GOMEZ v PALOMAR Case

Assailing the constitutionality of R.A. 1635 as amended by R.A. 2631: raising

funds for the Philippine Tuberculosis Society through purchasing anti-TB
stamps by mail users.
Issue:
WON it violates the equal protection clause
Ruling:
NO. It is settled that the legislature has the inherent power to select the
subjects of taxation and to grant exemptions. In the field of taxation, the
legislature possesses the greatest freedom in classification which must be
reasonable. So long as the classification imposed is based upon some
standard capable of reasonable comprehension, equal protection of the law
has been afforded In the case of the anti-TB stamps, the classification of mail
users is not without any reason. The single most important and influential
consideration that led the legislature to select mail users as subjects of the
tax is the relative ease and convenience of collecting the tax through the
post offices. It is based on ability to pay, let alone the enjoyment of a
privilege, and on administrative convenience.
Issue:
WON the tax is levied for public purpose.
Ruling:
YES. The eradication of a dreaded disease is a public purpose, but if
by public purpose the petitioner means benefit to a taxpayer as a return for
what he pays, the only benefit to which the taxpayer is entitled is that
derived from his enjoyment of the privileges of living in an organized society,
established and safeguarded by the devotion of taxes to public purposes.
Issue:
WON it violates the rule of uniformity in taxation.
Ruling:
NO. The rule of uniformity and equality of taxation is not infringed by the
imposition of a flat rate rather than a graduated tax. The considerations of
administrative convenience afford an adequate ground for classification. The
same considerations may induce the legislature to impose a flat tax which in
effect is a charge for the transaction, operating equally on all persons
within the class regardless of the amount involved.
Issue:
WON it is valid for raising funds for the benefit of Philippine Tuberculosis
Society a private organization.
Ruling:
YES. The Society is not really the beneficiary but only the agency
through which the State acts in carrying out what is essentially a
public function. The money is treated as a special fund and as such need
not be appropriated by law.

TOLENTINO Case (1994 & 1995)

Assailing the constitutionality of R.A. 7716 otherwise known as the Expanded
VAT Law.
Issue:
WON the Congress Congress violated the Constitution because, although H.
No. 11197 had originated in the House of Representatives, it was not passed
by the Senate but was simply consolidated with the Senate version (S. No.
1630) in the Conference Committee to produce the bill which the President
signed into law.
Ruling:
NO. It is not the law but the revenue bill which is required by
the Constitution to "originate exclusively" in the House of
Representatives. A bill originating in the House may undergo such
extensive changes in the Senate that the result may be a rewriting of the
whole. To insist that a revenue statute and not only the bill which initiated
the legislative process culminating in the enactment of the law must
substantially be the same as the House bill would be to deny the Senate's
power not only to "concur with amendments" but also to "propose
amendments." It would be to violate the coequality of legislative power of
the two houses of Congress.
Issue:
WON the law abridges freedom of speech, expression or the press.
Ruling:
NO. Even with due recognition of its high estate and its importance
in a democratic society, however, the press is not immune from
general regulation by the State. As a general proposition, the press is
not exempt from the taxing power of the State and that what the
constitutional guarantee of free press prohibits are laws which single out the
press or target a group belonging to the press for special treatment or which
in any way discriminate against the press on the basis of the content of the
publication, and R.A. No. 7716 is none of these.
As to removing the exemption of the press from VAT while maintaining those
granted to others, it would suffice to say that since the law granted the
press a privilege, the law could take back the privilege anytime
without offense to the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the exercise of its sovereign
prerogative. Indeed, in withdrawing the exemption, the law merely subjects
the press to the same tax burden to which other businesses have long ago
been subject.
Issue: (1995)
WON the law also violates the requirement that "The rule of taxation shall be
uniform and equitable and Congress shall evolve a progressive system of

