taxation batch 6 ft.docx

8/11/2019 Taxation Batch 6 FT.docx

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G.R. No. 104151 March 10, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.

COURT OF APPEALS, ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION and COURT OF TAX APPEALS, respondents.

G.R No. 105563 March 10, 1995

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,

vs.

COURT OF APPEALS COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS,respondents.

REGALADO,J.:

Before us for joint adjudication are two petitions for review on certiorariseparately filed by the Commissioner of Internal Revenue in

G.R. No. 104151, and by Atlas Consolidated Mining and Development Corporation in G.R. No. 105563, which respectively seek the

aside of the judgments of respondent Court of Appeals in CA-G.R. SP No. 25945 promulgated on February 12, 1992 1 and in CA-G.R.

SP No. 26087 promulgated on May 22, 1992. 2

Atlas Consolidated Mining and Development Corporation (herein also referred to as ACMDC) is a domestic corporation which owns

and operates a mining concession at Toledo City, Cebu, the products of which are exported to Japan and other foreign countries. On

April 9, 1980, the Commissioner of Internal Revenue (also Commissioner, for brevity), acting on the basis of the report of the

examiners of the Bureau of Internal Revenue (BIR), caused the service of an assessment notice and demand for payment of the

amount of P12,391,070.51 representing deficiency ad valorem percentage and fixed taxes, including increments, for the taxable year

1975 against ACMDC. 3

Likewise, on the basis. of the BIR examiner's report in another investigation separately conducted, the Commissioner had another

assessment notice, with a demand for payment of the amount of P13,531,466.80 representing the 1976 deficiency ad valorem and

business taxes with P5,000.00 compromise penalty, served on ACMDC on September 23, 1980. 4

ACMDC protested both assessments but the. same were denied, hence it filed two separate petitions for review in the Court of Tax

Appeals (also, tax court) where they were docketed as C.T.A. Cases Nos. 3467 and 3825. These two cases, being substantially

identical in most respects except for the taxable periods and the amounts involved, were eventually consolidated.

On May 31, 1991, the Court of Tax Appeals rendered a consolidated decision holding, inter alia, that ACMDC was not liable for

deficiency ad valorem taxes on copper and silver for 1975 and 1976 in the respective amounts of P11,276,540.79 and

P12,882,760.80 thereby effectively sustaining the theory of ACMDC that in computing the ad valorem tax on copper mineral, the

refining and smelting charges should be deducted, in addition to freight and insurance charges, from the London Metal Exchang e

(LME) price of manufactured copper.

However, the tax court held ACMDC liable for the amount of P1,572,637.48, exclusive of interest, consisting of 25% surcharge for

late payment of the ad valorem tax and late filing of notice of removal of silver, gold and pyrite extracted during certain periods, and

for alleged deficiency manufacturer's sales tax and contractor's tax.

The particulars of the reduced amount of said tax obligation is enumerated in detail in the dispositive portion of the questioned

judgment of the tax court, thus:

WHEREFORE, petitioner should and is hereby ORDERED to pay the total amount of the following:


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a) P297,900.39 as 25% surcharge on silver extracted during the period November 1, 1974 to December 31, 1975.

b) P161,027.53 as 25% surcharge on silver extracted for the taxable year 1976.

c) P315,027.30 as 25% surcharge on gold extracted during the period November 1, 1974 to December 31, 1975.

d) P260,180.55 as 25% surcharge on gold during the taxable year 1976.

e) P53,585.30 as 25% surcharge on pyrite extracted during the period November 1, 1974 to December 31, 1975.

f) P53,283.69 as 25% surcharge on pyrite extracted during the taxable year 1976.

g) P316,117.53 as deficiency manufacturer's sales tax and surcharge during the taxable year 1975; plus 14% interest from January

21, 1976 until fully paid as provided under Section 183 of P.D. No. 69.

h) P23,631.44 as deficiency contractor's tax and surcharge on the lease of personal property during the taxable year 1975; plus 14%

interest from January 21, 1976 until fully paid as provided under Section 183 of P.D. 69.

i) P91,883.75 as deficiency contractor's tax and surcharge on the lease of personal property during the taxable year 1976, plus 14%

interest from April 21, 1976 until fully paid as provided under. Section 183 of P.D. No. 69.

With costs against petitioner. 5

As a consequence, both parties elevated their respective contentions to respondent Court of Appeals in two separate petitions for

review. The petition filed by the Commissioner, which was docketed as CA-G.R. SP No. 25945, questioned the portion of the

judgment of the tax court deleting the ad valorem tax on copper and silver, while the appeal filed by ACMDC and docketed as CA-

G.R. SP No. 26087 assailed that part of the decision ordering it to pay P1,572,637.48 representing alleged deficiency assessment.

On February 12, 1992, judgment was rendered by respondent Court of Appeals in CA-G.R. SP No. 25945, dismissing the petition and

affirming the tax court's decision on the manner of computing thead valorem tax. 6 Hence, the Commissioner of Internal Revenue

filed a petition before- us in G.R. No. 104151, raising the sole issue of whether or not, in computing the ad valoremtax on copper,

charges for smelting and refining should also be deducted, in addition to freight and insurance costs, from the price of copperconcentrates.

On May 22, 1992, judgment was likewise rendered by the same respondent court in CA-G.R. SP No. 26087, modifying the judgment

of the tax court and further reducing the tax liability of ACMDC by deleting therefrom the following items:

(1) the award under paragraph (a) of P297,900.39 as 25% surcharge on silver extracted during the period November 1, 1974 to

December 31, 1975;

(2) the award under paragraph (c) thereof of P315,027.30 as 25% surcharge on gold extracted during the period November 1, 1974

to December 31, 1975; and

(3) the award under paragraph (e) thereof of P53,585.30 as 24% (sic, 25%) surcharge on pyrite extracted during the periodNovember 1, 1974 to December 31, 1975. 7

Still not satisfied with the said judgment which had reduced its tax liability to P906,124.49, as a final recourse ACMDC came to this

Court on a petition for review on certiorariin G.R. No. 105563, claiming that it is not liable at all for any deficiency. tax assessments

for 1975 and 1976. In our resolution of September 1, 1993, G.R. No. 104151 was ordered consolidated with G.R. No. 105563. 8

I. G.R No. 104151


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The Commissioner of Internal Revenue claims that the Court of Appeals and the tax court erred in allowing the deduction of refining

and smelting charges from the price of copper concentrates. It is the contention of the Commissioner that the actual market value of

the mineral products should be the gross sales realized from copper concentrates, deducting therefrom mining, milling, refining,

transporting, handling, marketing or any other expenses. He submits that the phrase "or any other expenses" includes smelting and

refining charges and that the law allows deductions for actual cost of ocean freight and insurance only in instances where the

minerals or mineral products are sold or consigned abroad by the lessees or owner of the mine under C.I.F. terms, hence it is error to

allow smelting and refining charges as deductions.

We are not persuaded by his postulation and find the arguments adduced in support thereof untenable.

The pertinent provisions of the National Internal Revenue Code (tax code, for facility) at the time material to this controversy, read

as follows:

Sec. 243.Ad valorem taxes on output of mineral lands not covered by lease. There is hereby imposed on the actual market value

of the annual gross output of the minerals mineral products extracted or produced from all mineral lands not covered by lease,

an ad valorem tax in the amount of twoper centumof the value of the output except gold which shall pay one and one-halfper

centum.

Before the minerals or mineral products are removed from the mines, the Commissioner of Internal Revenue or his representativesshall first be notified of such removal on a form prescribed for the purpose. (As amended by Rep. Act No. 6110.)

Sec. 246. Definitions of the terms "gross output," "minerals" and "mineral products." Disposition of royalties and ad

valorem taxes. The term "gross output" shall be interpreted as the actual market value of minerals or mineral products, or of bullion

from each mine or mineral lands operated as a separate entity without any deduction from mining, milling, refining, transporting,

handling, marketing, or any other expenses: Provided, however, That if the minerals or mineral products are sold or consigned.

abroad by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted. The

output of any group of contiguous mining claim shall not be subdivided. The word "minerals" shall mean all inorganic substances

found in nature whether in solid, liquid, gaseous, or any intermediate state. The term "mineral products" shall mean things

produced by the lessee, concessionaire or owner of mineral lands, at least eighty per cent of which things must be minerals

extracted by such lessee, concessionaire, or owner of mineral lands. Tenper centumof the royalties and ad valorem taxes hereinprovided shall accrue to the municipality and tenper centum to the province where the-mines are situated, and eightyper centumto

the National Treasury. (As amended by Rep. Acts Nos. 834, 1299, and by Rep. Act No. 1510, approved June 16, 1956)."

