.

As defined in Black's Law Dictionary, 6th Edition, the word "assume" means "to take on, become bound, or put oneself in place of another as to an obligation or liability". As can be gleaned from the definition, the Government of the Philippines, through NPC, binds itself to shoulder the tax obligations and liabilities of petitioner.

Therefore, the income tax and BPRT payments made by petitioner to respondent when such payments should have been made by the NPC, undoubtedly, put petitioner's case in the operation of Section 229 of the Tax Code as one involving erroneous payment.

A careful reading of the provisions of the Exchange of Notes will show that it is the intention of the two governments not to use the proceeds of the loan in the payment of all fiscal levies or taxes imposed by the Philippines. In view thereof, we believe that to deny petitioner's claim for refund would violate the covenant that the funded amount should not be subject to any taxes.

TOLENTINO VS. SECRETARY OF FINANCE, (235 SCRA 630, 249 SCRA 628)Facts: There are various suits challenging the constitutionality of RA 7716 on various grounds. The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code.

Among the Petitioners was the Philippine Press Institute which claim that R.A. 7716 violates their press freedom and religious liberty, having removed them from the exemption to pay Value Added Tax. It is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those granted to others, the law discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional." PPI argued that the VAT is in the nature of a license tax.

Issue: Whether or not the purpose of the VAT is the same as that of a license tax.

Ruling: A license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to others, such

those selling goods, is valid, its application to the press or to religious groups, such as the Jehovah’s Witnesses, in connection with the latter’s sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put it, “it is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax on him for delivering a sermon.”

The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution.

VILLEGAS VS, HIU CHIONG TSAI PAO HOGR L-29646, 10 November 1978

Facts: The Municipal Board of Manila enacted Ordinance 6537 requiring aliens (except those employed in the diplomatic and consular missions of foreign countries, in technical assistance programs of the government and another country, and members of religious orders or congregations) to procure the requisite mayor’s permit so as to be employed or engage in trade in the City of Manila. The permit fee is P50, and the penalty for the violation of the ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or both.

Issue: Whether the ordinance imposes a regulatory fee or a tax.

Held: The ordinance’s purpose is clearly to raise money under the guise of regulation by exacting P50 from aliens who have been cleared for employment. The amount is unreasonable and excessive because it fails to consider difference in situation among aliens required to pay it, i.e. being casual, permanent, part-time, rank-and-file or executive [ The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus deprived of their rights to life, liberty and property and therefore violates the due process and equal protection clauses of the Constitution. Further, the ordinance does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion, thus conferring upon the mayor arbitrary and unrestricted powers. ]

MANILA TIMES PUB vs CIR – NO DIGEST

SHELL CO. VS. VANOGR L-6093, 24 February 1954Facts: The municipal council of Cordova, Cebu adopted Ordinance 10 (1946) imposing an annual tax of P150 on occupation or the exercise of the privilege of installation manager; Ordinance 9 (1947) imposing an annual tax of P40 for local deposits in drums of combustible and inflammable materials and an annual tax of P200 for tin can factories; and Ordinance 11 (1948) imposing an annual tax of P150 on tin can factories having a maximum annual output capacity of 30,000 tin cans. Shell Co., a foreign corporation, filed suit for the refund of the taxes paid by it, on the ground that the ordinances imposing such taxes are ultra vires.

Issue: Whether Ordinance 10 is discriminatory and hostile because there is no other person in the locality who exercise such designation or occupation.

Held: The fact that there is no other person in the locality who exercises such a “designation” or calling does not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation named or designated as “installation manager.”

PUNSALAN VS. MANILAGR L-4817, 26 May 1954

Facts: Ordinance 3398 was enacted pursuant to paragraph 1 of Section 18 ofthe Revised Charter of the City of Manila, imposing a municipal occupation tax on persons exercising various professions in the city. Various professionals filed suit to annul the ordinance and the provision of law authorizing the enactment of the ordinance, and to call for the refund collected taxes under the ordinance.

Issue: Whether the Ordinance violates the equal protection clause.

Held: The legislature may, in its discretion, select what occupation shall be taxed, and in the exercise of that discretion it may tax all, or it may select for taxation certain classes and leave the other untaxed. Manila, as the seat of the National Government and with a population and volume of trade many times that of any other Philippine city or municipality, offers a more lucrative field for the practice of the professions, so that it is but fair that the professionals in Manila be made to pay a higher occupation tax than their brethen in the provinces. The ordinance imposes the tax upon every person “exercising” or “pursuing” any of the occupation named in the ordinance, and does not make any distinction between professional having offices in Manila and outsiders who practice their profession therein. What constitutes exercise or pursuit of a profession in the city is a matter of judicial determination. The Ordinance does not violate the equal protection clause.

PEPSI-COLA BOTTLING CO. VS. CITY OF BUTUANGR L-22814, 28 August 1968

Facts: Ordinance 110 was enacted by the City of Butuan imposing a tax of P0.10 per case of 24 bottles of softdrinks or carbonated drinks. The tax was imposed upon dealers engeged in selling softdrinks or carbonated drinks. When Ordinance 110, the tax was imposed upon an agent or consignee of any person, association, partnership, company or corporation engaged in selling softdrinks or carbonated drinks, with “agent or consignee” being particularly defined on the inserted provision Section 3-A. In effect, merchants engaged in the sale of softdrinks, etc. are not subject to the tax unless they are agents or consignees of another dealer who must be one engaged in business outside the City. Pepsi-Cola Bottling Co. filed suit to recover sums paid by it to the city pursuant to the Ordinance, which it claims to be null and void.