taxation" for the law imposes a flat rate of 10% and thus places the tax
burden on all taxpayers without regard to their ability to pay.
Ruling:
NO. The Constitution does not really prohibit the imposition of
indirect taxes which, like the VAT, are regressive. What it simply
provides is that Congress shall "evolve a progressive system of
taxation." The constitutional provision has been interpreted to mean simply
that "direct taxes are . . . to be preferred [and] as much as possible, indirect
taxes should be minimized." )). Indeed, the mandate to Congress is not
to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes,
which perhaps are the oldest form of indirect taxes, would have been
prohibited with the proclamation of Art. VIII, 17(1) of the 1973 Constitution
from which the present Art. VI, 28(1) was taken. Sales taxes are also
regressive.
Resort
to
indirect
taxes
should
be minimized but
not avoided entirely because it is difficult, if not impossible, to avoid them by
imposing such taxes according to the taxpayers' ability to pay. In the case of
the VAT, the law minimizes the regressive effects of this imposition by
providing for zero rating of certain transactions (R.A. No. 7716, 3, amending
102 (b) of the NIRC), while granting exemptions to other transactions.
Equality and uniformity of taxation means that all taxable articles or
kinds of property of the same class be taxed at the same rate. The
taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. To satisfy this requirement it is
enough that the statute or ordinance applies equally to all persons, forms
and corporations placed in similar situation.
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No.
7716 was enacted. R.A. No. 7716 merely expands the base of the tax. As the
Court sees it, EO 273 satisfies all the requirements of a valid tax. It is
uniform. . . .The sales tax adopted in EO 273 is applied similarly on all goods
and services sold to the public, which are not exempt, at the constant rate of
0% or 10%. The disputed sales tax is also equitable. It is imposed only on
sales of goods or services by persons engaged in business with an aggregate
gross annual sales exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax are
sales of farm and marine products, so that the costs of basic food and other
necessities, spared as they are from the incidence of the VAT, are expected
to be relatively lower and within the reach of the general public.

Issue:
WON the law violates the constitutional provision that "No law impairing the
obligation of contracts shall be passed."
Ruling:
NO. It is enough to say that the parties to a contract cannot, through the
exercise of prophetic discernment, fetter the exercise of the taxing power of
the State. For not only are existing laws read into contracts in order to fix
obligations as between parties, but the reservation of essential attributes of
sovereign power is also read into contracts as a basic postulate of the legal

order. The policy of protecting contracts against impairment presupposes the

maintenance of a government which retains adequate authority to secure
the peace and good order of society. The Contract Clause has never been
thought as a limitation on the exercise of the State's power of taxation save
only where a tax exemption has been granted for a valid consideration.

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA) Case

Nature or the juridical personality of said airport authorities; whether the
airport lands, buildings are exempt from real estate tax.
Issue:
WON the MCIAA is a GOCC.
Ruling: (by adopting the findings and conclusions of the MIAA case)
NO. A government-owned or controlled corporation must be organized as a
stock or non-stock corporation. MIAA is not organized as a stock or nonstock corporation. MIAA is not a stock corporation because it has no
capital stock divided into shares. MIAA has no stockholders or
voting shares.
MIAA is also not a non-stock corporation because it has no
members. A non-stock corporation must have members. Even if we assume
that the Government is considered as the sole member of MIAA, this will not
make MIAA a non-stock corporation. Non-stock corporations cannot
distribute any part of their income to their members. Section 11 of
the MIAA Charter mandates MIAA to remit 20% of its annual gross
operating income to the National Treasury. This prevents MIAA from
qualifying as a non-stock corporation.
Since MIAA is neither a stock nor a non-stock corporation, MIAA
does not qualify as a government-owned or controlled corporation.
MIAA is a government instrumentality vested with corporate powers
to perform efficiently its governmental functions. MIAA is like any
other government instrumentality, the only difference is that MIAA
is vested with corporate powers. Instrumentality refers to any agency of
the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter.
Issue:
WON the airport lands and buildings are subject to real estate tax.
Ruling: (by adopting the findings and conclusions of the MIAA case)