To rephrase, under the aforequoted provisions, the ad valorem tax of 2% is imposed on the actual market value of the annual gross

output of the minerals or mineral products extracted or produced from all mineral lands not covered by lease. In computing the tax,

the term "gross output" shall be the actual market value of minerals or mineral products, or of bullion from each mine or mineral

lands operated as a separate entity, without any deduction for mining, milling, refining, transporting, handling, marketing or any

other expenses. If the minerals or mineral products are sold or consigned abroad by the lessee or owner of the mine under C.I.F.

terms, the actual cost of ocean freight and insurance shall be deducted.

In other words, the assessment shall be based, not upon the cost of production or extraction of said minerals or mineral products,

but on the price which the same before or without undergoing a process of manufacture would command in the ordinary

course of business. 9

In the instant case, the allowance by the tax court of smelting and refining charges as deductions is not contrary to the above-

mentioned provisions of the tax code which ostensibly prohibit any form of deduction except freight and insurance charges. A

review of the records will show that it was the London Metal Exchange price on wire bar which was used as tax base by ACMDC for

purposes of the 2% ad valorem tax on copper concentrates since there was no available market price quotation in the commodity

exchange or markets of the world for copper concentrates nor was there any market quotation locally obtainable. 10Hence, the


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charges for smelting and refining were assessed not on the basis o f the price of the copper extracted at the mine site which is

prohibited by law, but on the basis of the actual market value of the manufactured copper which in this case is the price quoted for

copper wire bar by the London Metal Exchange.

The issue of whether the ad valorem tax should be based upon the value of the finished product, or the value upon extraction of the

raw materials or minerals used in the manufacture of said finished products, has been passed upon by us in several cases wher ein

we held that the ad valorem tax is to be computed on the basis of the market value of the mineral in its condition at the time of suchremoval and before it undergoes a chemical change through manufacturing process, as distinguished from a purely physical proc ess

which does not necessarily involve the change or transformation of the raw material into a composite distinct product. 11

Thus, in the case of Cebu Portland Cement Co. vs. Commissioner of Internal Revenue , 12 this Court ruled:

. . . ad valorem tax is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth, the

government's right to exact the said impost springing from the Regalian theory of State ownership of its natural resources.

. . . While cement is composed of 80% minerals, it is not merely an admixture or blending of raw materials, as lime, silica, shale and

others. It is the result of a definite the crushing of minerals, grinding, mixing, calcining, cooling, adding of retarder or raw gypsum. In

short, before cement reaches its saleable form, the minerals had already undergone a chemical change through manufacturing

process, This could not have been the state of mineral products' that the law contemplates for purposes of imposing the advalorem tax. . . . this tax is imposed on the privilege of extracting or severing the minerals from the mines. To our minds, therefore

the inclusion of the term mineral products is intended to comprehend cases where the mined or quarried elements may not be

usable in its original state without application of simple treatments . . . which process does not necessarily involve the change or

transformation of the raw materials into a composite, distinct product. . . . While the selling price of cement may reflect the actual

market value of cement, said selling price cannot be taken as the market value also of the minerals composing the cement. And it

was not the cement that was mined, only the minerals composing the finished product.

This view was subsequently affirmed in the resolution of the Court denying the motion for reconsideration of its aforesaid

decision, 13 reiterated that the pertinent part of which reiterated that

. . . the ad valorem tax in question should be based on the actual market value of the quarried minerals used in producing cement, . .

. the law intended to impose the ad valorem tax upon the market value of the component mineral products in their original state

before processing into cement. . . . the law does not impose a tax on cement qua cement, but on mineral products at least 80% of

which must be minerals extracted by the lessee, concessionaire or owner of mineral lands.

The Court did not, and could not, rule that cement is a manufactured product subject to sales tax, for the reason that such liability

had never been litigated by the parties. What it did declare is that, while cement is a mineral product, it is no longer in the state or

condition contemplated by the law; hence the market value of the cement could not be the basis for computing the ad valorem tax,

since the ad valorem tax is a severance tax i.e., a charge upon the privilege of severing or extracting minerals from the earth, (Dec. p.

4) and is due and payable upon removal of the mineral product from its bed or mine (Tax Code s. 245).

Therefore, the imposable ad valorem tax should be based on the selling price of the quarried minerals, which is its actual market

value, and not on the price of the manufactured product. If the market value chosen for the reckoning is the value of themanufactured. or finished product, as in the case at bar, then all expenses of processing or manufacturing should be deducted in

order to approximate as closely as is humanly possible the actual market value of the raw mineral at the mine site.

It was copper ore that was extracted by ACMDC from its mine site which, through a simple physical process of removing impurities

therefrom, was converted into copper concentrate In turn, this copper concentrate underwent the process of smelting and refining,

and the finished product is called copper cathode or copper wire bar.


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The copper wire bar is the manufactured copper. It is not the mineral extracted from the mine site nor can it be considered a

mineral product since it has undergone a manufacturing process, to wit:

I. The physical process involved in the production of copper concentrate are the following (p. 19, BIR records; Exh. H, p. 43, FolderI

of Exhibits.)

A Mining Process

(1) Blasting The ore body is broken up by blasting.

(2) Loading The ore averaging about 1/2 percent

copper is loaded into ore trucks by electric shovels.

(3) Hauling The trucks of ore are hauled to the mill.

B Milling Process

(1) Crushing The ore is crushed to pieces the size of peanuts.

(2) Grinding The crushed ore is ground to powder form.

(3) Concentrating The mineral bearing particles in the powdered ore are concentrated.

The ores or rocks, transported by conveyors, are crushed repeatedly by steel balls into size of peanuts, when they are ground and

pulverized. The powder is fed into concentrators where it is mixed with water and other reagents. This is known in the industry as a

flotation phase. The copper-bearing materials float while the non-copper materials in the rock sink. The material that floats is

scooped and dried and piled. This is known as copper concentrate. The material at the bottom is waste, and is known in the industry

as tailings. In Toledo City, tailings are disposed of through metal pipes from the flotation mills to the open sea. Copper concentrate

of petitioner contains 28-31% copper. The concentrate is loaded in ocean vessels and shipped to Mitsubishi Metal Corporation mills

in Japan, where the smelting, refining and fabricating processes are done. (Memorandum of petitioner, p. 71, CTA records.)

II. The chemical or manufacturing process in the production of wire bar is as follows: (Exh. 'H', p. 43, Folder I of exhibits.)

A. Smelting

(1) Drying The copper concentrates (averaging about 30 percent copper) are dried.

. Flash Furnace The dried concentrate is smelted autogenously and a matte containing 65 percent is produced.

. Converter The matte is converted to blister copper with a purity of about 99 per cent.

B. Refining

(1) Casting Wheel Blister copper is treated in an anode furnace where. copper requiring further treatment is sent to the casting

wheel to produce cathode copper.

(2) Electrolytic Refining Anode copper is further refined by electrolytic refining to produce cathode copper.

C. Fabricating

(1) Rolling Fire refined or electroly-tic copper-and/or brass (a mixture Of copper and zinc) is made into tubes, sheets, rods and

wire.


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(2) Extruding Sheet tubes, rods and wire are further fabricated into the copper articles in everyday use.

The records show that cathodes, with purity of 99.985% are cast or fabricated into various shapes, depending on their industrial

destination. Cathodes are metal sheets of copper 1 meter x 1 meter x 16-16 millimeter thick and 160 kilograms in weight, although

this thickness is not uniform for all the sheets. Cathodes sheets are not suitable for direct fabrication, hence, are further fabricated

into the desired shape, like wire bar, billets and cakes. (p. 1, deposition, London,) Wire bars are rectangular pieces, 100 millimeter x

100 millimeter x 1.37 meters long and weigh some 125 kilos. They are suited for copper wires and copper rods. Billets are fabricatedinto tubes and heavy electric sections. Cakes are in the form of thick sheets and strips. (pp. 13, 18-21, deposition, Japan, Exhs. "C" &

"G", Japan, pp. 1-2, deposition, London, see pp. 70-72, CTA records.) 14

Significantly, the finding that copper wire bar is a product of a manufacturing process finds support in the definition of a

"manufacturer" in Section 194 (x) of the aforesaid tax code which provides:

"Manufacturer" includes every person who by physical or chemical process alters the exterior texture or form or inner substance of

any raw material or manufactured or partially manufactured product in such a manner as to prepare it for a special use or uses to

which it could not have been put in its original condition, or who by any such process alters the quality of any such raw material or

manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for any of the uses of industry,

or who by any such process combines any such raw material or manufactured or partially manufactured products with other

materials: or products of the same or different kinds and in such manner that the finished product of such process or manufac ture

can be put to a special use or uses to which such raw material or manufactured or partially manufactured products, or combines the

same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or

consumption.