Issue: Whether the Ordinance is discriminatory.

Held: The Ordinance, as amended, is discriminatory since only sales by “agents or consignees” of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of producers or merchants established outside the city, would be exempt from the tax. The classification made in the exercise of the authority to tax, to be valid must be reasonable, which would be satisfied if the classification is based upon substantial distinctions which makes real differences; these are germane to the purpose of legislation or ordinance; the classification applies not only to present conditions but also to future conditions substantially identical to those of the present; and the classification applies equally to all those who belong to the same class. These conditions are not fully met by the ordinance in question.

ORMOC SUGAR VS. TREASURER OF ORMOC CITYGR L-23794, 17 February 1968

Facts: In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on any and all productions of centrifuga sugar milled at the Ormoc Sugar Co. Inc. in Ormoc City a municipal tax equivalent to 1% per export sale to the United States and other foreign countries. The company paid the said tax under protest. It subsequently filed a case seeking to invalidate the ordinance for being unconstitutional.

Issue: Whether the ordinance violates the equal protection clause.

Held: The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar Co. Inc. and none other. At the time of the taxing ordinance’s enacted, the company was the only sugar central in Ormoc City. The classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central, of the same class as the present company, from the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to the company as the entity to be levied upon.

CIR VS SC JOHNSON & SON, INCS AND CA [G.R. No. 127105.  June 25, 1999]

Respondent, JOHNSON AND SON, INC  a domestic corporation organized and operating under the Philippine laws, entered into a license agreement with SC Johnson and Son, United States of America (USA), a non-resident foreign corporation based in the U.S.A. pursuant to which the [respondent] was granted the right to use the trademark, patents and technology owned by the latter including the right to manufacture, package and distribute the products covered by the Agreement and secure assistance in management, marketing and production from SC Johnson and Son, U. S. A.

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

The CTA ruled against CIR and ordered that a tax credit be issued in favor of SC Johnson and Son, Inc. Unpleased with the decision, the CIR filed an appeal to the CA which subsequently affirmed in toto the decision of the CTA. Hence, an appeal on certiorari was filed to the SC.

THE MAIN ISSUE:

WON SC JOHNSON AND SON,USA  IS ENTITLED TO THE MOST FAVORED NATION TAX RATE OF 10% ON ROYALTIES AS PROVIDED IN THE RP-US TAX TREATY IN RELATION TO THE RP-WEST GERMANY TAX TREATY.

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

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

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

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

PAL V. SEC OF FINANCEGR No. 115852; 30 October 1995

F A C T S: The Value-Added Tax [VAT] is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code.

These are various suits for certiorari and prohibition challenging the constitutionality of RA 7716:

In the case at bar, PAL attacks the formal validity of Republic Act No. 7716. PAL contends that it violates Art. VI, Section 26[1] which provides that "Every bill passed by Congress shall embrace only one subject which shall be expressed in the title thereof." It is contended that neither H. No. 11197 nor S. No. 1630 provided for removal of exemption of PAL transactions from the payment of the VAT and that this was made only in the Conference Committee bill which became Republic Act No. 7716 without reflecting this fact in its title.

The title of Republic Act No. 7716 is:

AN ACT RESTRUCTURING THE VALUE-ADDED TAX [VAT] SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES.

Furthermore, section 103 of RA 7716 states the following:

Section 103. Exempt Transactions.- The following shall be exempt from the value-added tax:

[q] Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66, 529, 972, 1491, 1590.

The effect of the amendment is to remove the exemption granted to PAL, as far as the VAT is concerned.

Philippine Airlines [PAL] claims that its franchise under P.D. No. 1590 which makes it liable for a franchise tax of only 2% of gross revenues "in lieu of all the other fees and charges of any kind, nature or description, imposed, levied, established, assessed or collected by any municipal, city, provincial, or national authority or government agency, now or in the future," cannot be amended by Rep. Act No. 7716 as to make it [PAL] liable for a 10% value-added tax on revenues, because Sec. 24 of P.D. No. 1590 provides that PAL's franchise can only be amended, modified or repealed by a special law specifically for that purpose.

I S S U E: Whether or not this amendment of Section 103 of the NIRC is fairly embraced in the title of Republic Act No. 7716, although no mention is made therein of P. D. No. 1590

H E L D: The court ruled in in the affirmative. The title states that the purpose of the statute is to expand the VAT system, and one way of doing this is to widen its base by withdrawing some of the exemptions granted before. To insist that P. D. No. 1590 be mentioned in the title of the law, in addition to Section 103 of the NIRC, in which it is specifically referred to, would be to insist that the title of a bill should be a complete index of its content.

The constitutional requirement that every bill passed by Congress shall embrace only one subject which shall be expressed in its title is intended to prevent surprise upon the members of Congress and to inform the people of pending legislation so that, if they wish to, they can be heard regarding it. If, in the case at bar, petitioner did not know before that its exemption had been withdrawn, it is not because of any defect in the title but perhaps for the same reason other statutes, although published, pass unnoticed until some event somehow calls attention to their existence.

Republic Act No. 7716 expressly amends PAL's franchise [P. D. No. 1590] by specifically excepting from the grant of exemptions from the VAT PAL's exemption under P. D. No. 1590. This is within the power of Congress to do under Art. XII, Section 11 of the Constitution, which provides that the grant of a franchise for the operation of a public utility is subject to amendment, alteration or repeal by Congress when the common good so requires.