NO. The Court emphasized that the airport lands and buildings of MIAA are
owned by the Republic and belong to the public domain. The Airport Lands
and Buildings are devoted to public use because they are used by
the public for international and domestic travel and transportation.
The fact that the MIAA collects terminal fees and other charges from
the public does not remove the character of the Airport Lands and
Buildings as properties for public use. Such fees are often termed users
tax taxing those among the public who actually use a public facility instead
of taxing all the public including those who never use the particular public
facility. Whether intended for public use or public service, the Airport Lands
and Buildings are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are owned by the
Republic and thus exempt from real estate tax under Section 234(a)
of the LGC. The only exception is when MIAA leases its real property to a
taxable person as provided in Section 234(a) of the LGC, in which case the
specific real property leased becomes subject to real estate tax. Thus, only
portions of the Airport Lands and Buildings leased to taxable
persons like private parties are subject to real estate tax.
ABAKADA Case
Constitutionality of Sec 4, 5, and 6 of R.A. 9337 amending Sec 106, 107, and
108, respectively, of the NIRC. These questioned provisions contain a
uniform proviso authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%,
Issue:
WON there is undue delegation of legislative power
Ruling:
NO. The case before the Court is not a delegation of legislative
power. It is simply a delegation of ascertainment of facts upon
which enforcement and administration of the increase rate under
the law is contingent. No discretion would be exercised by the
President. Highlighting the absence of discretion is the fact that the
word shall is
used
in
the
common proviso.
The
use
of
the
word shall connotes a mandatory order. Its use in a statute denotes an
imperative obligation and is inconsistent with the idea of discretion. Thus, it
is the ministerial duty of the President to immediately impose the
12% rate upon the existence of any of the conditions specified by
Congress.
Issue:
WON the law effectively nullified the Presidents power of control over the
Secretary of Finance by mandating the fixing of the tax rate by the President
upon the recommendation of the Secretary of Finance.
Ruling:
NO. In the present case, in making his recommendation to the
President on the existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of the President
or even her subordinate. In such instance, he is not subject to the power of

control and direction of the President. He is acting as the agent of the

legislative department, to determine and declare the event upon
which its expressed will is to take effect.[56] The Secretary of Finance
becomes the means or tool by which legislative policy is determined and
implemented. Thus, being the agent of Congress and not of the
President, the President cannot alter or modify or nullify, or set
aside the findings of the Secretary of Finance and to substitute the
judgment of the former for that of the latter.

PLANTERS PRODUCTS, INC. Case

Constitutionality of LOI 1465 which provides: x x x to include in its fertilizer
pricing formula a capital contribution component of not less than P10 per
bag. This capital contribution shall be collected until adequate capital is
raised to make PPI viable.
Issue:
WON the law is an exercise of the power of taxation.
Ruling:
YES. We agree with the RTC that the imposition of the levy was an
exercise by the State of its taxation power. While it is true that the
power of taxation can be used as an implement of police power, the primary
purpose of the levy is revenue generation. If the purpose is primarily
revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax. The LOI expressly
provided that the levy was imposed until adequate capital is raised to make
PPI viable.
Issue:
WON the taxes are exacted for public purpose.
Ruling:
NO. We agree with the RTC and that CA that the levy imposed under LOI No.
1465 was not for a public purpose.
First, the LOI expressly provided that the levy be imposed to benefit PPI, a
private company. Second, the LOI provides that the imposition of the P10

levy was conditional and dependent upon PPI becoming financially viable.
Third, the RTC and the CA held that the levies paid under the LOI were
directly remitted and deposited by FPA to Far East Bank and Trust Company,
the depositary bank of PPI. Fourth, the levy was used to pay the corporate
debts of PPI.
An inherent limitation on the power of taxation is public
purpose. Taxes are exacted only for a public purpose. They cannot be
used for purely private purposes or for the exclusive benefit of private
persons.[46] The reason for this is simple. The power to tax exists for the
general welfare; hence, implicit in its power is the limitation that it should be
used only for a public purpose.
When a tax law is only a mask to exact funds from the public when
its true intent is to give undue benefit and advantage to a private
enterprise, that law will not satisfy the requirement of public
purpose.

PASCUAL v SEC of PUBLIC WORKS Case

Constitutionality of Republic Act No. 920, entitled "An Act Appropriating
Funds for Public Works" for the construction, reconstruction, repair, extension
and improvement" of Pasig feeder road terminals which were private
properties of the respondent.
Issue:
WON the law is for public purpose.
Ruling:
It is a general rule that the legislature is without power to appropriate public
revenue for anything but a public purpose. . . . It is the essential character of
the direct object of the expenditure which must determine its validity as
justifying a tax, and not the magnitude of the interest to be affected nor the
degree to which the general advantage of the community, and thus the
public welfare, may be ultimately benefited by their promotion. Incidental to
the public or to the state, which results from the promotion of private
interest and the prosperity of private enterprises or business, does not justify
their aid by the use public money.
In accordance with the rule that the taxing power must be exercised for
public purposes only, money raised by taxation can be expended only for
public purposes and not for the advantage of private individuals.

Inasmuch as the land on which the projected feeder roads were to

be constructed belonged then to respondent Zulueta, the result is
that said appropriation sought a private purpose, and hence, was
null and void. The donation to the Government, over five (5) months after
the approval and effectivity of said Act, made for the purpose of giving a
"semblance of legality", or legalizing, the appropriation in question, did not
cure its aforementioned basic defect. Consequently, a judicial nullification of
said donation need not precede the declaration of unconstitutionality of said
appropriation.

