taxation fulltxt-2nd batch

7/27/2019 Taxation Fulltxt-2nd Batch

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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-75697 June 18, 1987

VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,vs.

VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITYMAYOR and CITY TREASURER OF MANILA, respondents.

Nelson Y. Ng for petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.:

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of othervideogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled "AAct Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogramindustry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and tooeffect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No.1994 amended the National Internal Revenue Code providing, inter alia:

SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, readfor playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactureor imported blank video tapes shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers andDistributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinaftercollectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over petitioner'sopposition, upon the allegations that intervention was necessary for the complete protection of their rights and thatheir "survival and very existence is threatened by the unregulated proliferation of film piracy." The Intervenorswere thereafter allowed to file their Comment in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:

1. WHEREAS, the proliferation and unregulated circulation of videograms including, among othersvideotapes, discs, cassettes or any technical improvement or variation thereof, have greatly

prejudiced the operations of moviehouses and theaters, and have caused a sharp decline intheatrical attendance by at least forty percent (40%) and a tremendous drop in the collection ofsales, contractor's specific, amusement and other taxes, thereby resulting in substantial lossesestimated at P450 Million annually in government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum fromrentals, sales and disposition of videograms, and such earnings have not been subjected to tax,thereby depriving the Government of approximately P180 Million in taxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected theviability of the movie industry, particularly the more than 1,200 movie houses and theaters


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throughout the country, and occasioned industry-wide displacement and unemployment due to theshutdown of numerous moviehouses and theaters;

4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Governmentto create an environment conducive to growth and development of all business industries, includinthe movie industry which has an accumulated investment of about P3 Billion;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviatethe dire financial condition of the movie industry upon which more than 75,000 families and 500,00workers depend for their livelihood, but also provide an additional source of revenue for the

Government, and at the same time rationalize the heretofore uncontrolled distribution ofvideograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes aclear and present danger to the moral and spiritual well-being of the youth, and impairs themandate of the Constitution for the State to support the rearing of the youth for civic efficiency andthe development of moral character and promote their physical, intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb theseblatant malpractices which have flaunted our censorship and copyright laws;

8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people anbetraying the national economic recovery program, bold emergency measures must be adoptedwith dispatch; ... (Numbering of paragraphs supplied).

Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:

1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the localgovernment is a RIDER and the same is not germane to the subject matter thereof;

2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade inviolation of the due process clause of the Constitution;

3. There is no factual nor legal basis for the exercise by the President of the vast powers conferredupon him by Amendment No. 6;

4. There is undue delegation of power and authority;

5. The Decree is an ex-post facto law; and

6. There is over regulation of the video industry as if it were a nuisance, which it is not.

We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the

title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purposewhich a statute seeks to achieve. It is not necessary that the title express each and every end that the statutewishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to thsubject matter expressed in the title, or as long as they are not inconsistent with or foreign to the general subjectand title. 2 An act having a single general subject, indicated in the title, may contain any number of provisions, nomatter how diverse they may be, so long as they are not inconsistent with or foreign to the general subject, andmay be considered in furtherance of such subject by providing for the method and means of carrying out thegeneral object." 3 The rule also is that the constitutional requirement as to the title of a bill should not be sonarrowly construed as to cripple or impede the power of legislation. 4 It should be given practical rather thantechnical construction. 5


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Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is withoutmerit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision oflaw to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price orrental rate, as the case may be, for every sale, lease or disposition of a videogram containing areproduction of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds ofthe tax collected shall accrue to the province, and the other fifty percent (50%) shall acrrue to themunicipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall beshared equally by the City/Municipality and the Metropolitan Manila Commission.

xxx xxx xxx

The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, thegeneral object of the DECREE, which is the regulation of the video industry through the Videogram RegulatoryBoard as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject andtitle. As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout theDECREE. The express purpose of the DECREE to include taxation of the video industry in order to regulate andrationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Thospreambles explain the motives of the lawmaker in presenting the measure. The title of the DECREE, which is thecreation of the Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in itsPreamble and reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or

that the latter be an index to the body of the DECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and inrestraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because itregulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is one sounlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to anyrestrictions whatever, except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax,the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressivtaxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realizatiothat earnings of videogram establishments of around P600 million per annum have not been subjected to tax,

thereby depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailersfor every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed orborne by the movie industry which the theater-owners pay to the government, but which is passed on to the entircost of the admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that isimposed uniformly on all videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating thevideo industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights,and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect thmovie industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the

tax was to favor one industry over another. 11

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has beenrepeatedly held that "inequities which result from a singling out of one particular class for taxation orexemption infringe no constitutional limitation". 12 Taxation has been made the implement of the state's policpower. 13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the formerPresident under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the


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President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim BatasangPambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason thain his judgment requires immediate action, he may, in order to meet the exigency, issue the necessary decrees,orders, or letters of instructions, which shall form part of the law of the land."

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficientlysummarizes the justification in that grave emergencies corroding the moral values of the people and betraying thnational economic recovery program necessitated bold emergency measures to be adopted with dispatch.Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of theexercise of legislative power under the said Amendment still pends resolution in several other cases, we reserve

resolution of the question raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power. Thegrant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other agenciesand units of the government and deputize, for a fixed and limited period, the heads or personnel of such agenciesand units to perform enforcement functions for the Board" is not a delegation of the power to legislate but merely conferment of authority or discretion as to its execution, enforcement, and implementation. "The true distinction isbetween the delegation of power to make the law, which necessarily involves a discretion as to what it shall be,and conferring authority or discretion as to its execution to be exercised under and in pursuance of the law. Thefirst cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very language of the decreethe authority of the BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencieconcerned being "subject to the direction and control of the BOARD." That the grant of such authority might be th

source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality occuthe aggrieved parties will not be without adequate remedy in law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories, onwhich "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the lawrequired at the time of the commission of the offense." It is petitioner's position that Section 15 of the DECREE inproviding that:

All videogram establishments in the Philippines are hereby given a period of forty-five (45) daysafter the effectivity of this Decree within which to register with and secure a permit from the BOARto engage in the videogram business and to register with the BOARD all their inventories ofvideograms, including videotapes, discs, cassettes or other technical improvements or variations

thereof, before they could be sold, leased, or otherwise disposed of. Thereafter any videogramfound in the possession of any person engaged in the videogram business without the requiredproof of registration by the BOARD, shall be prima facie evidence of violation of the Decree,whether the possession of such videogram be for private showing and/or public exhibition.

raises immediately aprima facie evidence of violation of the DECREE when the required proof of registration ofany videogram cannot be presented and thus partakes of the nature of an ex post facto law.