The PPI asserts that it does not really matter that the law does not discriminate against the press because "even nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional." PPI cites in support of this assertion the following statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L.Ed 1292 (1943): The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the First Amendment is not so restricted. A license tax certainly does not acquire constitutional validity because it classifies the privileges protected by the First Amendment along with the wares and merchandise of hucksters and peddlers and treats them all alike. Such equality in treatment does not save the ordinance. Freedom of press, freedom of speech, freedom of religion are in preferred position.

The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to others, such those selling goods, is valid, its application to the press or to religious groups, such as the Jehovah’s Witnesses, in connection with the latter’s sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax on him for delivering a sermon."

A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which invalidated a city ordinance requiring a business license fee on those engaged in the sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by the American Bible Society without retraining the free exercise of its right to propagate.

The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution.

Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the sales are used to subsidize the cost of printing copies which are given free to those who cannot afford to pay so that to tax the sales would be to increase the price, while reducing the volume of sale. Granting that to be the case, the resulting burden on the exercise of religious freedom is so incidental as to make it difficult to differentiate it from any other economic imposition that might make the right to disseminate religious doctrines costly. Otherwise, to follow the petitioner’s argument, to increase the tax on the sale of vestments would be to lay an impermissible burden on the right of the preacher to make a sermon.

On the other hand the registration fee of P1,000.00 imposed by §107 of the NIRC as amended by §7 of R.A. No. 7716, although fixed in amount, is really just to pay the expenses of registration and enforcement of provisions such as those relating to accounting in §108 of the NIRC. That the PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the payment of this fee because it also sells some copies. At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of Internal Revenue.

AMERICAN BIBLE SOCIETY VS. MANILAGR L-9637, 30 April 1957

Facts: In the course of its ministry, the Philippine agency of the American Bible Society has been distributing and selling bibles and/or gospel portions thereof throughout the Philippines and translating the same into several Philippine dialets. The acting City Treasurer of Manila required the society to secure the corresponding Mayor’s permit and municipal license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and filed suit questioning the legality of the ordinances under which the fees are being collected.

Issue: Whether the municipal ordinances violate the freedom of religious profession and worship.

Held: A tax on the income of one who engages in religious activities is different from a tax on property used or employed in connection with those activities. It is one thing to impose a tax on the income or property of a preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Even if religious groups and the press are not altogether free from the burdens of the government, the act of distributing and selling bibles is purely religious and does not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price of bibles, etc. are a little higher than actual cost of the same does not necessarily mean it is already engaged in business for profit. Ordinance 2529 and 3000 are not applicable to the Society.

CAGAYAN ELECTRIC POWER & LIGHT CO. VS. COMMISSIONERGR L-60126, 25 September 1985

Facts: Cagayan Electric is a holder of a legislative franchise under Republic Act 3247 where payment of 3% tax on gross earnings is in lieu of all taxes and assessments upon privileges, etc. In 1968, RA 5431 amended the franchise by making all corporate taxpayers liable for income tax except those indicated in paragraph (c) (1) of Section 24 of the Tax Code. In 1969, through RA 6020, its franchise was extended to two other towns and the tax exemption was reenacted. In 1973, the Commissioner required the company to pay deficiency income taxes for 1968 to 1971.

Issue: Whether the withdrawal of the franchise’s tax exemption violates the non-impairment clause of the Constitution.

Held: Congress could impair the company’s legislative franchise by making it liable for income tax. The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires. RA 3247 itself provides that the franchise is subject to amendment, etc. by Congress. The enactment of RA 5431 had the effect of withdrawing the company’s exemption from income tax. The exemption was restored by the enactment of RA 6020. The company is liable only for the income tax for the period of 1 January to 3 August 1969.

THE MANILA RAILROAD COMPANY, vs. JAMES J. RAFFERTY, as COLLECTOR OF INTERNAL REVENUE

The plaintiff alleged that the said sum had been illegally assessed and collected by the defendant as internal-revenue tax during the years 1915 and 1916; that by virtue of its charter, subsection 12 of section 1, in relation with subsection 10 of Act No. 1510, it was relieved from all taxes of every name and nature - municipal, provincial or central - upon its capital stock, franchise, right of way, earnings, or other property owned or operated by it, except those mentioned in said charter (Act No. 1510); that the amount which the defendant collected and for which the present action was brought was not included as a part of the taxes which the plaintiff was required to pay under its charter. The defendant admitted that the amount collected was collected as internal-revenue tax upon certain oil and coal which the plaintiff had imported into the Philippine Islands, for its use.

All of the facts alleged by the plaintiff were, by stipulation of the parties, admitted to be true. The defendant, however, alleged as a special defense, in justification of his collection of said sum, that "during the period covered by the complaint the plaintiff imported into the Philippine Islands at various times, various quantities of coal and oil, which, by virtue of the provisions of subdivision C of section 4 of the Act of Congress of October 3, 1913, became subject, upon importation into the Philippine Islands, to the payment of the internal-revenue tax imposed by the Philippine Government upon like articles manufactured and consumed in the Philippine Islands."

Upon the issue thus presented the Honorable James A. Ostrand, judge, in a carefully prepared opinion, held that, notwithstanding the provisions of said Act of Congress invoked by the defendant, subsection 12 of section 1 of Act No. 1510 of the Philippine Legislature is in full force and effect, and, upon that theory, rendered a judgment in favor of the plaintiff and against the defendant for the sum of P83,159.63, without any finding as to costs. From that judgment the defendant appealed.