LUTZ v ARANETA Case

Constitutionality of Commonwealth Act No. 567, otherwise known as the
Sugar Adjustment Act the purpose is to stabilize the sugar industry which is a
great source of the states wealth during the time.
Issue:
WON the law is a pure exercise of the taxing power.
Ruling:
NO. The tax is levied with a regulatory purpose, to provide means for
the rehabilitation and stabilization of the threatened sugar industry,
hence, an exercise of the police power.
The fact that sugar production is one of the great industries of our nation,
sugar occupying a leading position among its export products; that it gives
employment to thousands of laborers in fields and factories; that it is a
great source of the state's wealth, is one of the important sources of
foreign exchange needed by our government, and is thus pivotal in the plans
of a regime committed to a policy of currency stability. Its promotion,
protection and advancement, therefore redounds greatly to the
general welfare. Hence it was competent for the legislature to find
that the general welfare demanded that the sugar industry should

be stabilized in turn; and in the wide field of its police power, the
lawmaking body could provide that the distribution of benefits therefrom be
readjusted among its components to enable it to resist the added strain of
the increase in taxes that it had to sustain.
That the protection and promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine within reasonable
bounds what is necessary for its protection and expedient for its promotion.
Here, the legislative discretion must be allowed fully play, subject only to the
test of reasonableness. If objective and methods are alike
constitutionally valid, no reason is seen why the state may not levy
taxes to raise funds for their prosecution and attainment. Taxation
may be made the implement of the state's police power
That the tax to be levied should burden the sugar producers themselves can
hardly be a ground of complaint; indeed, it appears rational that the tax be
obtained precisely from those who are to be benefited from the expenditure
of the funds derived from it. At any rate, it is inherent in the power to tax
that a state be free to select the subjects of taxation, and it has been
repeatedly held that "inequalities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional
limitation".
From the point of view we have taken it appears of no moment that the funds
raised under the Sugar Stabilization Act, now in question, should be
exclusively spent in aid of the sugar industry, since it is that very enterprise
that is being protected.
Even from the standpoint that the Act is a pure tax measure, it cannot be
said that the devotion of tax money to experimental stations to seek
increase of efficiency in sugar production, utilization of by-products and
solution of allied problems, as well as to the improvements of living and
working conditions in sugar mills or plantations, without any part of such
money being channeled directly to private persons, constitutes expenditure
of tax money for private purposes.
ROXAS v CTA Case
Roxas brothers protested the assessment ordering them to pay CIR of the
fixed tax on real estate dealers as the gain derived from the sale of the
Nasugbu farm lands is 100% taxable.
Issue:
WON the gain derived from the sale of the Nasugbu farm lands an ordinary
gain, hence 100% taxable.
Ruling:
NO. It should be borne in mind that the sale of the Nasugbu farm lands to the
very farmers who tilled them for generations was not only in consonance
with, but more in obedience to the request and pursuant to the policy of our
Government to allocate lands to the landless. It was the bounden duty of the
Government to pay the agreed compensation after it had persuaded Roxas y
Cia. to sell its haciendas, and to subsequently subdivide them among the

farmers at very reasonable terms and prices. However, the Government

could not comply with its duty for lack of funds. Obligingly, Roxas y Cia.
shouldered the Government's burden, went out of its way and sold lands
directly to the farmers in the same way and under the same terms as would
have been the case had the Government done it itself. For this magnanimous
act, the municipal council of Nasugbu passed a resolution expressing the
people's gratitude.
The power of taxation is sometimes called also the power to
destroy. Therefore it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kill the "hen that lays the
golden egg". And, in order to maintain the general public's trust and
confidence in the Government this power must be used justly and not
treacherously. It does not conform to justice for the Government to
persuade the taxpayer to lend it a helping hand and later on to
penalize him for duly answering the urgent call.
In fine, Roxas y Cia. cannot be considered a real estate dealer for the
sale in question. Hence, pursuant to Section 34 of the Tax Code the lands
sold to the farmers are capital assets, and the gain derived from the sale
thereof is capital gain, taxable only to the extent of 50%.