The argument is untenable. As this Court held in the recent case ofVallarta vs. Court of Appeals, et al. 15

... it is now well settled that "there is no constitutional objection to the passage of a law providing that thepresumption of innocence may be overcome by a contrary presumption founded upon the experience of

human conduct, and enacting what evidence shall be sufficient to overcome such presumption of innocence(People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THECONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when certain facts havebeen proved that they shall be prima facie evidence of the existence of the guilt of the accused and shift theburden of proof provided there be a rational connection between the facts proved and the ultimate factspresumed so that the inference of the one from proof of the others is not unreasonable and arbitrary becausof lack of connection between the two in common experience". 16

Applied to the challenged provision, there is no question that there is a rational connection between the factproved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides thefact that theprima facie presumption of violation of the DECREE attaches only after a forty-five-day period countefrom its effectivity and is, therefore, neither retrospective in character.


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6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out ofexistence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent. Whilethe underlying objective of the DECREE is to protect the moribund movie industry, there is no question that publiwelfare is at bottom of its enactment, considering "the unfair competition posed by rampant film piracy; the erosioof the moral fiber of the viewing public brought about by the availability of unclassified and unreviewed video tapecontaining pornographic films and films with brutally violent sequences; and losses in government revenues due the drop in theatrical attendance, not to mention the fact that the activities of video establishments are virtuallyuntaxed since mere payment of Mayor's permit and municipal license fees are required to engage in business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On th

contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax impose

In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREEThese considerations, however, are primarily and exclusively a matter of legislative concern.

Only congressional power or competence, not the wisdom of the action taken, may be the basis for declaringa statute invalid. This is as it ought to be. The principle of separation of powers has in the main wiselyallocated the respective authority of each department and confined its jurisdiction to such a sphere. Therewould then be intrusion not allowable under the Constitution if on a matter left to the discretion of a coordinabranch, the judiciary would substitute its own. If there be adherence to the rule of law, as there ought to be,the last offender should be courts of justice, to which rightly litigants submit their controversy precisely tomaintain unimpaired the supremacy of legal norms and prescriptions. The attack on the validity of thechallenged provision likewise insofar as there may be objections, even if valid and cogent on its wisdomcannot be sustained. 18

In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find noclear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 asunconstitutional and void.

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.

Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin,Sarmiento and Cortes, JJ., concur.

G.R. No. L-24756 October 31, 1968

CITY OF BAGUIO, plaintiff-appellee,vs.

FORTUNATO DE LEON, defendant-appellant.

The City Attorney for plaintiff-appellee.Fortunato de Leon for and in his own behalf as defendant-appellant.

FERNANDO, J.:

In this appeal, a lower court decision upholding the validity of an ordinance1 of the City of Baguio imposing alicense fee on any person, firm, entity or corporation doing business in the City of Baguio is assailed by defendanappellant Fortunato de Leon. He was held liable as a real estate dealer with a property therein worth more thanP10,000, but not in excess of P50,000, and therefore obligated to pay under such ordinance the P50 annual fee.


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That is the principal question. In addition, there has been a firm and unyielding insistence by defendant-appellantof the lack of jurisdiction of the City Court of Baguio, where the suit originated, a complaint having been filedagainst him by the City Attorney of Baguio for his failure to pay the amount of P300 as license fee covering theperiod from the first quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor wadefendant-appellant agreeable to such a suit being instituted by the City Treasurer without the consent of theMayor, which for him was indispensable. The lower court was of a different mind.

In its decision of December 19, 1964, it declared the above ordinance as amended, valid and subsisting, and heldefendant-appellant liable for the fees therein prescribed as a real estate dealer. Hence, this appeal. Assume thevalidity of such ordinance, and there would be no question about the liability of defendant-appellant for the above

license fee, it being shown in the partial stipulation of facts, that he was "engaged in the rental of his property inBaguio" deriving income therefrom during the period covered by the first quarter of 1958 to the fourth quarter of1962.

The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending the citycharter of Baguio2 empowering it to fix the license fee and regulate "businesses, trades and occupations as maybe established or practiced in the City."

Unless it can be shown then that such a grant of authority is not broad enough to justify the enactment of theordinance now assailed, the decision appealed from must be affirmed. The task confronting defendant-appellant,therefore, was far from easy. Why he failed is understandable, considering that even a cursory reading of theabove amendment readily discloses that the enactment of the ordinance in question finds support in the power

thus conferred.

Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City of Baguio,3 theeffect of the amendatory section insofar as it would expand the previous power vested by the city charter wasclarified in these terms: "Appellants apparently have in mind section 2553, paragraph (c) of the Revised

Administrative Code, which empowers the City of Baguio merely to impose a license fee for the purpose of ratingthe business that may be established in the city. The power as thus conferred is indeed limited, as it does notinclude the power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted amending the charter ofsaid city and adding to its power to license the power to tax and to regulate. And it is precisely having in view thisamendment that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, theamendment above adverted to empowers the city council not only to impose a license fee but also to levy a tax fopurposes of revenue, more so when in amending section 2553 (b), the phrase 'as provided by law' has been

removed by section 2 of Republic Act No. 329. The city council of Baguio, therefore, has now the power to tax, tolicense and to regulate provided that the subjects affected be one of those included in the charter. In this sense,the ordinance under consideration cannot be considered ultra vires whether its purpose be to levy a tax or imposa license fee. The terminology used is of no consequence."

It would be an undue and unwarranted emasculation of the above power thus granted if defendant-appellant werto be sustained in his contention that no such statutory authority for the enactment of the challenged ordinancecould be discerned from the language used in the amendatory act. That is about all that needs to be said inupholding the lower court, considering that the City of Baguio was not devoid of authority in enacting this particulaordinance. As mentioned at the outset, however, defendant-appellant likewise alleged procedural missteps andasserted that the challenged ordinance suffered from certain constitutional infirmities. To such points raised byhim, we shall now turn.

1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in the suit for thcollection of the real estate dealer's fee from him in the amount of P300. He contended before the lower court, anit is his contention now, that while the amount of P300 sought was within the jurisdiction of the City Court of Baguwhere this action originated, since the principal issue was the legality and constitutionality of the challengedordinance, it is not such City Court but the Court of First Instance that has original jurisdiction.

There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently, on Septemb7, 1968 to be exact, we rejected a contention similar in character in Nemenzo v. Sabillano.4 The plaintiff in thatcase filed a claim for the payment of his salary before the Justice of the Peace Court of Pagadian, Zamboanga dSur. The question of jurisdiction was raised; the defendant Mayor asserted that what was in issue was the


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enforcement of the decision of the Commission of Civil Service; the Justice of the Peace Court was thus withoutjurisdiction to try the case. The above plea was curtly dismissed by Us, as what was involved was "an ordinarymoney claim" and therefore "within the original jurisdiction of the Justice of the Peace Court where it was filed,considering the amount involved." Such is likewise the situation here.

Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this license feecorresponding to the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of the amountinvolved. The thought that the municipal court lacked jurisdiction apparently was not even in the minds of theparties and did not receive any consideration by this Court.

Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is raised, it is theCourt of First Instance that should have original jurisdiction on the matter. It does not admit of doubt, however, thwhat confers jurisdiction is the amount set forth in the complaint. Here, the sum sought to be recovered was cleawithin the jurisdiction of the City Court of Baguio.