The appellant alleges that the lower court committed an error in holding that subsection 12 of section 1 of Act No. 1510 of the Philippine Legislature is still in full force and effect and in not holding that section 4, subdivision C, of the Act of Congress of October 3, 1913, did apply to coal and oil imported into the Philippine Islands by the plaintiff for the use in the operation of its lines.

On the 7th day of July, 1906, by an Act of the Philippine Legislature, a special charter was granted to the Manila Railroad Company. Subsection 12 of section 1 of said Act (No. 1510) provides that:

In consideration of the premises and of the granting of this concession or franchise, there shall be paid by the grantee to the Philippine Government, annually, for the period of thirty (30) years from the date hereof, an amount equal to one-half (½) of one per cent of the gross earnings of the grantee in respect of the lines covered hereby for the preceding year; after said period of thirty (30) years, and for the fifty (50) years thereafter, the amount so to be paid annually shall be an amount equal to one and one-half (1 ½) per cent of such gross earnings for the preceding year; and after such period of eight (80) years the percentage and amount so to be paid annually by the grantee shall be fixed by the Philippine Government.

Such annual payments, when promptly and fully made by the grantee, shall be in lieu of all taxes of every name and nature. - municipal, provincial, or central - upon its capital stock, franchises, right of way, earnings, and all other property owned or operated by the grantee under this concession or franchise.

Subsection 16 of section 1 of said charter (Act No. 1510) provided that: "This franchise or concession is subject to amendment, alternation, or repeal by the Congress of the United States. . . .

On the 5th day of August, 1909, the Congress of the United States passed an Act entitled "An Act to raise revenue for the Philippine Islands, and for other purposes." Section 24 of said Act of Congress provides:

That in addition to the taxes imposed by this Act there shall be levied and collected on goods, wares, or merchandise when imported into the Philippine Islands from countries other than the United States the internal revenue tax imposed by the Philippine Government on like articles manufactured and consumed in the Philippine Islands or shipped thereto, for consumption therein, from the United States. (Vol. 7, Pub. Laws of the P. I., p. 416)

On the 3d day of October, 1913, the Congress of the United States passed an Act entitled "An Act to reduce tariff duties and to provide revenues for the Government and for other purposes." In subsection C of section IV of said Act there is found the following provision:

That in addition to the customs taxes imposed in the Philippine Islands, there shall be levied, collected, and paid therein upon articles, goods, wares, or merchandise imported into the Philippine Islands from countries other than the United States, the internal-revenue tax imposed by the Philippine Government on like articles manufactured and consumed in the Philippine Islands or shipped thereto for consumption therein, from the United States. (Vol. 38, Pub. Laws of the U.S., p. 193.)

In pursuance of the above-quoted provisions of the said Acts of Congress, the Philippine Legislature enacted Act No. 2432 and subsequent Acts amendatory thereof and supplementary thereto, which placed an internal-revenue tax upon coal and oil imported into the Philippine Islands, and by virtue of said laws the defendant collected from the plaintiff, as internal-revenue tax upon coal and oil, the amount in question, which was paid under protest.

In view of the foregoing quoted provision of the charter of the plaintiff in relation with said Acts of Congress, the question is whether or not said Acts of Congress can be regarded as an amendment alteration, or repeal of subsection 12, section 1, of Act No. 1510 above-quoted.

It will be noted that Act No. 1510 is a private charter granted to the plaintiff; that said Acts of Congress are general laws. A careful reading of said Acts of Congress fails to disclose any reference to, or any attempt to amend, alter, or repeal, said special charter (Act No. 1510); and no other Act of Congress has been called to our attention, which in any way attempts to amend, alter, or repeal said Act (No. 1510). And it must be borne in mind that said charter (Act No. 1510) is subject to amendment, alteration, or repeal only by an Act of the Congress of the United States.

ISSUE: May a special law or charter be amended, altered or repealed by a general law, by implication?

HELD: That question has been answered in the negative so many times that, except for the fact that it has not been raised here before, it would scarcely be necessary to cite authorities.

Repeals of laws by implication are not favored; and the mere repugnance between two statutes should be very clear in order to warrant the court in holding that the later in time repeals the other, when it does not in terms purport to do so. (Cooley's Constitutional Limitations [6th Ed.], p. 182, and cases cited; Sutherland Stat. Construction, Vol. 1, p. 465 [2d Ed.]; Kinney vs. Mallory, 3 Ala., 626; Banks vs. Yolo County, 104 Cal., 258; People vs. Pacific Import Co., 130 Cal., 442; Reese vs. Western Union etc. Co., 123 Ind., 294; 7 L.R.A., 583; Cope vs. Cope, 137 U.S., 682.)

In the case of McKenna vs. Edmundstone (91 N.Y., 231) the court said: "It is well settled that a special and local statute, providing for a particular case or class of cases, is not repealed by a subsequent statute, general in its terms, provisions and application, unless the intent to repeal or alter is manifest, although the terms of the general act are broad enough to include the cases embraced in the special law." That rule is but the application of the larger rule that a statute is not to be deemed repealed, by implication, by a subsequent Act upon the same subject unless the two are manifestly inconsistent

with, and repugnant to, each other, or unless a clear intention is disclosed on the face of the later statute to repeal the former one.

It is a canon of statutory construction that a later statute, general in its terms and not expressly repealing a prior special statute, will ordinarily not affect the special provisions of such earlier statute. (Steamboat Company vs. Collector, 18 Wall. [U.S.], 478; Cass County vs. Gillett, 100 U. S., 585; Minnesota vs. Hitchcock, 185 U.S., 373, 396.)