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

YES. It is maintained by private respondent that the subject ordinance is not

a "tax ordinance," because the imposition 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 own marks of fallacy. Precisely, the
raising of revenues is the principal object of taxation.
Under Section 5, Article XI of the New Constitution, "Each local government
unit shall have the power to create its own sources of revenue and to levy
taxes, subject to such provisions as may be provided by law." And one of
those sources of revenue is what the Local Tax Code points to in particular:
"Local governments may collect fees or rentals for the occupancy or use of
public markets and premises * * *." They can provide for and regulate market
stands, stalls and privileges, and, also, the sale, lease or occupancy thereof.
They can license, or permit the use of, lease, sell or otherwise dispose of
stands, stalls or marketing privileges.
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 fees and
charges thereon "with the exception of ante-mortem and post-mortem
inspection fees, as well as the delivery, stockyard and slaughter fees as may
be
authorized
by
the
Secretary
of
Agriculture
and
Natural
16
Resources." Clearly, even the exception clause of the decree itself permits
the collection of the proper fees for livestock. And the Local Tax Code (P.D.
231, July 1, 1973) authorizes in its Section 31: "Local governments may
collect fees for the slaughter of animals and the use of corrals * * * "
Issue:
WON the market stall fees imposed in the disputed ordinance are diverted to
the exclusive private use of the Asiatic Integrated Corporation since the
collection of said fees had been let by the City of Manila to the said
corporation in a "Management and Operating Contract."
Ruling:
NO. The fees collected do not go direct to the private coffers of the
corporation. Ordinance No. 7522 was not made for the corporation but for
the purpose of raising revenues for the city. That is the object it serves. The
entrusting of the collection of the fees does not destroy the public
purpose of the ordinance. So long as the purpose is public, it does
not matter whether the agency through which the money is
dispensed is public or private. The right to tax depends upon the
ultimate use, purpose and object for which the fund is raised. It is not
dependent on the nature or character of the person or corporation whose
intermediate agency is to be used in applying it. The people may be taxed
for a public purpose, although it be under the direction of an
individual or private corporation.
BRITISH AMERICAN TOBACCO v CAMACHO Case
Constitutionality of Section 145 of the National Internal Revenue Code
(NIRC), and Revenue Regulations Nos. 1-97, 9-2003, and 22-2003; and (4)

Revenue Memorandum Order No. 6-2003 for being violative of the equal
protection and uniformity clauses of the Constitution.
Issue:
WON the classification freeze provision violates the equal protection.
Ruling:
NO. . The classification is considered valid and reasonable provided that: (1)
it rests on substantial distinctions; (2) it is germane to the purpose of the
law; (3) it applies, all things being equal, to both present and future
conditions; and (4) it applies equally to all those belonging to the same
class.52
The first, third and fourth requisites are satisfied. The classification freeze
provision was inserted in the law for reasons of practicality and expediency.
That is, since a new brand was not yet in existence at the time of the
passage of RA 8240, then Congress needed a uniform mechanism to fix the
tax bracket of a new brand. The current net retail price, similar to what was
used to classify the brands under Annex "D" as of October 1, 1996, was thus
the logical and practical choice. Further, with the amendments introduced by
RA 9334, the freezing of the tax classifications now expressly applies not just
to Annex "D" brands but to newer brands introduced after the effectivity of
RA 8240 on January 1, 1997 and any new brand that will be introduced in the
future. The classification freeze provision addressed Congresss
administrative concerns in the simplification of tax administration of
sin products, elimination of potential areas for abuse and corruption
in tax collection, buoyant and stable revenue generation, and ease
of projection of revenues. Consequently, there can be no denial of the
equal protection of the laws since the rational-basis test is amply satisfied.
Under the rational basis test, it is sufficient that the legislative classification
is rationally related to achieving some legitimate State interest.
Issue: WON the assailed provisions violate the uniformity of taxation
clause.
Ruling:
NO. A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found.[5] It does
not signify an intrinsic but simply a geographical uniformity. The
uniformity rule does not prohibit classification for purposes of
taxation. In the instant case, there is no question that
the classification freeze provision meets the geographical
uniformity requirement because the assailed law applies to all
cigarette brands in the Philippines.
Issue: WON the assailed law transgressed the constitutional
provisions on regressive taxation.
Ruling:
NO. It may be conceded that the assailed law imposes an
excise tax on cigarettes which is a form of indirect tax, and
thus, regressive in character. Nevertheless, this does not mean
that the assailed law may be declared unconstitutional for