Nor could it be plausibly maintained that the validity of such ordinance being open to question as a defenseagainst its enforcement from one adversely affected, the matter should be elevated to the Court of First InstanceFor the City Court could rely on the presumption of the validity of such ordinance,6 and the mere fact, however,that in the answer to such a complaint a constitutional question was raised did not suffice to oust the City Court oits jurisdiction. The suit remains one for collection, the lack of validity being only a defense to such an attempt atrecovery. Since the City Court is possessed of judicial power and it is likewise axiomatic that the judicial powerembraces the ascertainment of facts and the application of the law, the Constitution as the highest law

superseding any statute or ordinance in conflict therewith, it cannot be said that a City Court is bereft ofcompetence to proceed on the matter. In the exercise of such delicate power, however, the admonition of Cooleyon inferior tribunals is well worth remembering. Thus: "It must be evident to any one that the power to declare alegislative enactment void is one which the judge, conscious of the fallibility of the human judgment, will shrinkfrom exercising in any case where he can conscientiously and with due regard to duty and official oath decline thresponsibility."7 While it remains undoubted that such a power to pass on the validity of an ordinance alleged toinfringe certain constitutional rights of a litigant exists, still it should be exercised with due care and circumspectioconsidering not only the presumption of validity but also the relatively modest rank of a city court in the judicialhierarchy.

2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample statutoryauthority for the enactment thereof. Nonetheless, its validity on constitutional grounds is challenged because of th

allegation that it imposed double taxation, which is repugnant to the due process clause, and that it violated therequirement of uniformity. We do not view the matter thus.

As to why double taxation is not violative of due process, Justice Holmes made clear in this language: "Theobjection to the taxation as double may be laid down on one side. ... The 14th Amendment [the due processclause] no more forbids double taxation than it does doubling the amount of a tax, short of confiscation orproceedings unconstitutional on other grounds."8With that decision rendered at a time when American sovereigntin the Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered the coupde grace to the bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seemthough that in the United States, as with us, its ghost as noted by an eminent critic, still stalks the juridical state. Ia 1947 decision, however,9 we quoted with approval this excerpt from a leading American decision:10 "Where, ashere, Congress has clearly expressed its intention, the statute must be sustained even though double taxation

results."

At any rate, it has been expressly affirmed by us that such an "argument against double taxation may not beinvoked where one tax is imposed by the state and the other is imposed by the city ..., it being widely recognizedthat there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect tothe same occupation, calling or activity by both the state and the political subdivisions thereof."11

The above would clearly indicate how lacking in merit is this argument based on double taxation.

Now, as to the claim that there was a violation of the rule of uniformity established by the constitution. According the challenged ordinance, a real estate dealer who leases property worth P50,000 or above must pay an annual


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fee of P100. If the property is worth P10,000 but not over P50,000, then he pays P50 and P24 if the value is lessthan P10,000. On its face, therefore, the above ordinance cannot be assailed as violative of the constitutionalrequirement of uniformity. In Philippine Trust Company v. Yatco,12 Justice Laurel, speaking for the Court, stated: tax is considered uniform when it operates with the same force and effect in every place where the subject may bfound."

There was no occasion in that case to consider the possible effect on such a constitutional requirement wherethere is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso.13 Thus: "Equality and uniformin taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate.The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; ..."

About two years later, Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De laFuente14 incorporated the above excerpt in his opinion and continued: "Taking everything into account, thedifferentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and isnot discriminatory within the meaning of the Constitution."

To satisfy this requirement then, all that is needed as held in another case decided two years later, 15 is that thestatute or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation.This Court is on record as accepting the view in a leading American case16 that "inequalities which result from asingling out of one particular class for taxation or exemption infringe no constitutional limitation."17

It is thus apparent from the above that in much the same way that the plea of double taxation is unavailing, theallegation that there was a violation of the principle of uniformity is inherently lacking in persuasiveness. There is

no need to pass upon the other allegations to assail the validity of the above ordinance, it being maintained thatthe license fees therein imposed "is excessive, unreasonable and oppressive" and that there is a failure to observthe mandate of equal protection. A reading of the ordinance will readily disclose their inherent lack of plausibility.

3. That would dispose of all the errors assigned, except the last two, which would predicate a grievance on thecomplaint having been started by the City Treasurer rather than the City Mayor of Baguio. These alleged errors, awas the case with the others assigned, lack merit.

In much the same way that an act of a department head of the national government, performed within the limits ohis authority, is presumptively the act of the President unless reprobated or disapproved,18 similarly the act of theCity Treasurer, whose position is roughly analogous, may be assumed to carry the seal of approval of the CityMayor unless repudiated or set aside. This should be the case considering that such city official is called upon to

see to it that revenues due the City are collected. When administrative steps are futile and unavailing, given thestubbornness and obduracy of a taxpayer, convinced in good faith that no tax was due, judicial remedy may beresorted to by him. It would be a reflection on the state of the law if such fidelity to duty would be met bycondemnation rather than commendation.

So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes to it from thefunctional and pragmatic test. If a city treasurer has to await the nod from the city mayor before a municipalordinance is enforced, then opportunity exists for favoritism and undue discrimination to come into play. Whatevevalid reason may exist as to why one taxpayer is to be accorded a treatment denied another, the suspicion isunavoidable that such a manifestation of official favor could have been induced by unnamed but not unknownconsideration. It would not be going too far to assert that even defendant-appellant would find no satisfaction insuch a sad state of affairs. The more desirable legal doctrine therefore, on the assumption that a choice exists, is

one that would do away with such temptation on the part of both taxpayer and public official alike.

WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against defendant-appellant.

Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Capistrano, JJ., concur.Zaldivar, J., is on leave.

G.R. No. L-41631 December 17, 1976


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HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as Secretary tothe Mayor; THE MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF MANILA, petitioners,vs.HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First Instance of Manila,Branch XXX and the FEDERATION OF MANILA MARKET VENDORS, INC., respondents.

Santiago F. Alidio and Restituto R. Villanueva for petitioners.

Antonio H. Abad, Jr. for private respondent.

Federico A. Blay for petitioner for intervention.

MARTIN, J .:

The chief question to be decided in this case is what law shall govern the publication of a tax ordinance enacted the Municipal Board of Manila, the Revised City Charter (R.A. 409, as amended), which requires publication of thordinance before its enactment and after its approval, or the Local Tax Code (P.D. No. 231), which only demandspublication after approval.

On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE REGULATINGTHE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF STALLS ANDPROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The petitioner CityMayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974.

On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil Case 96787before the Court of First Instance of Manila presided over by respondent Judge, seeking the declaration of nullityof Ordinance No. 7522 for the reason that (a) the publication requirement under the Revised Charter of the City oManila has not been complied with; (b) the Market Committee was not given any participation in the enactment othe ordinance, as envisioned by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Acthas been violated; and (d) the ordinance would violate Presidential Decree No. 7 of September 30, 1972prescribing the collection of fees and charges on livestock and animal products.

Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent Judge issuedan order on March 11, 1975, denying the plea for failure of the respondent Federation of Manila Market Vendors,Inc. to exhaust the administrative remedies outlined in the Local Tax Code.