Where there are two statutes, the earlier special and the later general - the terms of the general broad enough to include the matter provided for in the special - the fact that one is special and the other is general creates a presumption that the special is to be considered as remaining an exception to the general, one as a general law of the land, the other as the law of a particular case. (State vs. Stoll, 17 Wall. [U.S.], 425.)

Said Act No. 1510 is a charter granted to the plaintiff company by the Government of the Philippine Islands. It is in the nature of a private contract. It is not a law constituting a part of the machinery of the general government. It was adopted after careful consideration of the private rights of the plaintiff in relation with the resultant benefits to the State. It stands upon a different footing from the general law. When a charter is granted, it constitutes a certain property right. Charters or special laws, such as Act No. 1510, stand upon a different footing from general laws. Once granted, a charter becomes a private contract and cannot be altered nor amended except by consent of all concerned, unless that right is expressly reserved. (Dartmouth College vs. Woodword, 4 Wheat., 578.) The reason for the rule is clear. The Legislature, in passing a special charter, have their attention directed to the special facts and circumstances which the Act or charter is intended to meet. The Legislature consider and make provision for all the circumstances of the particular case. The Legislature having specially considered all of the facts and circumstances in the particular case in granting a special charter, it will not be considered that the Legislature, by adopting a general law containing provisions repugnant to the provisions of the charter, and without making any mention of its intention to amend or modify the special act. (Lewis vs. Cook County, 74 Ill. App., 151; Philippine Railway Co. vs. Nolting, 34 Phil., 401.)

While the Acts of Congress referred to above contain a provision that all laws inconsistent with their provisions are repealed, yet they expressly provide that they shall not affect any accrued right. The plaintiff had enjoyed the rights granted under Act No. 1510 for a number of years. Such rights were accrued rights. An examination of said Acts of Congress not only fails to disclose any express intention to amend, alter, or repeal Act No. 1510, or any of its provisions, but upon the contrary, we find that the said Acts of Congress expressly protect all rights theretofore accrued. From all of the foregoing we have reached the following conclusions:

1. That Act No. 1510 has not been amended, altered, or repealed by any Act of Congress;

2. That the plaintiff was relieved by Act No. 1510 from the payment of the internal-revenue tax collected by the defendant in the present case;

3. The amount in question was, therefore, illegally collected; and

4. That the taxes in question were paid under protest. Therefore, and for the reason given, the judgment of the lower court is hereby affirmed, with costs. So ordered.

GEORGE H. GANAWAY vs. J. W. QUILLEN, Warden of Bilibid Prison

The petitioner in this original action in habeas corpus asks that he be released from Bilibid Prison because of imprisonment for debt in a civil cause growing out if a contract. The return of the Attorney-General alleges as the reason for petitioner's incarceration in Bilibid Prison an order of the Hon. George R. Harvey, judge of First Instance of the city of Manila, issued under authority of Chapter XVII of the code if Civil Procedures. As standing alone the petition for habeas corpus was fatally defective in its allegations, this court on its motion, ordered before it the record of the lower court in the case entitled Thomas Casey et al. vs. George H. Ganaway.

The complaint in the civil case last mentioned is grounded on a contract, and asks in effect for an accounting. That this is true is shown by the phraseology of the complaint which repeatedly speaks of an agreement entered into by the plaintiffs and the defendants, by Exhibit A, relating to the publication of a book named "Forbes' Memoirs," and which describes itself as "this contract," by the receipt attached to Exhibit A, which mentions "the contract," and by the order of the trial judge on demurrer which says that "the plaintiffs allege a contract with the defendant and a breach of the contract by the defendant.

The constitutional prohibition in effect in the Philippine Islands is in the same category ass those States in which imprisonment for debt is absolutely prohibited. The Constitution of the Philippine Islands, unlike some States in the American Union, makes no exception in cases of fraud. The prohibition in the Philippine Bill, reproduced in the Jones Law, is "that no person shall be imprisoned for debt." It should be given the same interpretation which similar provisions have received in the United States.

Abolition of imprisonment for debt was brought about by the force of public opinion which looked with abhorrence on statutory provision which permitted the cruel imprisonment of debtors. The people sought to prevent the use of the power of the State to coerce the payment of debts. The control of the creditor over the person of his debtor was abolished by human statutory and constitutional provisions.

One of the first States to adopt the constitutional provision in the absolute form appearing in this jurisdiction was Alabama. In the leading case of Carr vs. State of Alabama ([1895], 106 Ala., 35; 34 L. R. A., 634), the Supreme Court of Alabama held that a statute making it a misdemeanor for a person engaged in banking to receive a deposit of money or other thing of value knowing himself to be in failing circumstances or insolvent, and providing that upon conviction he shall be fined not less than double the amount of such deposit, one-half of which shall be paid to the depositor, but that payment to the depositor of the amount deposited with costs, before conviction, shall be a complete defense to any prosecution under the statute, was void. The court, speaking through the leader Justice McClellan, made the following observations:

The elimination of the exception as to frauds was a pregnant omission, which left the guaranty of immunity from imprisonment to the debtor to apply to all cases of debt, whether they involved fraud or not. So that the statute we are considering can derive no aid from the idea that the receipt of a deposit by a banker under the circumstances stated is a fraud, and hence that the transactions would constitute "a case of fraud", since even in such cases there can be no imprisonment for debt.