being regressive in character because the Constitution does

not prohibit the imposition of indirect taxes but merely
provides that Congress shall evolve a progressive system of
taxation.
LUNG CENTER OF THE PHIL. v QUEZON CITY & ROSAS
This is a petition for review on certiorari under Rule 45 of the Rules of
Court, as amended, of the Decision [1] dated July 17, 2000 of the Court of
Appeals in CA-G.R. SP No. 57014 which affirmed the decision of the Central
Board of Assessment Appeals holding that the lot owned by the petitioner
and its hospital building constructed thereon are subject to assessment for
purposes of real property tax.
Issue:
WON the petitioner is a charitable institution.
Held:
YES. The court ruled that the petitioner is a charitable institution within the
context of the 1973 and 1987 Constitutions. To determine whether an
enterprise is a charitable institution/entity or not, the elements which should
be considered include the statute creating the enterprise, its corporate
purposes, its constitution and by-laws, the methods of administration, the
nature of the actual work performed, the character of the services rendered,
the indefiniteness of the beneficiaries, and the use and occupation of the
properties.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation
which, subject to the provisions of the decree, is to be administered by the
Office of the President of the Philippines with the Ministry of Health and the
Ministry of Human Settlements. It was organized for the welfare and benefit
of the Filipino people principally to help combat the high incidence of lung
and pulmonary diseases in the Philippines. As a general principle, a
charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients, whether
out-patient, or confined in the hospital, or receives subsidies from the
government, so long as the money received is devoted or used altogether to
the charitable object which it is intended to achieve; and no money inures to
the private benefit of the persons managing or operating the institution
Issue:
WON petitioner is entitled to realty tax exemptions.
Held:
The court qualified. Those portions of its real property that are leased to
private entities are not exempt from real property taxes as these are not
actually, directly and exclusively used for charitable purposes.
Section 28(3), Article VI of the 1987 Philippine Constitution provides,
thus:
(3) Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly andexclusively used for
religious, charitable or educational purposes shall be exempt from taxation.

The tax exemption under this constitutional provision covers property taxes
only. . . what is exempted is not the institution itself . . .; those exempted
from real estate taxes are lands, buildings and improvements actually,
directly and exclusively used for religious, charitable or educational
purposes.
In order to be entitled to the exemption, the petitioner is burdened to prove,
by clear and unequivocal proof, that (a) it is a charitable institution; and (b)
its real properties are ACTUALLY, DIRECTLY andEXCLUSIVELY used for
charitable purposes. If real property is used for one or more commercial
purposes, it is not exclusively used for the exempted purposes but is subject
to taxation.
What is meant by actual, direct and exclusive use of the property
for charitable purposes is the direct and immediate and actual
application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from
the real property that is determinative of whether the property is used for
tax-exempt purposes.
The petitioner failed to discharge its burden to prove that the entirety of
its real property is actually, directly and exclusively used for charitable
purposes. While portions of the hospital are used for the treatment of
patients and the dispensation of medical services to them, whether paying or
non-paying, other portions thereof are being leased to private individuals for
their clinics and a canteen. Further, a portion of the land is being leased to a
private individual for her business enterprise under the business name
Elliptical Orchids and Garden Center. Indeed, the petitioners evidence shows
that it collected rentals from the said lessees.
Accordingly, we hold that the portions of the land leased to private
entities as well as those parts of the hospital leased to private individuals are
not exempt from such taxes.[45] On the other hand, the portions of the land
occupied by the hospital and portions of the hospital used for its patients,
whether paying or non-paying, are exempt from real property taxes.

CIR v CA, CTA and YMCA (Young Mens Christian Assoc. of the Phil.)
The crux of this case is the income derived from rentals of real property
owned by the Young Mens Christian Association of the Philippines, Inc.
(YMCA) established as a welfare, educational and charitable non-profit
corporation whether it is subject to income tax under the National Internal
Revenue Code (NIRC) and the Constitution.
Issue:
WON the rental income of YMCA is txable
Held:
YES. Because taxes are the lifeblood of the nation, the Court has always
applied the doctrine of strict interpretation in construing tax exemptions.
[18]
Furthermore, a claim of statutory exemption from taxation should be
manifest and unmistakable from the language of the law on which it is
based. Thus, the claimed exemption must expressly be granted in a statute.
SEC. 27 of NIRC. Exemptions from tax on corporations. -- The following
organizations shall NOT be taxed under this Title in respect to INCOME
received by them as such -xxxxxxxxx
(g) Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare;
(h) Club organized and operated exclusively for pleasure, recreation, and
other non-profitable purposes, no part of the net income of which inures to
the benefit of any private stockholder or member;
xxxxxxxxx
Notwithstanding the provision in the preceding paragraphs, the income of
whatever kind and character of the foregoing organization from any of their
properties, real or personal, or from any of their activities conducted for
profit, REGARDLESS of the disposition made of such income, shall be
SUBJECT to the tax imposed under this Code.
The last paragraph of Section 27, the YMCA argues, should be subject to the
qualification that the income from the properties must arise from activities
conducted for profit before it may be considered taxable.[23] This argument
is erroneous. As previously stated, a reading of said paragraph ineludibly
shows that the income from any property of exempt organizations, as well as
that arising from any activity it conducts for profit, is taxable. The phrase any