After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975, declaring the nullityof Ordinance No. 7522 of the City of Manila on the primary ground of non-compliance with the requirement ofpublication under the Revised City Charter. Respondent Judge ruled:

There is, therefore, no question that the ordinance in question was not published at all in two dailynewspapers of general circulation in the City of Manila before its enactment. Neither was itpublished in the same manner after approval, although it was posted in the legislative hall and in a

city public markets and city public libraries. There being no compliance with the mandatoryrequirement of publication before and after approval, the ordinance in question is invalid and,therefore, null and void.

Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-publication is requireby the Local Tax Code; and (b) private respondent failed to exhaust all administrative remedies before institutingan action in court.

On September 26, 1975, respondent Judge denied the motion.

Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.


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We find the petition impressed with merits.

1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the City of Maniland the Local Tax Code on the manner of publishing a tax ordinance enacted by the Municipal Board of Manila.For, while Section 17 of the Revised Charter provides:

Each proposed ordinance shall be published in two daily newspapers of general circulation in thecity, and shall not be discussed or enacted by the Board until after the third day following suchpublication. * * * Each approved ordinance * * * shall be published in two daily newspapers ofgeneral circulation in the city, within ten days after its approval; and shall take effect and be in forc

on and after the twentieth day following its publication, if no date is fixed in the ordinance.

Section 43 of the Local Tax Code directs:

Within ten days aftertheir approval, certified true copies of all provincial, city, municipal andbarrioordinances levying or imposing taxes, fees or other charges shall be published for threeconsecutive days in a newspaper or publication widely circulated within the jurisdiction of the localgovernment, or posted in the local legislative hall or premises and in two other conspicuous placeswithin the territorial jurisdiction of the local government. In either case, copies of all provincial, citymunicipal and barrio ordinances shall be furnished the treasurers of the respective component andmother units of a local government for dissemination.

In other words, while the Revised Charter of the City of Manila requires publication before the enactment of theordinance and afterthe approval thereof in two daily newspapers of general circulation in the city, the Local TaxCode only prescribes for publication after the approval of "ordinances levying or imposing taxes, fees or othercharges" either in a newspaper or publication widely circulated within the jurisdiction of the local government or bposting the ordinance in the local legislative hall or premises and in two other conspicuous places within theterritorial jurisdiction of the local government. Petitioners' compliance with the Local Tax Code rather than with thRevised Charter of the City spawned this litigation.

There is no question that the Revised Charter of the City of Manila is a special actsince it relates only to the Cityof Manila, whereas the Local Tax Code is a general law because it applies universally to all local governments.Blackstone defines general law as a universal rule affecting the entire community and special law as one relatingto particular persons or things of a class. 1And the rule commonly said is that a prior special law is not ordinarilyrepealed by a subsequent general law. The fact that one is special and the other general creates a presumptionthat the special is to be considered as remaining an exception of the general, one as a general law of the land, thother as the law of a particular case. 2 However, the rule readily yields to a situation where the special statuterefers to a subject in general, which the general statute treats inparticular. The exactly is the circumstanceobtaining in the case at bar. Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" ingeneral, i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the Local Tax Code relates to"ordinances levying or imposing taxes, fees or other charges" in particular. In regard, therefore, to ordinances ingeneral, the Revised Charter of the City of Manila is doubtless dominant, but, that dominant force loses itscontinuity when it approaches the realm of "ordinances levying or imposing taxes, fees or other charges" inparticular. There, the Local Tax Code controls. Here, as always, a general provision must give way to a particularprovision. 3 Special provision governs. 4 This is especially true where the law containing the particular provisionwas enacted later than the one containing the general provision. The City Charter of Manila was promulgated on

June 18, 1949 as against the Local Tax Code which was decreed on June 1, 1973. The law-making power cannobe said to have intended the establishment of conflicting and hostile systems upon the same subject, or to leave force provisions of a prior law by which the new will of the legislating power may be thwarted and overthrown.Such a result would render legislation a useless and Idle ceremony, and subject the law to the reproach ofuncertainty and unintelligibility. 5

The case ofCity of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for damagesarising from the injuries he suffered when he fell inside an uncovered and unlighted catchbasin or manhole on P.Burgos Avenue. The City of Manila denied liability on the basis of the City Charter (R.A. 409) exempting the City Manila from any liability for damages or injury to persons or property arising from the failure of the city officers toenforce the provisions of the charter or any other law or ordinance, or from negligence of the City Mayor, Municip


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Board, or other officers while enforcing or attempting to enforce the provisions of the charter or of any other law oordinance. Upon the other hand, Article 2189 of the Civil Code makes cities liable for damages for the death of, oinjury suffered by any persons by reason of the defective condition of roads, streets, bridges, public buildings, another public works under their control or supervision. On review, the Court held the Civil Code controlling. It is truthat, insofar as its territorial application is concerned, the Revised City Charter is a special law and the subjectmatter of the two laws, the Revised City Charter establishes a general rule of liability arising from negligence ingeneral, regardless of the object thereof, whereas the Civil Code constitutes a particularprescriptionfor liability duto defective streets in particular. In the same manner, the Revised Charter of the City prescribes a rule for thepublication of "ordinance" in general, while the Local Tax Code establishes a rule for the publication of "ordinancelevying or imposing taxes fees or other charges in particular.

In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a general orbroad one. 7 A charter provision may be impliedly modified or superseded by a later statute, and where a statute controlling, it must be read into the charter notwithstanding any particular charter provision. 8 A subsequent genelaw similarly applicable to all cities prevails over any conflicting charter provision, for the reason that a charter munot be inconsistent with the general laws and public policy of the state. 9 A chartered city is not an independentsovereignty. The state remains supreme in all matters not purely local. Otherwise stated, a charter must yield tothe constitution and general laws of the state, it is to have read into it that general law which governs the municipcorporation and which the corporation cannot set aside but to which it must yield. When a city adopts a charter, itin effect adopts as part of its charter general law of such character. 10

2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as having been

violated by private respondent in bringing a direct suit in court. This is because Section 47 of the Local Tax Codeprovides that any question or issue raised against the legality of any tax ordinance, or portion thereof, shall bereferred for opinion to the city fiscal in the case of tax ordinance of a city. The opinion of the city fiscal isappealable to the Secretary of Justice, whose decision shall be final and executory unless contested before acompetent court within thirty (30) days. But, the petition below plainly shows that the controversy between theparties is deeply rooted in a pure question of law: whether it is the Revised Charter of the City of Manila or theLocal Tax Code that should govern the publication of the tax ordinance. In other words, the dispute is sharplyfocused on the applicability of the Revised City Charter or the Local Tax Code on the point at issue, and not on thlegality of the imposition of the tax. Exhaustion of administrative remedies before resort to judicial bodies is not aabsolute rule. It admits of exceptions. Where the question litigated upon is purely a legal one, the rule does notapply. 11 The principle may also be disregarded when it does not provide a plain, speedy and adequate remedy. Imay and should be relaxed when its application may cause great and irreparable damage. 12