The imprisonment for debt" which the framers of constitutions embodying this provision doubtless had most prominently in mind was imprisonment upon process issuing in civil actions the object and sole purpose of which were the collections of debts. It was to remove the evils incident to the system of taking the debtor's person upon a capias ad satisfaciendum that this organic inhibition came primarily to be ordained. But the effect of its ordination has been to establish a public policy much broader in its influence upon legislation and operation upon judicial proceedings than would have sufficed for the eradication of the ills which attended upon the recovery, or attempted recovery, of debts by restrain of the debtor's person. This policy is inimical alike to the incarceration of a debtor as a means of coercing payment, and to his ,punishment by imprisonment for a failure to pay, at least when such failure results from inability.

The "debt" intended to be covered by the constitutional guaranty has a well-defined meaning. Organic provisions relieving from imprisonment for debt, were intended to prevent the commitment for debtors to prison for liabilities arising from actions ex contractu. The inhibition was never meant to conclude damages arising in actions ex delicto, for the reason that the damages recoverable therein do not arise from any contract entered into between the parties, but are imposed upon the defendant for the wrong he has done and are considered as a punishment therefor, nor to fines and penalties imposed by the courts in criminal proceedings as punishments for crime. (Freeman vs. U. S. [1910], 217 U.S., 539.) In this connection, it may be said that the reason for the decision of the Supreme Court of Georgia in the case of Harris vs. Bridges ( [1856], 57 Ga., 407), mainly relied upon by the Attorney-General, will be found to be because the action was one in tort.

The Code of Civil Procedure took effect on October 1, 1901; that is, prior to the enactment of the Philippine Bill. Chapter XVII of the Code is entitled "Arrest of Defendant." A comparison of the provisions of the Code of Civil Procedure in the Philippines with the Code of Civil Procedure of California shows clearly that the Philippine provisions on the subject of arrest of defendants were taken bodily from the California Code. However, the constitutional provision in California differs from ours because it declares that "no person shall be imprisoned for debt, in any civil action on mesne or final process, unless in cases fraud." We are, therefore, not bound by the decisions of the Supreme Court of California because, obviously, our basic constitutional provision must override any statutory provision in conflict therewith.

A quite similar question has been once before presented to this court. Two Chinese, under the firm name of Sang Kee, commenced an action in the Court of First Instance of the city of Manila against the Chinaman Tan Cong, to recover judgment for the sum of P30,000. The plaintiffs alleged in their petition, among other things, that on or about the first day of January, 1904, the defendant was employed by the plaintiffs as a general agent for their mercantile establishment; that the defendant had been requested to turn over the funds, personal property, stocks, etc., to the plaintiffs, but that he had refused to do so. The detention of the defendant was ordered by the Judge of First Instance. A petition for habeas corpus was presented to the Supreme Court, and in a learned decision, the vacation judge, Mr. Justice Johnson held that the provision of section 5 of the Philippine Bill expressly prohibited the imprisonment of citizens of the Philippine Islands in actions for the recovery of money in a cause of action arising on a contract, and ordered the release from imprisonment of the petitioner. We would now make the decision, just described, the authoritative decision of the Court sitting in banc. (See Tan Cong vs. Stewart (1907), 5 Off, Gaz., 365.[[1]])

It is clear that the action ending in the Court of First Instance of the city of Manila in which Thomas Casey et al. are plaintiffs and George H. Ganaway is the defendant, is one predicated on an obligation arising upon a contract. Consequently, the imprisonment of the petitioner is in contravention of organic law. It is for us in the Philippine Islands to let no obstacle interfere with a reasonable enforcement of the enlightened principle of free government relating to imprisonment for debt. It may, however, be appropriate to remark that our holding need not be taken as going to the extent of finding Chapter XVII of the Code of Civil Procedure invalid and should be understood as limited to the facts before us and as circumscribed by the various exception to the constitutional prohibition.

This court has, heretofore, in a minute order, directed the discharge from imprisonment of the petitioner, and this decision is in explanation thereof. The minute order will, therefore, stand as the authoritative adjudication of the court. Costs de officio. So ordered.

TAN VS. DEL ROSARIOFACTS: The constitutionality of the Simplified Net Income Taxation Scheme or R.A. 7496 is questioned in this petition, a consolidation of two special civil actions for prohibition.

Issue 1: WoN R.A. 7496 is unconstitutional for violating the principle that taxation shall be uniform and equitable Issue 2: WoN public respondents exceeded their authority when they promulgated Section 6, Revenue Regulations No. 2-93 to carry our R.A. 7496

Ruling 1: NO. Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities. Uniformity does not forefend classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class.

2: NO. Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so modified by Republic Act No. 7496 on basically the extent of allowable deductions applicable to all individual income tax payers on their non-compensation income. There is no evident intention of the law, either before or after the amendatory legislation to place in an unequal footing or in significant variance the income tax treatment of professionals who practice their respective profession individually and of those who do it through a general professional partnership.

EASTERN THEATRICAL CO. VS. ALFONSOGR L-1104, 31 May 1944

Facts: The municipal board of Manila enacted Ordinance 2958 (series of 1946) imposing a fee on the price of every admission ticket sold by cinematograph theaters, vaudeville companies, theatrical shows and boxing exhibitions, in addition to fees imposed under Sections 633 and 778 of Ordinance 1600. Eastern Theatrical Co., among others, question the validity of ordinance, on the ground that it is unconstitutional for being contrary to the provisions on uniformity and equality of taxation and the equal protection of the laws inasmuch as the ordinance does not tax other kinds of amusement, such as race tracks, cockpits, cabarets, concert halls, circuses, and other places of amusement.