of their activities conducted for profit does not qualify the word
properties. This makes income from the property of the organization
taxable, regardless of how that income is used -- whether for profit
or for lofty non-profit purposes. The rental income is taxable regardless
of whence such income is derived and how it used or disposed of.
YMCA also invokes Article XIV, Section 4, par. 3 of the Charter, [36] claiming
that the YMCA is a non-stock, non-profit educational institution whose
revenues and assets are used actually, directly and exclusively for
educational purposes so it is exempt from taxes on its properties and
income.[37] We reiterate that private respondent is exempt from the
payment of property tax, but not income tax on the rentals from its
property. The bare allegation alone that it is a non-stock, non-profit
educational institution is insufficient to justify its exemption from the
payment of income tax.
For the YMCA to be granted the exemption it claims under the
aforecited provision, it must prove with substantial evidence that
(1) it falls under the classification non-stock, non-profit educational
institution; and (2) the income it seeks to be exempted from
taxation is used actually, directly, and exclusively for educational
purposes. However, the Court notes that not a scintilla of evidence was
submitted by private respondent to prove that it met the said requisites.

CIR v S.C. JOHNSON AND SON, INC. & CA

Respondent], a domestic corporation organized and operating under the
Philippine laws, entered into a license agreement with SC Johnson and Son,
United States of America (USA), a non-resident foreign corporation based in
the U.S.A. pursuant to which the [respondent] was granted the right to use
the trademark, patents and technology owned by the latter. For the use of
the trademark or technology, [respondent] was obliged to pay SC Johnson
and Son, USA royalties based on a percentage of net sales and subjected the
same to 25% withholding tax on royalty payments.
Respondent filed with the International Tax Affairs Division (ITAD) of the
BIR a claim for refund of overpaid withholding tax on royalties.Since the
agreement was approved by the Technology Transfer Board, the preferential
tax rate of 10% should apply to the [respondent]. We therefore submit that
royalties paid by the [respondent] to SC Johnson and Son, USA is only subject
to 10% withholding tax pursuant to the most-favored nation clause of the RPUS Tax Treaty [Article 13 Paragraph 2 (b) (iii)] in relation to the RP-West
Germany Tax Treaty [Article 12 (2) (b)] (Petition for Review [filed with the
Court of Appeals], par. 12).
Issue:
WON the respondent IS ENTITLED TO THE MOST FAVORED NATION TAX RATE
OF 10% ON ROYALTIES AS PROVIDED IN THE RP-US TAX TREATY IN RELATION
TO THE RP-WEST GERMANY TAX TREATY.
Held:
NO. The RP-US Tax Treaty is just one of a number of bilateral treaties which
the Philippines has entered into for the avoidance of double taxation.[9] The
tax conventions are drafted with a view towards the elimination