Moreover, it is also worth noting at this point that the decision of the tax court was based on its previous ruling in the case ofAtlas

Consolidated Miningand Development Corporation vs. Commissioner of Internal Revenue,15 dated January 23, 1981, which we

quote with approval:

. . . The controlling law is clear and specific; it should therefore be applied as Since the mineral or mineral product remov ed from its

bed or mine at Toledo City by petitioner is copper concentrate as admitted by respondent himself, not copper wire bar, the actual

market value of such copper concentrate in its condition at the time of such removal without any deduction from mining, milling,refining, transporting, handling, marketing, or any other expenses should be the basis of the 2% ad valorem tax.

The conclusion reached is rendered clearer when it is taken into consideration that the ad valorem tax is a severance tax, a charge

upon the privilege of severing or extracting minerals from the earth, and is due and payable upon removal of the mineral product

from its bed or mine, the tax being computed on the basis of the market value of the mineral in its condition at the time of such

removal and before its being substantially changed by chemical or manufacturing (as distinguished from purely physical) processing.

(Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, supra.) Copper wire bars, as discussed above,, have already

undergone chemical or manufacturing processing in Japan, they are not extracted or produced from the earth by petitioner in its

mine site at Toledo City. Since the ad valorem tax is computed on the basis of the actual market value of the mineral in its condition

at the time of its removal from the earth, which in this case is copper concentrate, there is no basis therefore for an assertion that

such tax should be measured on the basis of the London Metal Exchange price quotation of the manufactured wire bars without anydeduction of smelting and refining charges.

In resume:

1. The mineral or mineral product of petitioner the extraction or severance from the soil. of which the ad valorem tax is directed is

copper concentrate.


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2. The ad valorem tax is computed on the basis of the actual market value of the copper concentrate in its condition at the time of

removal from the earth and before substantially changed by chemical or manufacturing process without any deduction milling,

refining, from mining, transporting, handling, marketing, or any other expenses. However, since the copper concentrate is sold

abroad by petitioner under C.I.F. terms, the actual cost of ocean freight and insurance is deductible.

3. There being no market price quotation of copper concentrate locally or in the commodity exchanges or markets of the world, the

London Metal Exchange price quotation of copper wire bar, which is used by petitioner and Mitsubishi Metal Corporation asreference to determine the selling price of copper concentrate, may likewise be employed in this case as reference point in

ascertaining the actual market value of copper concentrate for ad valorem tax purposes. By deducting from the London Metal

Exchange price quotation of copper wire bar all charges and costs incurred after the copper concentrate has been shipped from

Toledo City to the time the same has been manufactured into wire bar, namely, smelting, electrolytic refining and fabricating, the

remainder represents to a reasonable degree the actual market value of the copper concentrate in its condition at the time of

extraction or removal from its bed in Toledo City for the purposes of the ad valorem tax.

The Commissioner of Internal Revenue argues that the ruling in the case above stated is not binding, considering that the incumbent

Commissioner of Internal Revenue is not bound by decisions or rulings of his predecessor when he finds that a different construction

of the law should be adopted, invoking therefor the doctrine enunciated in Hilado vs. Collector of internal Revenue,et a1, 16 This

trenches on specious reasoning. What was involved in the Hilado case was a previous ruling of a former Commissioner of Internal

Revenue. In the case at bar, the Commissioner based his findings on a previous decision rendered by the Court of Tax Appeals itself.

The Court of Tax Appeals is not a mere superior administrative agency or tribunal but is a part of the judicial system of the

Philippines. 17 It was created by Congress pursuant to Republic Act No. 1125, effective June 16, 1954, as a centralized court

specializing in tax cases. It is a regular court vested with exclusive appellate jurisdiction over cases arising under the National Interna

Revenue Code, the Tariff and Customs Code, and the Assessment Law. 18

Although only the decisions of the Supreme Court establish jurisprudence or doctrines in this jurisdiction, nonetheless the decisions

of subordinate courts have a persuasive effect and may serve as judicial guides. It is even possible that such a conclusion or

pronouncement can be raised to the status of a doctrine if, after it has been subjected to test in the crucible of analysis and revision

the Supreme Court should find that it has merits and qualities sufficient for its consecration as a rule of jurisprudence. 19

Furthermore, as a matter of practice and principle, the Supreme Court will not set aside the conclusion reached by an agency such as

the Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax

problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of

authority on its part. 20

II. G.R. No. 105563

The petition herein raises the following issues for resolution:

A. Whether or not petitioner is liable for payment, of the 25% surcharge for alleged late filing of notice of removal/late payment of

the ad valorem tax on silver, gold and pyrite extracted during the taxable year 1976.

B. Whether or not petitioner is liable for payment of the manufacturer' s sales tax and surcharge during the taxable year 1975, plus

interest, on grinding steel balls borrowed by its competitor; and

C. 'Whether or not petitioner is liable for payment of the contractor's tax and surcharge on the alleged lease of personal pr operty

during the taxable years 1975 and 1976 plus interest. 21

A. Surcharge on Silver, Gold and Pyrite


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ACMDC argues that the Court of Appeals erred in holding it liable to pay 25% surcharge on silver, gold and pyrite extracted by it

during tax year 1976.

Sec. 245 of the then tax code states:

Sec. 245. Time and manner of payment of royalties or ad valorem taxes. The royalties or ad valorem taxes as the case may be,

shall be due and payable upon the removal of the mineral products from the locality where mined. However, the output of the mine

may be removed from such locality without the pre-payment of such royalties or ad valorem taxesif the lessee, owner, or operator

shall file a bond in the form and amount and with such sureties as the Commissioner of Internal Revenue may require,. conditioned

upon the payment of such royalties or ad valorem taxes, in which case it shall be the duty of every lessee, owner, or operator of a

mine to make a true and complete return in duplicate under oath setting forth the quantity and the actual market value of the

output of his mine removed during each calendar quarter and pay the royalties or ad valorem taxes due thereon within twenty days

after the close of said quarter.

In case the royalties or ad valorem taxes are not paid within the period prescribed above, there shall be added thereto a surcharge

of twenty-fiveper centum. Where a false or fraudulent return is made, there shall be added to the royalties or ad valorem taxes a

surcharge of fiftyper centumof their amount. The surcharge So, added: shall be collected in the same manner and as part of the

royalties or ad valorem taxes, as the case may be.

Under the aforesaid provision, the payment of the ad valorem tax shall be made upon removal of the mineral products from the

mine site or if payment cannot be made, by filing a bond in the form and amount to be approved by the Commissioner conditioned

upon the payment of the said tax.

In the instant case, the records show that the payment of the ad valorem tax on gold, silver and pyrite was belatedly made. ACMDC,

however, maintains that it should not be required to pay the 25% surcharge because the correct quantity of gold and silver could be

determined only after the copper concentrates had gone through the process of smelting and refining in Japan while the amount of

pyrite cannot be determined until after the flotation process separating the copper mineral from the waste material was finished.

Prefatorily, it must not be lost sight of that bad faith is ; not essential for the imposition of the 25% surcharge for late payment of

the ad valorem tax. Hence,

MISSING PAGE 19

Q. Now, what do you do with the result of your analysis?

A. These are tabulated and then averaged out to represent one shipment.

Q. Will you tell this Honorable Court whether in that laboratory testing you physically separate the gold, you physically separate the

silver and you physically separate the copper content of that 40 to 50 kilos?

A. No, no, we analyze this in one sample. This sample is analyzed for gold, silver, and copper, but there is no recovery made.

Q. You mean there is no physical separation?

A. No, no physical separation.

Q. So these three minerals copper, gold and silver are in that same powder that you have tested?

A Yes, it is in the same powder.

Q. Now how do you reflect the results of the testing?


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A. You mean in analysis?

Q. In the analysis, yes.

A. Copper is reported in percent.

Q. Percentage?

A. Yes.

Q. How about gold?

A. Gold and silver part is represented as grams per dmt or parts per million.

Q. Based on the results of your data gathered in the laboratory?

A. Yes.

Q. Now where do you submit the results of the laboratory testing?

A When a shipment is made we prepare a certificate of analysis signed by me and then which (sic) is sent to Manila.