Issue: Whether the ordinance violates the rule on uniformity and equality of taxation.

Held: Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; and the theater companies cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those no included in the ordinance. The fact that some places of amusement are not taxed while others, like the ones herein, are taxed is no argument at all against the equality and uniformity of the tax imposition.

GARCIA V. EXECUTIVE SECRETARY

FACTS: The President issued an EO which imposed, across the board, including crude oil and other oil products, additional duty ad valorem. The Tariff Commission held public hearings on said EO and submitted a report to the President for consideration and appropriate action. The President, on the other hand issued an EO which levied a special duty of P0.95 per liter of imported crude oil and P1.00 per liter of imported oil products.

ISSUES: WoN the President may issue an EO which is tantamount to enacting a bill in the nature of revenue-generating measures

RULING: Yes. The Court said that although the enactment of appropriation, revenue and tariff bills is within the province of the Legislative, it does not follow that EO in question, assuming they may be characterized as revenue measure are prohibited to the President, that they must be enacted instead by Congress. Section 28 of Article VI of the 1987 Constitution provides: “The Congress may, by law authorize the President to fix… tariff rates and other duties or imposts…” The relevant Congressional statute is the Tariff and Customs Code of the Philippines and Sections 104 and 401, the pertinent provisions thereof.

CIR VS. CA G.R. NO. 115349

F A C T S: Private respondent, Ateneo de Manila University, is a non-stock, non-profit educational institution with auxiliary units and branches all over the country. The Institute of Philippine Culture (IPC) is an auxiliary unit with no legal personality separate and distinct from private respondent. The IPC is a Philippine unit engaged in social science studies of Philippine society and culture. Occasionally, it accepts sponsorships for its research activities from international organizations, private foundations and government agencies. On 8 July 1983, private respondent received from CIR a demand letter dated 3 June 1983, assessing private respondent the sum of P174,043.97 for alleged deficiency contractor’s

tax, and an assessment dated 27 June 1983 in the sum of P1,141,837 for alleged deficiency income tax, both for the fiscal year ended 31 March 1978. Denying said tax liabilities, private respondent sent petitioner a letter-protest and subsequently filed with the latter a memorandum contesting the validity of the assessments. After some time petitioner issued a final decision dated 3 August 1988 reducing the assessment for deficiency contractor’s tax from P193,475.55 to P46,516.41, exclusive of surcharge and interest. The lower courts ruled in favor of respondent. Hence this petition. Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo de Manila University "falls within the definition" of an independent contractor and "is not one of those mentioned as excepted"; hence, it is properly a subject of the three percent contractor's tax levied by the foregoing provision of law. Petitioner states that the "term 'independent contractor' is not specifically defined so as to delimit the scope thereof, so much so that any person who . . . renders physical and mental service for a fee, is now indubitably considered an independent contractor liable to 3% contractor's tax."

I S S U E: Whether or not private respondent falls under the purview of independent contractor pursuant to Section 205 of the Tax Code and is subject to a 3% contractors tax.

H E LD: The petition is unmeritorious. The term "independent contractors" include persons(juridical or natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. Petitioner Commissioner of Internal Revenue erred in applying the principles of tax exemption without first applying the well-settled doctrine of strict interpretation in the imposition of taxes. It is obviously both illogical and impractical to determine who are exempted without first determining who are covered by the aforesaid provision. The Commissioner should have determined first if private respondent was covered by Section 205, applying the rule of strict interpretation of laws imposing taxes and other burdens on the populace, before asking Ateneo to prove its exemption therefrom.

Interpretation of Tax Laws.

The doctrine in the interpretation of tax laws is that “(a) statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. . . . (A) tax cannot be imposed without clear and express words for that purpose. Accordingly, the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication.” In case of doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import. Ateneo’s Institute of Philippine Culture never sold its services for a fee to anyone or was ever engaged in a business apart from and independently of the academic purposes of the university. Funds received by the Ateneo de Manila University are technically not a fee. They may however fall as gifts or donations which are “tax-exempt” as shown by private respondent’s compliance with the requirement of Section 123of the National Internal Revenue Code providing for the exemption of such gifts to an educational institution.

Transaction of IPC not a contract of sale nor a contract for a piece of work.The transactions of Ateneo’s Institute of Philippine Culture cannot be deemed either as a contract of sale or a contract for a piece of work. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. In the case of a contract for a piece of work, “the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. . . . If the contractor agrees to produce the work from materials furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. . . .” In the case at bench, it is clear from the evidence on record that there was no sale either of objects or services because, as adverted to earlier, there was no transfer of ownership over the research data obtained or the results of research projects undertaken by the Institute of Philippine Culture.

ABRA VS. HERNANDOGR L-49336, 31 August 1981

Facts: The provincial assessor made a tax assessment on the properties of the Roman Catholic Bishop of Bangued. The bishop claims tax exemption from real estate tax, through an action for declaratory relief. A summary judgment was made granting the exemption without hearing the side of the Province of Abra.

Issue: Whether the properties of the Bishop of Bangued are tax-exempt.