3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because theimposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-raising function,so that the procedure for publication under the Local Tax Code finds no application. The pretense bears its ownmarks of fallacy. Precisely, the raising of revenues is the principal object of taxation. Under Section 5, Article XI othe New Constitution, "Each local government unit shall have the power to create its own sources of revenue andto levy taxes, subject to such provisions as may be provided by law." 13 And one of those sources of revenue iswhat the Local Tax Code points to in particular: "Local governments may collect fees or rentals for the occupancyor use of public markets and premises * * *." 14 They can provide for and regulate market stands, stalls andprivileges, and, also, the sale, lease or occupancy thereof. They can license, or permit the use of, lease, sell orotherwise dispose of stands, stalls or marketing privileges. 15

It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated September 30, 1972,insofar as it affects livestock and animal products, because the said decree prescribes the collection of other feesand charges thereon "with the exception of ante-mortem and post-mortem inspection fees, as well as the deliverystockyard and slaughter fees as may be authorized by the Secretary of Agriculture and NaturalResources." 16Clearly, even the exception clause of the decree itself permits the collection of the proper fees forlivestock. And the Local Tax Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments maycollect fees for the slaughter of animals and the use of corrals * * * "

4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522 supposedly inaccordance with Republic Act No. 6039, an amendment to the City Charter of Manila, providing that "the marketcommittee shall formulate, recommend and adopt, subject to the ratification of the municipal board, and approval


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of the mayor, policies and rules or regulation repealing or maneding existing provisions of the market code" doesnot infect the ordinance with any germ of invalidity. 17 The function of the committee is purely recommendatory asthe underscored phrase suggests, its recommendation is without binding effect on the Municipal Board and theCity Mayor. Its prior acquiescence of an intended or proposed city ordinance is not a condition sine qua non befothe Municipal Board could enact such ordinance. The native power of the Municipal Board to legislate remainsundisturbed even in the slightest degree. It can move in its own initiative and the Market Committee cannot demu

At most, the Market Committee may serve as a legislative aide of the Municipal Board in the enactment of cityordinances affecting the city markets or, in plain words, in the gathering of the necessary data, studies and thecollection of consensus for the proposal of ordinances regarding city markets. Much less could it be said thatRepublic Act 6039 intended to delegate to the Market Committee the adoption of regulatory measures for the

operation and administration of the city markets. Potestas delegata non delegare potest.

5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are diverted to theexclusive private use of the Asiatic Integrated Corporation since the collection of said fees had been let by the Ciof Manila to the said corporation in a "Management and Operating Contract." The assumption is of course saddleon erroneous premise. The fees collected do not go direct to the private coffers of the corporation. Ordinance No7522 was not made for the corporation but for the purpose of raising revenues for the city. That is the object itserves. The entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So longas the purpose is public, it does not matter whether the agency through which the money is dispensed is public oprivate. The right to tax depends upon the ultimate use, purpose and object for which the fund is raised. It is notdependent on the nature or character of the person or corporation whose intermediate agency is to be used inapplying it. The people may be taxed for a public purpose, although it be under the direction of an individual or

private corporation.18

Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt Practices Actbecause the increased rates of market stall fees as levied by the ordinance will necessarily inure to theunwarranted benefit and advantage of the corporation. 19We are concerned only with the issue whether theordinance in question is intra vires. Once determined in the affirmative, the measure may not be invalidatedbecause of consequences that may arise from its enforcement. 20

ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No. 7522 of the Ciof Manila, dated June 15, 1975, is hereby held to have been validly enacted. No. costs.

SO ORDERED.

Castro, C.J., Barredo, Makasiar, Antonio, Muoz Palma, Aquino and Concepcion, Jr., JJ., concur.

Teehankee, J., reserves his vote.

G.R. No. L-10405 December 29, 1960

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-appellant,vs.THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees.

Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.:


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Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing theabove entitled case and dissolving the writ of preliminary injunction therein issued, without costs.

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action fordeclaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating Fundfor Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.0"for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals (Gen.Roxas Gen. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen. MalvarGen. Lim)"; that, at the time of the passage and approval of said Act, the aforementioned feeder roads were"nothing but projected and planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . .

situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near ShawBoulevard, not far away from the intersection between the latter and Highway 54), which projected feeder roads"do not connect any government property or any important premises to the main highway"; that theaforementioned Antonio Subdivision (as well as the lands on which said feeder roads were to be construed) wereprivate properties of respondent Jose C. Zulueta, who, at the time of the passage and approval of said Act, was amember of the Senate of the Philippines; that on May, 1953, respondent Zulueta, addressed a letter to theMunicipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the municipality of Pasig, Rizathat, on June 13, 1953, the offer was accepted by the council, subject to the condition "that the donor would subma plan of the said roads and agree to change the names of two of them"; that no deed of donation in favor of themunicipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote another letter tosaid council, calling attention to the approval of Republic Act. No. 920, and the sum of P85,000.00 appropriatedtherein for the construction of the projected feeder roads in question; that the municipal council of Pasig endorsed

said letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present "has not made anyendorsement thereon" that inasmuch as the projected feeder roads in question were private property at the time the passage and approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for theconstruction, reconstruction, repair, extension and improvement of said projected feeder roads, was illegal and,therefore, void ab initio"; that said appropriation of P85,000.00 was made by Congress because its members wermade to believe that the projected feeder roads in question were "public roads and not private streets of a privatesubdivision"'; that, "in order to give a semblance of legality, when there is absolutely none, to the aforementionedappropriation", respondents Zulueta executed on December 12, 1953, while he was a member of the Senate of tPhilippines, an alleged deed of donation copy of which is annexed to the petition of the four (4) parcels ofland constituting said projected feeder roads, in favor of the Government of the Republic of the Philippines; thatsaid alleged deed of donation was, on the same date, accepted by the then Executive Secretary; that beingsubject to an onerous condition, said donation partook of the nature of a contract; that, such, said donation

violated the provision of our fundamental law prohibiting members of Congress from being directly or indirectlyfinancially interested in any contract with the Government, and, hence, is unconstitutional, as well as null andvoidab initio, for the construction of the projected feeder roads in question with public funds would greatly enhancor increase the value of the aforementioned subdivision of respondent Zulueta, "aside from relieving him from theburden of constructing his subdivision streets or roads at his own expense"; that the construction of said projectefeeder roads was then being undertaken by the Bureau of Public Highways; and that, unless restrained by thecourt, the respondents would continue to execute, comply with, follow and implement the aforementioned illegalprovision of law, "to the irreparable damage, detriment and prejudice not only to the petitioner but to the Filipinonation."

Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that thealleged deed of donation of the feeder roads in question be "declared unconstitutional and, therefor, illegal"; that

writ of injunction be issued enjoining the Secretary of Public Works and Communications, the Director of theBureau of Public Works and Highways and Jose C. Zulueta from ordering or allowing the continuance of theabove-mentioned feeder roads project, and from making and securing any new and further releases on theaforementioned item of Republic Act No. 920, and the disbursing officers of the Department of Public Works andHighways from making any further payments out of said funds provided for in Republic Act No. 920; and thatpending final hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned partiesrespondent from making and securing any new and further releases on the aforesaid item of Republic Act No. 92and from making any further payments out of said illegally appropriated funds.

Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and ththe petition did "not state a cause of action". In support to this motion, respondent Zulueta alleged that the


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Provincial Fiscal of Rizal, not its provincial governor, should represent the Province of Rizal, pursuant to section1683 of the Revised Administrative Code; that said respondent is " not aware of any law which makes illegal theappropriation of public funds for the improvements of . . . private property"; and that, the constitutional provisioninvoked by petitioner is inapplicable to the donation in question, the same being a pure act of liberality, not acontract. The other respondents, in turn, maintained that petitioner could not assail the appropriation in questionbecause "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is necessarilyinvolved" and petitioner "has not shown that he has a personal and substantial interest" in said Act "and that itsenforcement has caused or will cause him a direct injury."

Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29,

1953, holding that, since public interest is involved in this case, the Provincial Governor of Rizal and the provinciafiscal thereof who represents him therein, "have the requisite personalities" to question the constitutionality of thedisputed item of Republic Act No. 920; that "the legislature is without power appropriate public revenues foranything but a public purpose", that the instructions and improvement of the feeder roads in question, if such roawhere private property, would not be a public purpose; that, being subject to the following condition:

The within donation is hereby made upon the condition that the Government of the Republic of thePhilippines will use the parcels of land hereby donated for street purposes only and for no other purposeswhatsoever; it being expressly understood that should the Government of the Republic of the Philippinesviolate the condition hereby imposed upon it, the title to the land hereby donated shall, upon such violatioipso facto revert to the DONOR, JOSE C. ZULUETA. (Emphasis supplied.)

which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden bythe Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the Philippines, declares inexistence and void from the very beginning contracts "whose cause, objector purpose is contrary to law, morals .. or public policy"; that the legality of said donation may not be contested, however, by petitioner herein, becausehis "interest are not directly affected" thereby; and that, accordingly, the appropriation in question "should beupheld" and the case dismissed.

At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions todismiss, which as much, are deemed to have admitted hypothetically the allegations of fact made in the petition oappellant herein. According to said petition, respondent Zulueta is the owner of several parcels of residential landsituated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which had been reserved for thprojected feeder roads aforementioned, which, admittedly, were private property of said respondent when

Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension andimprovement" of said roads, was passed by Congress, as well as when it was approved by the President on June20, 1953. The petition further alleges that the construction of said roads, to be undertaken with the aforementioneappropriation of P85,000.00, would have the effect of relieving respondent Zulueta of the burden of constructinghis subdivision streets or roads at his own expenses, 1and would "greatly enhance or increase the value of thesubdivision" of said respondent. The lower court held that under these circumstances, the appropriation inquestion was "clearly for a private, not a public purpose."

Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent Zuluetacontended, in his motion to dismiss that:

A law passed by Congress and approved by the President can never be illegal because Congress is the

source of all laws . . . Aside from the fact that movant is not aware of any law which makes illegal theappropriation of public funds for the improvement of what we, in the meantime, may assume as privateproperty . . . (Record on Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature of the Governmentestablished under the Constitution of the Republic of the Philippines and the system of checks and balancesunderlying our political structure. Moreover, it is refuted by the decisions of this Court invalidating legislativeenactments deemed violative of the Constitution or organic laws. 3

As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to RulingCase Law, is this:


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It is a general rule that the legislature is without power to appropriate public revenue for anything but apublic purpose. . . . It is the essential character of the direct object of the expenditure which must determinits validity as justifying a tax, and not the magnitude of the interest to be affected nor the degree to whichthe general advantage of the community, and thus the public welfare, may be ultimately benefited by theirpromotion. Incidentalto the public or to the state, which results from the promotion of private interest andthe prosperity of private enterprises or business, does not justify their aid by the use public money. (25R.L.C. pp. 398-400; Emphasis supplied.)

The rule is set forth in Corpus Juris Secundum in the following language:

In accordance with the rule that the taxing power must be exercised for public purposes only,discussedsupra sec. 14, money raised by taxation can be expended only for public purposes and not forthe advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)

Explaining the reason underlying said rule, Corpus Juris Secundum states:

Generally, under the express or implied provisions of the constitution, public funds may be used only forpublic purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, undconstitutional provisions against taxation except for public purposes and prohibiting the collection of a taxfor one purpose and the devotion thereof to another purpose, no appropriation of state funds can be madefor other than for a public purpose.

The test of the constitutionality of a statute requiring the use of public funds is whether the statute isdesigned to promote the public interest, as opposed to the furtherance of the advantage of individuals,although each advantage to individuals might incidentallyserve the public. (81 C.J.S. pp. 1147; emphasissupplied.)

Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound, arenecessary corollary to our democratic system of government, which, as such, exists primarily for the promotion othe general welfare. Besides, reflecting as they do, the established jurisprudence in the United States, after whosconstitutional system ours has been patterned, said views and jurisprudence are, likewise, part and parcel of ourown constitutional law. lawphil.net

This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground thapetitioner may not contest the legality of the donation above referred to because the same does not affect himdirectly. This conclusion is, presumably, based upon the following premises, namely: (1) that, if valid, said donatiocured the constitutional infirmity of the aforementioned appropriation; (2) that the latter may not be annulledwithout a previous declaration of unconstitutionality of the said donation; and (3) that the rule set forth in Article1421 of the Civil Code is absolute, and admits of no exception. We do not agree with these premises.

The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not uponevents occurring, or acts performed, subsequently thereto, unless the latter consists of an amendment of theorganic law, removing, with retrospective operation, the constitutional limitation infringed by said statute. Referrin

to the P85,000.00 appropriation for the projected feeder roads in question, the legality thereof depended uponwhether said roads were public or private property when the bill, which, latter on, became Republic Act 920, waspassed by Congress, or, when said bill was approved by the President and the disbursement of said sum becameffective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which the projected feederroads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation sought aprivate purpose, and hence, was null and void. 4 The donation to the Government, over five (5) months after theapproval and effectivity of said Act, made, according to the petition, for the purpose of giving a "semblance oflegality", or legalizing, the appropriation in question, did not cure its aforementioned basic defect. Consequently,

judicial nullification of said donation need not precede the declaration of unconstitutionality of said appropriation.

Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For instancethe creditors of a party to an illegal contract may, under the conditions set forth in Article 1177 of said Code,


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exercise the rights and actions of the latter, except only those which are inherent in his person, including thereforhis right to the annulment of said contract, even though such creditors are not affected by the same, exceptindirectly, in the manner indicated in said legal provision.

Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury inconsequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, lawsproviding for the disbursement of public funds, 5upon the theory that "the expenditure of public funds by an officerof the State for the purpose of administering an unconstitutionalact constitutes a misapplication of such funds,"which may be enjoined at the request of a taxpayer. 6Although there are some decisions to the contrary, 7theprevailing view in the United States is stated in the American Jurisprudence as follows:

In the determination of the degree of interest essential to give the requisite standing to attack theconstitutionality of a statute, the general rule is that not only persons individually affected, butalsotaxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxationand may therefore question the constitutionality of statutes requiring expenditure of public moneys. (11 AmJur. 761; emphasis supplied.)