Q. Now, as far as you know in connection with your duty do you know what Manila what do you say, Manila, ACMDC?

A. Makati.

Q. Makati. What does Makati ACMDC do with your assay report?

A. As far as I know it is used as the basis for the payment of ad valorem tax. 24

The above-quoted testimony accordingly supports these findings of the tax court in its decision in this case:

We see it (sic) that even if the silver and gold cannot as yet be physically separated from the copper concentrate until the process ofsmelting and refining was completed, the estimated commercial quantity of the silver and gold could have been determined in much

the same way that petitioner is able to estimate the commercial quantity of copper during the assay. If, as stated by petitioner, it is

able to estimate the grade of the copper ore, and it has determined the grade not only of the copper but also those of the gold and

silver during the assay (Petitioner's Memorandum, p. 207, Record), ergo, the estimated commercial quantity of the silver and gold

subject to ad valorem tax could have also been determined and provisionally paid as for copper. 25

The other allegation of ACMDC is that there was no removal of pyrite from the mine site because the pyrite was delivered to its

sister company, Atlas Fertilizer Corporation, whose plant is located inside the mineral concession of ACMDC in Sangi, Toledo City.

ACMDC, however, is already barred by estoppel in pais from putting that matter in issue.

An ad valorem tax on pyrite for the same tax year was already declared and paid by ACMDC. In fact, that payment was used as the

basis for computing the 25% surcharge. It was only when ACMDC was assessed for the 25% surcharge that said issue was raised by

it. Also, the evidence shows that deliveries of pyrite were not exclusively made to its sister company, Atlas Fertilizer Corporation.

There were shipments of pyrite to other companies located outside of its mine site, in addition to those delivered to its aforesaid

sister company. 26

B. Manufacturer's Tax and Contractor's Tax

The manufacturer's tax is imposed under Section 186 of the tax code then in force which provides:


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Sec. 186. Percentage tax on sales of other articles. There shall be levied, assessed and collected once only on every original sale,

barter, exchange, or similar transaction either for nominal or valuable consideration, intended to transfer ownership of, or title to,

the articles not enumerated in sections one hundred and eighty-four-A, one hundred and eighty five, one hundred and eighty-five-A,

one hundred eighty-five-B, and one hundred eighty-six-B, a tax equivalent to sevenper centumof the gross selling price or gross

value in money of the articles so sold, bartered, exchanged, or transferred, such tax to be paid by the manufacturer or

producer: Provided, That where the articles subject to tax under this Section are manufactured out of materials likewise subject to

tax under this section and section one hundred eighty-nine, the total cost of such materials, as duly established, shall be deductiblefrom the gross selling price or gross value in money of such manufactured articles. (As amended by Rep. Act No. 6110 and by Pres.

Decree No. 69.)

On the other hand, the contractor's tax is provided for under Section 191 of the same code, paragraph 17 of which declares that

lessors of personal property shall be subject to a contractor's tax of 3% of the gross receipts.

Sections 186 and 191 fall under Title V of the tax code, entitled "Privilege Taxes on Business and Occupation." These "privilege taxes

on business" are taxes imposed upon the privilege of engaging in business. They are essentially excise taxes. 27 To be held liable for

the payment of a privilege tax, the person or entity must be engaged in business, as shown by the fact that the drafters of the tax

code had purposely grouped said provisions under the general heading adverted to above.

"To engage" is to embark on a business or to employ oneself therein. The word "engaged" connotes more than a single act or a

single transaction; it involves some continuity of action. "To engage in business" is uniformly construed as signifying an employment

or occupation which occupies one's time, attention, and labor for the purpose of a livelihood or profit. The expressions "engage in

business," "carrying on business" or "doing business" do not have different meanings, but separately or connectedly convey the idea

of progression, continuity, or sustained activity. "Engaged in business" means occupied or employed in business; carrying on

business" does not mean the performance of a single disconnected act, but means conducting, prosecuting, and continuing business

by performing progressively all the acts normally incident thereto; while "doing business" conveys the idea of business being done,

not from time to time, but all the time. 28

The foregoing notwithstanding, it has likewise been ruled that one act may be sufficient to constitute carrying on a business

according to the intent with which the act is done. A single sale of liquor by one who intends to continue selling is suffici ent to

render him liable for "engaging in or carrying on" the business of a liquor dealer. 29

There may be a business without any sequence of acts, for if an isolated transaction, which if repeated would be a transaction in a

business, is proved to have been undertaken with the intent that it should be the first of several transactions, that is, with the intent

of carrying on a business, then it is a first transaction in an existing business. 30

Thus, where the end sought is to make a profit, the act constitutes "doing- business." This is not without basis. The term "business,"

as used in the law imposing a license tax on business, trades, and so forth, ordinarily means business in the trade or commercial

sense only, carried on with a view to profit or livelihood; 31 It is thus restricted to activities or affairs where profit is the purpose, or

livelihood is the motive. Since the term "business" is being used without any qualification in our aforesaid tax code, it should

therefore be therefore be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood. 32

In the case at bar, ACMDC claims exemptions from the payment of manufacturer's tax. It asserts that it is not engaged in the

business of selling grinding steel balls, but it only produces grinding steel balls solely for its own use or consumption, However, it

admits having lent its grinding steel balls to other entities but only in very isolated cases.

After a careful review of the records and on the basis of the legal concept of "engaging in business" hereinbefore discussed, we are

inclined to agree with ACMDC that it should not and cannot be held liable for the payment of the manufacturer's tax.


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First, under the tax code then in force, the 7% manufacturer's sales tax is imposed on the manufacturer for every original sale,

barter, exchange and other similar transaction intended to transfer ownership of articles. As hereinbefore quoted, and we repeat

the same for facility of reference, the term "manufacturer" is defined in the tax code as including "every person who by physical or

chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially

manufactured product in such manner as to prepare it for a special use or uses to which it could not have been put in its original

condition, or who by any such process alters the quality of any such raw material or manufactured or partially manufactured product

so as to reduce it to marketable shape or prepare it for any of the uses of industry, or who by any such process combines any suchraw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds

and in such manner that the finished product of such process or manufacture can be put to a special use or uses to which such raw

materials or manufactured or partially manufactured products in their original condition could not have been put, and who in

addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such

finished products for the purpose of their sale or distribution to others and not for his own use or consumption. 33

Thus, a manufacturer, in order to be subjected to the necessity of paying the percentage tax imposed by Section 186 of the tax code,

must be 'engaged' in the sale, barter or exchange of; personal property. Under a statute which imposes a tax on persons engaged in

the sale, barter or exchange of merchandise, a person must be occupied or employed in the sale, barter or exchange of personal

property. A person can hardly be considered as occupied or employed in the sale, barter or exchange of personal property when he

has made one purchase and sale only. 34

Second, it cannot be legally asserted, for purposes of this particular assessment only, that ACMDC was engaged in the business of

selling grinding steel balls on the basis of the isolated transaction entered into by it in 1975. There is no showing that sa id

transaction was undertaken by ACMDC with a view to gaining profit. therefrom and with the intent of carrying on a business therein

On the contrary, what is clear for us is that the sale was more of an accommodation to the other mining companies, and that

ACMDC was subsequently replaced by other suppliers shortly thereafter.

This finding is strengthened by the investigation report, dated March 11, 1980, of the B.I.R. Investigation Team itself which found

that

ACMDC has a foundry shop located at Sangi, Toledo City, and manufactures grinding steel balls for use in its ball mills in pulverizing

the minerals before they go to the concentrators, For the grinding steel balls manufactured by ACMDC and used in its operation, wefound it not subject to any business tax. But there were times in 1975 when other min ing companies were short of grinding steel

balls and ACMDC supplied them with these materials manufactured in its foundry shop. According to the informant, these were

merely accommodations and they were replaced by the other suppliers. 35

At most, whatever profit ACMDC may have realized from that single transaction was just incidental to its primordial purpose of

accommodating other mining companies. Well-settled is the rule that anything done as a mere incident to, or as a necessary

consequence of, the principal business is not ordinarily taxed as an independent business in itself. 36 Where a person or corporation

is engaged in a distinct business and, as a feature thereof, in an activity merely incidental which serves no other person or business,

the incidental and restricted activity is not considered as intended to be separately taxed. 37

In fine, on this particular aspect, we are consequently of the considered opinion and so hold that ACMDC was not a manufacturersubject to the percentage tax imposed by Section 186 of the tax code.

The same conclusion; however, cannot be made with respect to the contractor's tax being imposed on ACMDC. It cannot validly

claim that the leasing out of its personal properties was merely an isolated transaction. Its book of accounts shows that several

distinct payments were made for the use of its personal properties such as its plane, motor boat and dump truck. 38 The series of

transactions engaged in by ACMDC for the lease of its aforesaid properties could also be deduced from the fact that for the tax years


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1975 and 1976 there were profits earned and reported therefor. It received a rental income of P630,171.56 for tax year 39 and

P2,450,218.62 for tax year 1976. 40

Considering that there was a series of transactions involved, plus the fact that there was an apparent and protracted intention to

profit from such activities, it can be safely concluded that ACMDC was habitually engaged in the leasing out of its plane, motor boat

and dump truck, and is perforce subject to the contractor's tax.