Held: The 1935 and the 1973 Constitutions differ in language as to the exemption of religious property from taxes as tehy should not only be “exclusively” but also “actually” and “directly” used for religious purposes. Herein, the judge accepted at its face the allegation of the Bishop instead of demonstrating that there is compliance with the constitutional provision that allows an exemption. There was an allegation of lack of jurisdiction and of lack of cause of action, which should have compelled the judge to accord a hearing to the province rather than deciding the case immediately in favor of the Bishop. Exemption from taxation is not favored and is never presumed, so that if granted, it must be strictly construed against the taxpayer. There must be proof of the actual and direct use of the lands, buildings, and improvements for religious (or charitable) purposes to be exempted from taxation. The case was remanded to the lower court for a trial on merits.

ABRA VALLEY COLLEGE VS. AQUINOGR L-39086, 15 June 1988

Facts: Abra Valley College rents out the ground floor of its college building to Northern Marketing Corporation while the second floor thereof is used by the Director of the College for residential purposes. The municipal and provincial treasurers served upon the College a “notice of seizure” and later a “notice of sale” due to the alleged failure of the College to pay real estate taxes and penalties thereon. The school filed suit to annul said notices, claiming that it is tax-exempt.

Issue: Whether the College is exempt from taxes.

Held: While the Court allows a more liberal and non-restrictive interpretation of the phrase “exclusively ised for educational purposes,” 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. While the second floor’s use, as residence of the director, is incidental to education; the lease of the first floor cannot by any stretch of imagination be considered incidental to the purposes of education. The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution.

LUNG CENTER OF THE PHILIPPINES VS. QUEZON CITY AND CONSTANTINO ROSASG.R. No. 144104 June 29, 2004

FACTS:The Petitioner is a non-stock, non-profit entity which owns a parcel of land in Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. The ground floor is being leased to a canteen, medical professionals whom use the same as their private clinics, as well as to other private parties. The right portion of the lot is being leased for commercial purposes to the Elliptical Orchids and Garden Center. The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both paying and non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies from the government.

Petitioner filed a Claim for Exemption from realty taxes amounting to about Php4.5 million, predicating its claim as a charitable institution. The city assessor denied the Claim. When appealed to the QC-Local Board of Assessment, the same was dismissed. The decision of the QC-LBAA was affirmed by the Central Board of Assessment Appeals, despite the Petitioners claim that 60% of its hospital beds are used exclusively for charity.

ISSUE:Whether or not the Petitioner is entitled to exemption from realty taxes notwithstanding the fact that it admits paying clients and leases out a portion of its property for commercial purposes.

HELD:

The Court held that the petitioner is indeed a charitable institution based on its charter and articles of incorporation. As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution.

Despite this, the Court held that the portions of real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. (strictissimi juris) Moreover, P.D. No. 1823 only speaks of tax exemptions as regards to:

income and gift taxes for all donations, contributions, endowments and equipment and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung Center of the Philippines for the actual use and benefit of the Lung Center; and taxes, charges and fees imposed by the Government or any political subdivision or instrumentality thereof with respect to equipment purchases (expression unius est exclusion alterius/expressium facit cessare tacitum)

COMMISSIONER OF INTERNAL REVENUE v. YMCAG.R. No. 124043 October 14, 1998

Doctrine:– Rental income derived by a tax-exempt organization from the lease of its properties, real or personal, is not exempt from income taxation, even if such income is exclusively used for the accomplishment of its objectives.

– A claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, it must expressly be granted in a statute stated in a language too clear to be mistaken. Verba legis non est recedendum — where the law does not distinguish, neither should we.

– The bare allegation alone that one is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax. It must prove with substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes.

– The Court cannot change the law or bend it to suit its sympathies and appreciations. Otherwise, it would be overspilling its role and invading the realm of legislation. The Court, given its limited constitutional authority, cannot rule on the wisdom or propriety of legislation. That prerogative belongs to the political departments of government.

Facts:Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives.

YMCA earned income from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and from parking fees collected from non-members. Petitioner issued an assessment to private respondent for deficiency taxes. Private respondent formally protested the assessment. In reply, the CIR denied the claims of YMCA.

Issue:Whether or not the income derived from rentals of real property owned by YMCA subject to income tax

Held:Yes. Income of whatever kind and character of non-stock non-profit organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under the NIRC.

Rental income derived by a tax-exempt organization from the lease of its properties, real or personal, is not exempt from income taxation, even if such income is exclusively used for the accomplishment of its objectives.

Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions (Commissioner of Internal Revenue v. Court of Appeals, 271 SCRA 605, 613, April 18, 1997). Furthermore, a claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption “must expressly be granted in a statute stated in a language too clear to be mistaken” (Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue and Court of Appeals, G.R. No. 117359, p. 15 July 23, 1998).

Verba legis non est recedendum. The law does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it is used or disposed of. Where the law does not distinguish, neither should we.

Private respondent also invokes Article XIV, Section 4, par. 3 of the Constitution, claiming that it “is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income.” This is without merit since the exemption provided lies on the payment of property tax, and not on the income tax on the rentals of its property. The bare allegation alone that one is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax.

For the YMCA to be granted the exemption it claims under the above provision, it must prove with substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes. Unfortunately for respondent, the Court noted that not a scintilla of evidence was submitted to prove that it met the said requisites.

The Court appreciates the nobility of respondent’s cause. However, the Court’s power and function are limited merely to applying the law fairly and objectively. It cannot change the law or bend it to suit its sympathies and appreciations. Otherwise, it would be overspilling its role and invading the realm of legislation. The Court regrets that, given its limited constitutional authority, it cannot rule on the wisdom or propriety of legislation. That prerogative belongs to the political departments of government.