However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S. 447),insofar as federallaws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to its FederGovernment is different from that of a taxpayer of a municipal corporation to its government. Indeed, underthe composite system of government existing in the U.S., the states of the Union are integral part of the Federatiofrom an internationalviewpoint, but, each state enjoys internally a substantial measure of sovereignty, subject to

the limitations imposed by the Federal Constitution. In fact, the same was made by representatives ofeach statethe Union, not of the people of the U.S., except insofar as the former represented the people of the respectiveStates, and the people of each State has, independently of that of the others, ratified said Constitution. In otherwords, the Federal Constitution and the Federal statutes have become binding upon the people of the U.S. inconsequence of an act of, and, in this sense, through the respective states of the Union of which they are citizensThe peculiar nature of the relation between said people and the Federal Government of the U.S. is reflected in thelection of its President, who is chosen directly, notby the people of the U.S., but by electors chosen by eachState, in such manner as the legislature thereof may direct (Article II, section 2, of the Federal Constitution). lawphi1.net

The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of thePhilippines, on the other, is not identical to that obtaining between the people and taxpayers of the U.S. and itsFederal Government. It is closer, from a domestic viewpoint, to that existing between the people and taxpayers o

each state and the government thereof, except that the authority of the Republic of the Philippines over the peopof the Philippines is more fully directthan that of the states of the Union, insofar as the simple and unitarytype ofour national government is not subject to limitations analogous to those imposed by the Federal Constitution upothe states of the Union, and those imposed upon the Federal Government in the interest of the Union. For thisreason, the rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating locaor state public funds which has been upheld by the Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S601) has greater application in the Philippines than that adopted with respect to acts of Congress of the UnitedStates appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the Provinceof Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting the price being paidto the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of the Senate (42 Off. Gaz.,

1243), a taxpayer and employee of the Government was not permitted to question the constitutionality of anappropriation for backpay of members of Congress. However, in Rodriguez vs. Treasurer of the Philippines andBarredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of taxpayersimpugning the validity of certain appropriations of public funds, and invalidated the same. Moreover, the reasonthat impelled this Court to take such position in said two (2) cases the importance of the issues therein raisedis present in the case at bar. Again, like the petitioners in the Rodriguez and Barredo cases, petitioner herein is nmerely a taxpayer. The Province of Rizal, which he represents officially as its Provincial Governor, is our mostpopulated political subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, inthe Philippines.


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Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitionersaction in contesting the appropriation and donation in question; that this action should not have been dismissed bthe lower court; and that the writ of preliminary injunction should have been maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court forfurther proceedings not inconsistent with this decision, with the costs of this instance against respondent Jose C.Zulueta. It is so ordered.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David, Paredes, andDizon, JJ., concur.

G.R. No. L-65773-74 April 30, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX APPEALS, respondents.

Quasha, Asperilla, Ancheta, Pea, Valmonte & Marcos for respondent British Airways.

MELENCIO-HERRERA, J.:

Petitioner Commissioner of Internal Revenue (CIR) seeks a review on certiorari of the joint Decision of the Court Tax Appeals (CTA) in CTA Cases Nos. 2373 and 2561, dated 26 January 1983, which set aside petitioner'sassessment of deficiency income taxes against respondent British Overseas Airways Corporation (BOAC) for thefiscal years 1959 to 1967, 1968-69 to 1970-71, respectively, as well as its Resolution of 18 November, 1983denying reconsideration.

BOAC is a 100% British Government-owned corporation organized and existing under the laws of the UnitedKingdom It is engaged in the international airline business and is a member-signatory of the Interline Air Transpo

Association (IATA). As such it operates air transportation service and sells transportation tickets over the routes othe other airline members. During the periods covered by the disputed assessments, it is admitted that BOAC hano landing rights for traffic purposes in the Philippines, and was not granted a Certificate of public convenienceand necessity to operate in the Philippines by the Civil Aeronautics Board (CAB), except for a nine-month period,partly in 1961 and partly in 1962, when it was granted a temporary landing permit by the CAB. Consequently, it dnot carry passengers and/or cargo to or from the Philippines, although during the period covered by theassessments, it maintained a general sales agent in the Philippines Wamer Barnes and Company, Ltd., andlater Qantas Airways which was responsible for selling BOAC tickets covering passengers and cargoes. 1

G.R. No. 65773 (CTA Case No. 2373, the First Case)

On 7 May 1968, petitioner Commissioner of Internal Revenue (CIR, for brevity) assessed BOAC the aggregate

amount of P2,498,358.56 for deficiency income taxes covering the years 1959 to 1963. This was protested byBOAC. Subsequent investigation resulted in the issuance of a new assessment, dated 16 January 1970 for theyears 1959 to 1967 in the amount of P858,307.79. BOAC paid this new assessment under protest.

On 7 October 1970, BOAC filed a claim for refund of the amount of P858,307.79, which claim was denied by theCIR on 16 February 1972. But before said denial, BOAC had already filed a petition for review with the Tax Couron 27 January 1972, assailing the assessment and praying for the refund of the amount paid.

G.R. No. 65774 (CTA Case No. 2561, the Second Case)


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On 17 November 1971, BOAC was assessed deficiency income taxes, interests, and penalty for the fiscal years1968-1969 to 1970-1971 in the aggregate amount of P549,327.43, and the additional amounts of P1,000.00 andP1,800.00 as compromise penalties for violation of Section 46 (requiring the filing of corporation returns) penalizeunder Section 74 of the National Internal Revenue Code (NIRC).

On 25 November 1971, BOAC requested that the assessment be countermanded and set aside. In a letter, dated16 February 1972, however, the CIR not only denied the BOAC request for refund in the First Case but also re-issued in the Second Case the deficiency income tax assessment for P534,132.08 for the years 1969 to 1970-71plus P1,000.00 as compromise penalty under Section 74 of the Tax Code. BOAC's request for reconsiderationwas denied by the CIR on 24 August 1973. This prompted BOAC to file the Second Case before the Tax Court

praying that it be absolved of liability for deficiency income tax for the years 1969 to 1971.

This case was subsequently tried jointly with the First Case.

On 26 January 1983, the Tax Court rendered the assailed joint Decision reversing the CIR. The Tax Court heldthat the proceeds of sales of BOAC passage tickets in the Philippines by Warner Barnes and Company, Ltd., andlater by Qantas Airways, during the period in question, do not constitute BOAC income from Philippine sources"since no service of carriage of passengers or freight was performed by BOAC within the Philippines" and,therefore, said income is not subject to Philippine income tax. The CTA position was that income fromtransportation is income from services so that the place where services are rendered determines the source. Thuin the dispositive portion of its Decision, the Tax Court ordered petitioner to credit BOAC with the sum ofP858,307.79, and to cancel the deficiency income tax assessments against BOAC in the amount of P534,132.08

for the fiscal years 1968-69 to 1970-71.