The allegation of ACMDC that it did not realize any profit from the leasing out of its said personal properties, since its income

therefrom covered only the costs of operation such as salaries and fuel, is not supported by any documentary or substantial

evidence. We are not, therefore, convinced by such disavowal.

Assessments are prima facie presumed correct and made in good faith. Contrary to the theory of ACMDC, it is the taxpayer and not

the Bureau of Internal Revenue who has the duty of proving otherwise. It is an elementary rule that in the absence of proof of any

irregularities in the performance of official duties, an assessment will not be disturbed. All presumptions are in favor of tax

assessments. 41 Verily, failure to present proof of error in assessments will justify judicial affirmance of said assessment. 42

Finally, we deem it opportune to emphasize the oft-repeated rule that tax statutes are to receive a reasonable construction with a

view to carrying out their purposes and intent. 43 They should not be construed as to permit the taxpayer to easily evade the

payment of the tax. 44 On this note, and under the confluence of the weighty. considerations and authorities earlier discussed, thechallenged assessment against ACMDC for contractor's tax must be upheld.

WHEREFORE, the impugned judgment of respondent Court of Appeals in CA-G.R. SP No. 25945, subject of the present petition in

G.R. No. 104151 is hereby AFFIRMED; and its assailed judgment in CA-G.R SP No. 26087 is hereby MODIFIED by exempting Atlas

Consolidated Mining and Development Corporation, petitioner in G.R. No. 105563 of this Court, from the payment of manufacture r's

sales tax, surcharge and interest during the taxable year 1975.

SO ORDERED.

G.R. No. L-38540 April 30, 1987

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.

THE COURT OF APPEALS, and NIELSON & COMPANY, INC., respondents.

The Solicitor General for petitioner.

Quasha, Aspillera, Zafra, Tayag and Anchetafor respondents.

PADILLA,J.:

This is a petition for review on certiorari of the decision of the respondent Court of Appeals 1 in CA G.R. No. 37417-R, dated 3 April

1974, reversing the decision of the then Court of First Instance of Manila which ordered private respondent Nielson & Co., Inc. to

pay the Government the amount of P11,496.00 as ad valorem tax, occupation fees, additional residence tax and 25% surcharge for

late payment, for the years 1949 to 1952, and costs of suit, and of the resolution of the respondent Court, dated 31 May 1974,

denying petitioner's motion for reconsideration of said decision of 3 April 1974.


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In a demand letter, dated 16 July 1955 (Exhibit A), the Commissioner of Internal Revenue assessed private respondent deficiency

taxes for the years 1949 to 1952, totalling P14,449.00, computed as follows:

1-1/2% ad valorem tax on P448,000.00..........................P7,320.00

25% surcharge for late payment......................................1,830.00

Occupation fees for the years 1949

to 1952 at P1.00 per ha. per

year on 1, 230 hectares.....................................4,920.00

Additional residence tax on P79,000.00

at P1.00 per every P5,000.00

per year or P75.00 x 4 years................................303.20

25% surcharge for late payment.........................................75.00

TOTAL AMOUNT DUE............................ P14,449.002

Petitioner reiterated its demand upon private respondent for payment of said amount, per letters dated 24 April 1956 (Exhibit D), 19

September 1956 (Exhibit E) and 9 February 1960 (Exhibit F). Private respondent did not contest the assessment in the Court of Tax

Appeals. On the theory that the assessment had become final and executory, petitioner filed a complaint for collection of the said

amount against private respondent with the Court of First Instance of Manila, where it was docketed as Civil Case No. 42911.

However, for failure to serve summons upon private respondent, the complaint was dismissed, without prejudice, in the Court's

order dated 30 June 1961. On motion, the order of dismissal was set aside, at the same time giving petitioner sixty (60) days within

which to serve summons upon private respondent.

For failure anew to serve summons, the Court of First Instance of Manila issued an order dated 4 October 1962 dismissing Civil CaseNo. 42911 without prejudice. The order of dismissal became final on 5 November 1962.

On 15 November 1962, the complaint against private respondent for collection of the same tax was refiled, but the same was

erroneously docketed as Civil Case No. 42911, the same case previously dismissed without prejudice. Without correcting this error,

another complaint was filed on 26 November 1963, docketed as Civil Case No. 55817, the subject matter of the present appeal.

As herein earlier stated, the Court a quorendered a decision against the private respondent. On appeal to the respondent Court of

Appeals, the decision was reversed. Petitioner, Republic of the Philippines, filed a motion for reconsideration which was likewise

denied by said Court in a resolution dated 31 May 1974. Hence, this petition, with the following assignment of errors:

I

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE LETTER OF ASSESSMENT DATED JULY 16, 1955, EXHIBIT "A," WAS

RECEIVED BY PRIVATE RESPONDENT IN THE ORDINARY COURSE OF THE MAIL PURSUANT TO SECTION 8, RULE 13 OF THE REVISED

RULES OF COURT.

II


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THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENT FAILED TO REBUT THE PRESUMPTION THAT THE

LETTER ASSESSMENT DATED JULY 16, 1955, HAVING BEEN DULY DIRECTED AND MAILED WAS RECEIVED IN THE REGULAR COURSE OF

THE MAIL AND THAT OFFICIAL DUTY HAS BEEN REGULARLY PERFORMED.

III

THAT, ASSUMING, WITHOUT ADMITTING, THAT THE LETTER DATED JULY 16, 1955 (EXHIBIT "A") CANNOT BE CONSIDERED AS AN

ASSESSMENT, ON THE THEORY THAT THE SAME HAS NOT BEEN RECEIVED BY PRIVATE RESPONDENT, THE COURT OF APPEALS ERRED

IN NOT HOLDING THAT THE LETTER OF THE DEPUTY COLLECTOR (NOW DEPUTY COMMISSIONER) OF INTERNAL REVENUE DATED

SEPTEMBER 19, 1956 (EXHIBIT "E") IS ITSELF AN ASSESSMENT WHICH WAS DULY RECEIVED BY PRIVATE RESPONDENT.

Relying on the provisions of Section 8, Rule 13 and Section 5, paragraphs m & v. Rule 131 of the Revised Rules of Court, petitioner

claims that the demand letter of 16 July 1955 showed an imprint indicating that the original thereof was released and mailed on 4

August 1955 by the Chief, Records Section of the Bureau of Internal Revenue, and that the original letter was not returned to said

Bureau; thus, said demand letter must be considered to have been received by the private respondent.3According to petitioner, if

service is made by ordinary mail, unless the actual date of receipt is shown, service is deemed complete and effective upon the

expiration of five (5) days after mailing.4As the letter of demand dated 16 July 1955 was actually mailed to private respondent,

there arises the presumption that the letter was received by private respondent in the absence of evidence to the contrary.5More

so, where private respondent did not offer any evidence, except the self-serving testimony of its witness, that it had not received the

original copy of the demand letter dated 16 July 1955.6

We do not agree with petitioner's above contentions. As correctly observed by the respondent court in its appealed decision, while

the contention of petitioner is correct that a mailed letter is deemed received by the addressee in the ordinary course of mail, stilt

this is merely a disputable presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burd en upon

the party favored by the presumption to prove that the mailed letter was indeed received by the addressee. Thus:

Appellee contends that per Exhibit A, the notice was released and mailed to the appellant by the BIR on Aug. 4, 1955 under the

signature of the Chief, Records Section, Office; that since the original thereof was not returned to the appellee, the presumption is

that the appellant received the mailed notice. This is correct, but this being merely a mere disputable presumption, the same is

subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption toprove that the mailed letter was received by the addressee. The appellee, however, argues that since notice was rc -,Ieased and

mailed and the fact of its release was admitted by the appellant the admission is proof that he received the mailed notice of

assessment. We do not think so. It is true the Court a quo made such a finding of fact, but as pointed out by the appehant in its brief,

and as borne out by the records, no such admission was ever made by the appellant in the answer or in any other pleading, or in any

declaration, oral or documentary before the trial court. We note that the appellee has not met this challenge, and after a review of

the records, we find appeflant's assertion well-taken.7

Since petitioner has not adduced proof that private respondent had in fact received the demand letter of 16 July 1955, it can not be

assumed that private respondent received said letter. Records, however, show that petitioner wrote private respondent a follow-up

letter dated 19 September 1956, reiterating its demand for the payment of taxes as originally demanded in petitioner's letter dated

16 July 1955. This follow-up letter is considered a notice of assessment in itself which was duly received by private respondent inaccordance with its own admission.8The aforesaid letter reads:

September 19, 1956

Nielson and Company, Inc.

Ayala Boulevard, Manila


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Gentlemen:

In reply to you (sic) letter dated June 1, 1956 relative to your pending internal revenue tax liability involving the amount of

P15,649.00 as annual occupation fees, ad valorem and additional residence taxes, surcharges and penalty, originally demanded of

you on July 16, 1955, I have the honor to inform you that investigation conducted by an agent of this office show that you and the

Hixbar Gold Mining Co., Inc. entered into an agreement in 1938 whereby you were given full exclusive and irrevocable control of all

the operations, development, processing and marketing of mineral products from the latter's mines and that au the assessments,taxes and fees of any nature in connection with the said operation, development, proceeding and marketing of these products shall

be paid by you. In view thereof, and it appearing that the aforesaid tax liabilities accrued when your contract was in fun force and

effect, you are therefore, the party hable for the payment thereof, notwithstanding the alleged contract subsequently entered into

by you and the Hixbar Gold Mining Co., Inc. on September 9, 1954.

It is therefore, again requested that payment of the aforesaid amount of P15,649.00 be made to the City Treasurer, Manila within

five (5) days from your receipt hereof so that this case may be closed.

You are further requested to pay the sum of P150.00 as compromise suggested in our letter to you dated February 24, 1955, it

appearing that the same has not as yet been paid up to the present.

Very respectfully yours,

JOSE ARANAS

Deputy Collector of Internal Revenue9

Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals within thirty (30) days from

receipt of the letter. The taxpayer's failure to appeal in due time, as in the case at bar, makes the assessment in question final,

executory and demandable. Thus, private respondent is now barred from disputing the correctness of the assessment or from

invoking any defense that would reopen the question of its liability on the merits. 10

In Mamburao Lumber Co. vs. Republic,11 this Court further said:

In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become final and executory, the

action to collect is akin to an action to enforce a judgment. No inquiry can be made therein as to the merits of the original case or

the justness of the judgment relied upon. ...

ACCORDINGLY, the appealed decision is hereby reversed. The decision of the Court a quois hereby reinstated. No costs.

SO ORDERED.

G.R. No. 502 January 29, 1946

BASILIA CABRERA, plaintiff-appellee,

vs.

THE PROVINCIAL TREASURER OF TAYABAS and PEDRO J. CATIGBAC, defendants-appellants.

Lorenzo Sumulong for appellant.

Jose W. Diokno for appellee.

PARAS,J.:


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On October 30, 1940, the provincial treasurer of Tayabas issued a notice for the sale at public auction of numerous, real properties

forfeited for tax delinquency, including a certain parcel of land located in the barrio of Buenavista, municipality of Candelaria,

Province of Tayabas, and assessed in the name of Nemesio Cabrera, said sale to be held "on December 15, 1940 at 8 a.m. and every

day thereafter at the same place and hour until all the properties shall have been sold to the highest bidder." Copy of the notice was

sent by registered mail to Nemesio Cabrera, but the envelope containing the same was returned with the remark "Unclaimed,"

undoubtedly because Nemesio Cabrera had already died in 1935. The land was actually sold on May 12, 1941, for the sum of P74.34

to the appellant Pedro J. Catigbac, in whose favor the final bill of sale was executed on September 23, 1942. Thereafter the appellee,Basilia Cabrera, filed a complaint in the Court of First Instance of Tayabas against the provincial treasurer and the appellant,

attacking the validity of the tax sale on the grounds that she was not notified therefore and that although the land had remained in

the assessment book in the name of Nemesio Cabrera, a former owner, she has become its registered owner, since 1934 when a

Torrens title (No. 8167) was issued to her by the register of deeds of Tayabas. From a judgment favorable to the appellee, the

present appeal was taken by Pedro J. Catigbac.

Under the law (Commonwealth Act No. 470, section 35), the provincial treasurer is enjoined to set forth in the notice, among other

particulars, the date of the tax sale. We are of the opinion that this mandatory requirement was not satisfied in the present case,

because the announcement that the sale would take place on December 15, 1940 and every day thereafter, is as general and

indefinite as a notice for the sale "within this or next year" or "some time within the month of December." In order to enable a

taxpayer to protect his rights, he should at least appraised of the exact date of the proceeding by which he is to lose his property.When we consider the fact that the sale in favor of the appellant was executed on May 12, 1941, or nearly five months after

December 15, 1940, the violation of the mandatory requirement becomes more obvious. Indeed, in his motion for reconsideration

(seeRecord on Appeal, pp. 33-41), the appellant had admitted, unknowingly perhaps, that when he went to the office of the

municipal treasurer after reading the notice of sale in December, 1940, to inquire about the advertised land, he was told to return

on May 12, 1941. The implication that follows is that the tax officials had really adopted the view that they could sell any of the

numerous forfeited lots on any date subsequent to December 15, 1940, without new notice, thereby making the resulting sale more

private than public, likewise in violation of the law. It may be observed that as regards tax sales, unlike ordinary execution sales, the

statute does not expressly authorize adjournment from day to day. The reminder may, however, be given that the tax officials will

greatly be inconvenienced by following the law strictly, especially when numerous properties are, as in the present case (132

parcels), to be disposed of for tax delinquency. We will not venture to disagree, but it is believed that the officials who are ever

solicitous in protecting private proprietary rights, shall have helped, to the same extent, in maintaining the solid foundation of theGovernment which they seek to serve and of which they themselves are a part.

What has been said is sufficient to decide this appeal, although it will not altogether be amiss to refer to details that further support

the judgment of the lower court. The appellee was admittedly not notified of the auction sale, and this also vitiates the proceeding.

She is the registered owner of the land and, since 1934, has become liable for the taxes thereon. For all purposes, she is the

delinquent taxpayer "against whom the taxes were assessed," referred to in section 34 of Commonwealth Act No. 470. It cannot be

Nemesio Cabrera for the latter's obligation to pay taxes ended where the appellee's liability began. Neither the alleged receipt by

the appellee of a copy of certificate of sale dated May 12, 1941, nor her failure to redeem thereafter, had the effect of validating the

prior tax proceeding. The sale in favor of the appellant cannot bind the appellee, since the land purportedly conveyed was owned by

Nemesio Cabrera, not by the appellee; and, at the time of the sale, Nemesio Cabrera had no interest whatsoever in the land in

question that could have passed to the appellant.

The appellee may be criticized for her failure to have the land transferred to her name in the assessment record. The circumstance,

nevertheless, cannot supplant the absence of notice. Of course, i t is the duty of any person acquiring at the time real property to

prepare and submit a tax declaration within sixty days (Commonwealth Act No. 470, section 12), but it is no less true that when the

owner refuses or fails to make the required declaration, the provincial assessor should himself declare the property in the name of

the defaulting owner (Commonwealth Act No. 470, section 14). In this case there is absolutely no showing that the appellee had

deliberately failed to make the declaration to defraud the tax officials; and it may be remarked that there can be no reason why her


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Torrens title, which binds the whole world, cannot at least charge the Government which had issued it, with notice thereof. A little

synchronization between the offices of the register of deeds and of the provincial assessor, with perhaps very negligible additional

clerical work on the part of both, will surely result in a more efficient enforcement of the tax laws.

Not having appealed, the appellee cannot now pretend that the judgement of the lower court is erroneous in so far as it failed to

award damages in her favor for the sum of P500. While an appellee can on appeal make a counter-assignment of error, it must be

with a view merely to sustaining the judgement, not to obtaining other affirmative relief.

The appealed judgment is affirmed, with costs of both instances against the appellant. So ordered.

Moran, C.J., Jaranilla, and Pablo, JJ.,concur.

Separate Opinions

FERIA,J., concurring and dissenting:

I concur except in the conclusion of the majority that the appellee may make a counter-assignment of error even in the sensetherein stated, for it is misleading and erroneous. In no case may a counter-assignment of error be properly allowed. A counter-

assignment of error means, as the prefix "counter" indicates, a proposition that the court committed an error opposite or contrary

to that assigned by the adverse party. Appellee should not or need not make such counter-assignment in order to refute or disprove

plaintiff's assignment of error.