Hence, this Petition for Review on certiorari of the Decision of the Tax Court.

The Solicitor General, in representation of the CIR, has aptly defined the issues, thus:

1. Whether or not the revenue derived by private respondent British Overseas Airways Corporatio(BOAC) from sales of tickets in the Philippines for air transportation, while having no landing rightshere, constitute income of BOAC from Philippine sources, and, accordingly, taxable.

2. Whether or not during the fiscal years in question BOAC s a resident foreign corporation doingbusiness in the Philippines or has an office or place of business in the Philippines.

3. In the alternative that private respondent may not be considered a resident foreign corporationbut a non-resident foreign corporation, then it is liable to Philippine income tax at the rate of thirty-five per cent (35%) of its gross income received from all sources within the Philippines.

Under Section 20 of the 1977 Tax Code:

(h) the term resident foreign corporation engaged in trade or business within the Philippines orhaving an office or place of business therein.

(i) The term "non-resident foreign corporation" applies to a foreign corporation not engaged in trad

or business within the Philippines and not having any office or place of business therein

It is our considered opinion that BOAC is a resident foreign corporation. There is no specific criterion as to whatconstitutes "doing" or "engaging in" or "transacting" business. Each case must be judged in the light of its peculiaenvironmental circumstances. The term implies a continuity of commercial dealings and arrangements, andcontemplates, to that extent, the performance of acts or works or the exercise of some of the functions normallyincident to, and in progressive prosecution of commercial gain or for the purpose and object of the businessorganization. 2 "In order that a foreign corporation may be regarded as doing business within a State, there mustbe continuity of conduct and intention to establish a continuous business, such as the appointment of a localagent, and not one of a temporary character. 3


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BOAC, during the periods covered by the subject - assessments, maintained a general sales agent in thePhilippines, That general sales agent, from 1959 to 1971, "was engaged in (1) selling and issuing tickets; (2)breaking down the whole trip into series of trips each trip in the series corresponding to a different airlinecompany; (3) receiving the fare from the whole trip; and (4) consequently allocating to the various airlinecompanies on the basis of their participation in the services rendered through the mode of interline settlement asprescribed by Article VI of the Resolution No. 850 of the IATA Agreement." 4 Those activities were in exercise ofthe functions which are normally incident to, and are in progressive pursuit of, the purpose and object of itsorganization as an international air carrier. In fact, the regular sale of tickets, its main activity, is the very lifebloodof the airline business, the generation of sales being the paramount objective. There should be no doubt then thaBOAC was "engaged in" business in the Philippines through a local agent during the period covered by the

assessments. Accordingly, it is a resident foreign corporation subject to tax upon its total net income received inthe preceding taxable year from all sources within the Philippines. 5

Sec. 24. Rates of tax on corporations. ...

(b) Tax on foreign corporations. ...

(2) Resident corporations. A corporation organized, authorized, or existing under the laws of anforeign country, except a foreign fife insurance company, engaged in trade or business within thePhilippines, shall be taxable as provided in subsection (a) of this section upon the total net incomereceived in the preceding taxable year from all sources within the Philippines. (Emphasis supplied

Next, we address ourselves to the issue of whether or not the revenue from sales of tickets by BOAC in thePhilippines constitutes income from Philippine sources and, accordingly, taxable under our income tax laws.

The Tax Code defines "gross income" thus:

"Gross income" includes gains, profits, and income derived from salaries, wages or compensationfor personal service of whatever kind and in whatever form paid, or from profession, vocations,trades,business, commerce, sales, or dealings in property, whether real or personal, growing out othe ownership or use of or interest in such property; also from interests, rents, dividends, securitieor the transactions of any business carried on for gain or profile, or gains, profits, and incomederived from any source whatever(Sec. 29[3]; Emphasis supplied)

The definition is broad and comprehensive to include proceeds from sales of transport documents. "The words'income from any source whatever' disclose a legislative policy to include all income not expressly exempted withthe class of taxable income under our laws." Income means "cash received or its equivalent"; it is the amount ofmoney coming to a person within a specific time ...; it means something distinct from principal or capital. For, whicapital is a fund, income is a flow. As used in our income tax law, "income" refers to the flow of wealth. 6

The records show that the Philippine gross income of BOAC for the fiscal years 1968-69 to 1970-71 amounted toP10,428,368 .00. 7

Did such "flow of wealth" come from "sources within the Philippines",

The source of an income is the property, activity or service that produced the income.8

For the source of incomebe considered as coming from the Philippines, it is sufficient that the income is derived from activity within thePhilippines. In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. Thetickets exchanged hands here and payments for fares were also made here in Philippine currency. The site of thesource of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territorenjoying the protection accorded by the Philippine government. In consideration of such protection, the flow ofwealth should share the burden of supporting the government.

A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes the contractbetween the ticket-holder and the carrier. It gives rise to the obligation of the purchaser of the ticket to pay the farand the corresponding obligation of the carrier to transport the passenger upon the terms and conditions set forth


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thereon. The ordinary ticket issued to members of the traveling public in general embraces within its terms all theelements to constitute it a valid contract, binding upon the parties entering into the relationship. 9

True, Section 37(a) of the Tax Code, which enumerates items of gross income from sources within the Philippinenamely: (1) interest, (21) dividends, (3) service, (4) rentals and royalties, (5) sale of real property, and (6) sale ofpersonal property, does not mention income from the sale of tickets for international transportation. However, thadoes not render it less an income from sources within the Philippines. Section 37, by its language, does not intenthe enumeration to be exclusive. It merely directs that the types of income listed therein be treated as income frosources within the Philippines. A cursory reading of the section will show that it does not state that it is an all-inclusive enumeration, and that no other kind of income may be so considered. " 10

BOAC, however, would impress upon this Court that income derived from transportation is income for services,with the result that the place where the services are rendered determines the source; and since BOAC's service transportation is performed outside the Philippines, the income derived is from sources without the Philippinesand, therefore, not taxable under our income tax laws. The Tax Court upholds that stand in the joint Decisionunder review.

The absence of flight operations to and from the Philippines is not determinative of the source of income or the sof income taxation. Admittedly, BOAC was an off-line international airline at the time pertinent to this case. Thetest of taxability is the "source"; and the source of an income is that activity ... which produced theincome. 11Unquestionably, the passage documentations in these cases were sold in the Philippines and therevenue therefrom was derived from a activity regularly pursued within the Philippines. business a And even if the

BOAC tickets sold covered the "transport of passengers and cargo to and from foreign cities", 12 it cannot alter thfact that income from the sale of tickets was derived from the Philippines. The word "source" conveys oneessential idea, that of origin, and the origin of the income herein is the Philippines. 13

It should be pointed out, however, that the assessments upheld herein apply only to the fiscal years covered bythe questioned deficiency income tax assessments in these cases, or, from 1959 to 1967, 1968-69 to 1970-71.For, pursuant to Presidential Decree No. 69, promulgat

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