Even if by counter-assignment is meant an assignment of error, it is improper and of no avail for an appellee to make it in ordinary

civil cases. It is not incumbent on appellee, who occupies a purely defensive position, to make assignments of error. (Garcia

Valdez vs.Soteraa Tuason, 40 Phil., 943.) He cannot, as appellee, obtain from the appellate court more or greater relief than that

granted him by the trial court though the latter's decision be erroneous in that respect. When the trial judge decides a case in favor

of a party on certain ground, the appellate court may base its decision upon some other point, ignored or erroneously decided in

favor of the appellant by the trial court (do, do). Without any assignment of errors, appellee may point out in his brief any errorcommitted by the lower court in not admitting certain evidence, or not taking into consideration certain points of law or fact, in

support of the decision appealed from.

In election cases, however, the appellee may make an assignment of error although not required to do so, because as said cases are

tried de novoon appeal, Mendoza vs. Mendiola(53 Phil., 267), appellee may seek affirmative relief and the appellate court grant or

decide that appellee has received more votes than those adjudicated to him by the lower court.

BRIONES, M., concurrente:

Estoy conforme con la parte dispositivia de la sentencia por el unico fundamento de que cuando se verifico la venta por morosidad

en el impuesto territorial, Basilia Cabrera, la demandante-apelada, era la duea del terreno en cuestion con certificado de titulo

Torrens registrado a su nombre. El articulo 35 de la Ley del Commonwealth No. 470 prescribe que una copia del anuncio de la venta

debera enviarse al contribuyente moroso en su residencia si esta fuese conocida por el tesorero. Como acertadamente si dice en la

ponecia, el titulo Torrens es obligatorio para todo el mundo; por tanto aado debe serlo mas para los agentes del fisco. En el

presente caso era deber del tesorero enviar una copia del anuncio de venta a la damandante y apelada como duea registrada del

torreno, en vez de mandarla al dueo anterior que por cierto ya habia fallecido. Si esto hace imperativo que se de cuenta a las


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tesorerias de todos los traspasos inscritos y registrados en el Registro de la Propiedad, estimo que ello debe hacerse el

implementando la maquinaria official al efecto. Razones de equidad y eficiencia administrativa demandan la rigida adopcion de

semejante practica.

G.R. No. L-4406 October 23, 1908

ANTONIA VALENCIA Y ORUS, plaintiff-appellee,

vs.

JUAN JIMENEZ Y MIJARES and GABRIEL FUSTER Y FUSTER, defendants-appellants.

Kincaid and Hurd for appellants.

Haussermann and Cohn, and C. W. Ney for appellee.

TRACEY,J.:

MEMORANDUM ON MOTION TO DISCONTINUE.

After this case had been finally submitted to this court, and was awaiting decision, a petition was presented in behalf of the plaintiff,

not through her attorneys of record but through a new attorney, in the following words:

The plaintiff, Doa Antonia Valencia y Orus, through her advocate, appears and respectfully shows:

For weighty reasons now known to the plaintiff, but whereof she was ignorant when this action was begun, she can not continue

claiming either ownership or possession of the lands in question in this suit.

Wherefore this plaintiff asks this honorable court to revoke the judgment appealed from in all its parts, absolving the defendants

fully from the demands in this suit, without making any award of costs.

By the judgment of the court below the plaintiff had been awarded the real property in suit, together with damages for its

detention.

This motion must be denied, for several reasons.

First. The plaintiff is a resident of Barcelona, Spain, ad she originally authorized the bringing of this action in correspondence direct

between herself and her attorneys, Coudert Brothers of Manila, at whose request she gave a power of management thereof to one

of the assistants in their office, Jose Moreno Lacalle. As a foundation for the present motion there was filed a later power of

attorney from her to Buenaventura Guamis, revoking the earlier power to Jose Moreno Lacalle, which it fully recited, and

empowering Guamis to revoke in her name the aforesaid antecedent power, and secondly, "himself or through his substitutes,

whom he may name, to appear in legal from before the Supreme Court of the city of Manila, or any other tribunal which may have

cognizance of the case, and present a fitting instrument in writing discontinuing the action brought nullify the sale of the lands

aforesaid of Manila against Don Juan Jimenez y Mijares and Don Gabriel Fuster y Fuster, with the power of ratification in the said

petition making manifest his wishes to renounce the continuance of the said suit."

The affidavit of Buenaventura Guamis says:

(4) As appears from the aforesaid document "A," at the foot of the sixth page (the power of attorney to him), it is the intention and

desire of the said Doa Antonia Valencia y Orus to discontinue this action and renounce the continuation of the same. . . .


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(6) By virtue of the powers conferred by the said document "A," this dependent hereby confers power on Mr. C. W. Ney, practic ing

lawyer in this capital city, to make in the name and representation of the said Doa Antonia Valencia y Orus proceedings necessary

to procure the final discontinuance of this action.

It is obvious that the motion does not comply with the power granted by the plaintiff nor fall within its terms. The notice o f motion

does not ask for the discontinuance or cessation or abandonment of the suit, but on the contrary prays for a judgment absolving the

defendants of the claim set up in the complaint, without any costs. Such a judgment would be one upon the merits and wouldpreclude the plaintiff from any claim which she might hereafter, on fuller devices, see fit to make against these defendants. Such

action, possibly so prejudicial to her interests, her power attorney has not authorized any person to take in her behalf. The two

things, a discontinuance and a judgment of absolution on the merits, are not only different in degree but in kind, and in the opinion

of the majority of this court the one does not include the other.

Second. If, however, it might be that the motion for a judgment upon the merits could be considered as including the other kind of

relief, that is, a mere discontinuance, on the principle that the greater includes the less, then the relief asked for can no t be granted,

because it is tied up with the condition that there shall be no award of costs. The award of costs is at the disposal of the court, not of

the parties, especially to the prejudice of the defendants, who are third persons, not before us on this motion and whom we can not

presume to accept terms to unfavorable to them in their character as innocent purchasers.

Third. By the affidavit of Charles C. Cohn, one of the plaintiffs' original attorneys, it appears that, after the entry of judgment in this

action, the said attorneys caused to be entered upon the records of the Court of First Instance in which the judgment was rendered

a statement of their claim to a lien thereon, with lawful fees and disbursements in this action, and caused written notice th ereof to

be delivered to the adverse party. Under section 37 of the Code of Civil Procedure this sufficed to give them a lien upon the

judgment, inasmuch as the decree was one, in part, for the payment of money. Their further claim thereon is expressed in that

section in the following words:

. . . and shall have the same right and power over such judgments, decrees, and executions to enforce his client as his client had or

may have to the extent that may be necessary for the payment of his just fees and disbursements.

Under the American practice this clause gives the attorneys an interest in the judgment and power over it and to enforce it to that of

their clients. It must therefore entitle them to carry on the action for the purpose of securing their proper compensation.

Without passing on the particular steps required to enable the attorneys to carry their lien into effect or on the reasonableness of

the fees claimed by them, or of the contract providing thereof, we only hold that their lien is alleged to have been properly created

so as to give them a right and standing in the action which prevents its discontinuance against their protest and without a suitable

provision for their protection.

Fourth. The motion is not made by one of the attorneys of record. Certain motions, of their very nature, maybe made by an attorney

who has not appeared in the case, where the interest of the client is adverse to that of the attorney of record. Of that character is a

motion for substitution of attorneys, but not such a motion as the present one, which go to the merits and final disposition of the

cause and which no one is entitled to make other than the attorney who duly appears of record in this court. By section 32 of the

Code of Civil Procedure the rights is secured to a party to change attorneys. The method of such change is not indicated. The proper

practice in this case on the part of the plaintiff would have been a motion for a substitution of attorneys, on which the question of

their compensation would naturally have risen and on the determination of which the attorney finally appearing on record could

have moved a discontinuance.

The justice sitting in this case do not all agree on each of the aforesaid grounds, but they are not unanimously of the opinion that the

motion must be denied.

DECISION.


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This action was brought in the Court of First Instance of the city of Manila to set aside a sale of real estate valued at P95,697.10 for

unpaid taxes amounting to P2,934.76 to the defendant Jimenez, and also the transfer of a one-half interest therein by him to the

defendant Fuster, on two grounds, first, that the defendants had secured title under the tax sale by conspiracy with one Vicente

Ablaza, plaintiff's agent, who allowed the property to go to sale while having in his hands ample funds for the payment of taxes; and,

second, that the tax sale was invalid by reason of defects in the proceedings to impose the tax.

The first cause of action was opened up, but was not persisted in at the trial and the case comes before us on the questions only ofthe irregularity of the proceedings for the sale. The most serious of these are the following:

(1) The statement of the owner, filed by Ablaza, as her agent, gave her name as "Doa Antonia Valencia y Orus." In the assessment

roll for the year 1901 the name given was "Valencia, Antonio." In the roll of 1902 it was "Valencia, Antonia," while the tax deed had

it "Antonia Valencia."

(2) The correct description given in the owner's filed statement read:

Bounded in front, on entering, 280.55 meters, by Calle de Lemery; on the right, on entering, 142.40 meters, by the property of Don

Nicolas del Rosario; on the left on entering, 65.10 meters, by Calle Corcuera, and at the rear, 288.70 meters, by the estuary and

canal de le Reina.

In the roll of 1901 it is stated as

A piece of land improvements, situated blocks 24, 25, 26, and 28 fronting Calle Lemery, solar de Nicolas del Rosario, izquierda Calle

Corcuera and espalda Canal de la Reina.

In the roll 1902:

A piece of land improvements, known as blocks 24, 25, 26, and 28 fronting izquierda Calle Corcuera espaldaCalle de la Reina, Calle

Lemery, solar de Nicolas del Rosario.

In the notice of sale under "Description," "Kind of property land and improvement;" "Street and number," it reads, "Read of Canal

de la Reina, left of Corcuera;" "Lots, 24, 25, 26 28;" "Block, ."

The description in the final deed is correct, whereas in the tax certificate it was copied from that in the notice of sale, and is

defective.

The words "Lots" and "Blocks" were proved to refer to a plan made by the assessor and collector and kept in his office for his own

use, but to which individuals might have access, on which it was shown as lots 24, 25, 16, and part of 28 in block 1. This plan was

made after the filing of the declaration by the property owners but before the assessment.

(3) The amount of the taxes in these several document is set down in columns, the cents being divided from the dollars, but without

any dollar-mark.

(4) That only proof of the fixing of the notices of sale was a recital in the certificate of the city assessor and collector that the noticewas posted "at the main entrance of said municipal building and at five other public places in the city of Manila," without specifying

the places, and also a recital in the deed that a copy was posted in the proper barrio.

(5) The tax certificate did not fully recite the proceedings and give the details required by sections 78 and 80 of Act No. 82, but, on

the contrary, showed the defects n the description and notice of sale, whereas the final deed substantially complied with the

statute.


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The American law does not create a presumption of the regularity of any administrative action which results in depriving a ci tizen or

taxpayer of his property, but, on the contrary, the due process of law to be followed in tax proceedings must be established by proof

and the general rule is that the purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all

proceedings leading up to the sale. The difficulty of supplying such proof has frequently lead to the efforts on the part of legislatures

to avoid it by providing by statute that a tax deed shall be deemed either conclusive or presumptive proof of such regularity .

Those statutes attributing to it a conclusive effect have been held invalid as operating to deprive the owner of his property withoutdue process of law. But those creating a presumption only have been sustained as affecting a rule of evidence, changing but the

burden of proof. (Turpin vs.Lemon, 187 U.S., 51.)

The tax law applicable to Manila does not attempt to give any special probative effect to the deed of the assessor and collector, and

therefore leaves the purchaser to establish the regularity of all vital steps in the assessment and sale. By section 84 and 86 of Act No

82 it is enacted that no tax shall be declared invalid for irregularities unless they "shall have impaired the substantial rights of the

taxpayer."

The first apparent defect in this assessment is the error in the name of the owner.

In Marx vs. Hanthorn (148 U.S., 172), where it does not even appear that under the law of the State of Oregon the tax was a

personal one, the tax was held bad because the owner's name had been written in the roll as "Ida F. Hawthorn" instead of "Ida J.Hanthorn."

Under the Municipal Law of the Philippines, sections 74 to 78, the tax is primarily a personal one and is enforcible against realty only

in the event of a deficiency of personality, whereas in the City of Manila its character is somewhat qualified by the provisions in

section 47 of the charter only. Nevertheless, the requirement of the statute in so imperative that the rule of the Hanthorn case is

manifestly applicable here.

But we deem it unnecessary to take up in detail the several irregularities and to determine the effect of each one upon the validity

of the tax sale. The most vital requisite of such an assessment is that the property shall be so described as to be easily id entified

both by the owner and by the persona desiring to bid therefor. The description prior to those in the deed are al l more or less

defective, but those in the assessment roll for 1902 and in the final notice of the tax sale are so confused and inadequate as not only

to fail to give notice to a stranger of the location of the property, but as to the incapable of verification by a person familiar with it.

This is especially true of the description in the notice of sale, which of all the steps in the procedure is the one calling for a most

definite and intelligible description. It is settled doctrine that, where one sale embraces two different taxes, a vital defect in either

tax invalidates the whole sale, so that, considered apart from the notice of sale, the rather understandable description in the roll of

1901 does not cure the vice in that of 1902. We are satisfied that the failure to adequately describe the property both in the

substantials rights of the taxpayer, "within the meaning of sections 84 and 86 of the Municipal Code, and upon this failure we are

content to rest our judgment, affirming the part of the judgment of the Court of First Instance of the city of Manila to Juan Jimenez y

Mijares, and the deed of the latter to Gabriel Fuster y Fuster, invalid and awarding to the plaintiff the possession of the p roperty

described in the complaint.

The judgment of the Court of First Instance not only awarded the plaintiff the real estate, but also the rents and profits thereon,

both from the time the defendants took possession until the commencement of the action, and those accrued during the pendency

of the action which have been collected by the defendant Gabriel Fuster y Fuster as receiver. This part of the judgment should be

modified.

By article 451 of the Civil Code, the possessor of property in good faith is entitled to the profits thereof until his possession is legally

interrupted. By article 448, the possessor under claim of ownership is presumed to have a just title. By article 434, good faith is

always presumed, while bad faith must be affirmatively proved. By article 435, possession acquired in good faith does not lose that

character until the occurrence of something showing that the possessor is not ignorant of the weakness of his title.


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That portion of the present action having been abandoned which involved the direct charge of conspiracy on the part of the

defendants, they are entitled, as the case stands, to the benefit of these articles of the code unless they can be charged with actual

bad faith. Applying the standard of the Spanish law expressed in these articles, there is not sufficient in the case to estab lish such a

charge although it is somewhat indicated in the evidence. It may be urged, however, that the tax deed derives its force from the law

under which it is given and must take us an incident its quality and effects from that law, so that the holder thereof acquires no

other status in respect of good faith than such as the American law attributes to him in that character. The rule of that law is usually

stated to good faith (Cooley on Taxation, pp. 218, 220), qualified, however, in this important particular, that in respect ofimprovements he who, without actual knowledge of defects, holds a deed regular on its face, is considered in good faith and is

entitled to rely upon that deed without an investigation of the proceedings upon which it is founded. But if the deed itself exposes

an irregularity, he must take notice of it. (Madland vs.Benland, 24 Min., 372; O'Mulcahy vs.Florer, 27 Min., 499; Bedell vs.Shaw, 59

N.Y., 46; Lynch vs.Brudie, 63 Pa., 206.) We have to seek the meaning of the term "good faith" in the cases on the subject of

improvements because, in the American system, it can not arise in connection with rents and profits, which are recoverable by the

successful plaintiff in any event without regard to it.

In the present instance, the final deed is regular on its face, and in the opinion of the majority of the court, in the absence of actual

notice, sufficed to protect the holders thereof, although the preliminary certificate of sale which they had held and surrendered

showed in its recital that the sale was irregular. Therefore, applying either the Spanish or the American criterions as to good faith,

the plaintiff may not recover the rents and profits down to the time when it is plain that the defendants were advised of the vice oftheir title.lawphil.net

This limit is fixed at the date on which, after being informed by the beginning of an action, they voluntarily appear therein and assert

their claim. (Judgments of the supreme court of Spain of November 23, 1900, and October 12, 1901.)

The defendants' first pleading in this case, the demurrer, was served on the 16th of May, 1906, and the plaintiff is entitled to recover

the rents and profits from that date until the termination of the action, and the receiver must account to her therefor.

In conclusion, so much of the judgment of the Court of First Instance as awards to the plaintiff the possession of the property in suit,

declaring void the deed from the city assessor and collector to Juan Jimenez y Mijares, together with the deed of the latter to the

defendant Gabriel Fuster y Fuster, and also so much thereof as directs the payment to the plaintiff of the rents and profits of the

property from the 16th of May, 1906, and also awards to the defendants the sum of P2,934.76, with interest from the 17th ofDecember , 1904, to the 26th o f April, 1906, being the amount of the tax with interest deposited under the statute as a condition to

maintain the action, but thereafter withdrawn under stipulation, is affirmed; but so much of said judgments as d irects payment to

the plaintiff of the rents and profits of the real estate prior to the 16th of day of May, 1906, amounting to P4,337.73, is revoked.

This action is hereby remanded to the Court of First Instance for the purpose of taking such accounts

taxation batch 6 ft.docx

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