of international juridical double taxation, which is defined as the

imposition of comparable taxes in two or more states on the same taxpayer
in respect of the same subject matter and for identical periods. The apparent
rationale for doing away with double taxation is to encourage the free flow
of goods and services and the movement of capital, technology and persons
between countries, conditions deemed vital in creating robust and dynamic
economies.
Double taxation usually takes place when a person is resident of a
contracting state and derives income from, or owns capital in, the other
contracting state and both states impose tax on that income or capital. In
order to eliminate double taxation, a tax treaty resorts to several methods.
There are two methods of relief- the exemption method and the credit
method. In the exemption method, the income or capital which is taxable
in the state of source or situs is exempted in the state of residence, although
in some instances it may be taken into account in determining the rate of tax
applicable to the taxpayers remaining income or capital. On the other hand,
in the credit method, although the income or capital which is taxed in the
state of source is still taxable in the state of residence, the tax paid in the
former is credited against the tax levied in the latter. The basic difference
between the two methods is that in the exemption method, the
focus is on the income or capital itself, whereas the credit method
focuses upon the tax.
In negotiating tax treaties, the underlying rationale for reducing the tax
rate is that the Philippines will give up a part of the tax in the
expectation that the tax given up for this particular investment is
not taxed by the other country.
In the case at bar, the state of source is the Philippines because
the royalties are paid for the right to use property or rights, i.e.
trademarks, patents and technology, located within the Philippines.
[17]
The United States is the state of residence since the taxpayer, S.
C. Johnson and Son, U. S. A., is based there. Under the RP-US Tax
Treaty, the state of residence and the state of source are both permitted to
tax the royalties, with a restraint on the tax that may be collected by the
state of source.[18] Furthermore, the method employed to give relief
from double taxation is the allowance of a tax credit to citizens or
residents of the United States (in an appropriate amountbased upon the
taxes paid or accrued to the Philippines) against the United States tax, but
such amount shall not exceed the limitations provided by United States law
for the taxable year.
The concessional tax rate of 10 percent provided for in the RP-Germany
Tax Treaty should apply only if the taxes imposed upon royalties in the RP-US
Tax Treaty and in the RP-Germany Tax Treaty are paid under similar
circumstances. This would mean that private respondent must prove that the
RP-US Tax Treaty grants similar tax reliefs to residents of the United States in
respect of the taxes imposable upon royalties earned from sources within the
Philippines as those allowed to their German counterparts under the RPGermany Tax Treaty.
The RP-US and the RP-West Germany Tax Treaties do not contain similar
provisions on tax crediting. Article 24 of the RP-Germany Tax Treaty, supra,
expressly allows crediting against German income and corporation tax of
20% of the gross amount of royalties paid under the law of the
Philippines. On the other hand, Article 23 of the RP-US Tax Treaty, which

is the counterpart provision with respect to relief for double

taxation, does not provide for similar crediting of 20% of the gross
amount of royalties paid.
Thus, if the rates of tax are lowered by the state of source, in this
case, by the Philippines, there should be a concomitant commitment
on the part of the state of residence to grant some form of tax
relief, whether this be in the form of a tax credit or exemption. If the
state of residence does not grant some form of tax relief to the
investor, no benefit would redound to the Philippines .
The most favored nation clause is intended to establish the principle
of equality of international treatment by providing that the citizens or
subjects of the contracting nations may enjoy the privileges accorded by
either party to those of the most favored nation. [26] The essence of the
principle is to allow the taxpayer in one state to avail of more liberal
provisions granted in another tax treaty to which the country of residence of
such taxpayer is also a party provided that the subject matter of
taxation, in this case royalty income, is the same as that in the tax
treaty under which the taxpayer is liable. Both Article 13 of the RP-US
Tax Treaty and Article 12 (2) (b) of the RP-West Germany Tax Treaty, abovequoted, speaks of tax on royalties for the use of trademark, patent, and
technology. The entitlement of the 10% rate by U.S. firms despite the
absence of a matching credit (20% for royalties) would derogate from the
design behind the most favored nation clause to grant equality of
international treatment. The similarity in the circumstances of payment
of taxes is a condition for the enjoyment of most favored nation
treatment precisely to underscore the need for equality of
treatment.
Since the RP-US Tax Treaty does not give a matching tax credit of 20
percent for the taxes paid to the Philippines on royalties as allowed
under the RP-West Germany Tax Treaty, private respondent cannot be
deemed entitled to the 10 percent rate granted under the latter treaty
for the reason that there is no payment of taxes on royalties under
similar circumstances.
It bears stress that tax refunds are in the nature of tax exemptions. As
such they are regarded as in derogation of sovereign authority and to be
construed strictissimi juris against the person or entity claiming the
exemption.[27] The burden of proof is upon him who claims the exemption in
his favor. Private respondent is claiming for a refund of the alleged
overpayment of tax on royalties; however, there is nothing on record to
support a claim that the tax on royalties under the RP-US Tax Treaty is paid
under similar circumstances as the tax on royalties under the RP-West
Germany Tax Treaty.
DEUTSCHE BANK AG MANILA BRANCH v CIR
Petitioner withheld and remitted to respondent on 21 October 2003 the
amount of PHP 67,688,553.51, which represented the 15% branch profit
remittance tax (BPRT) on its regular banking unit (RBU) net income remitted
to Deutsche Bank Germany (DB Germany) for 2002 and prior taxable years.
Believing that it made an overpayment of the BPRT, petitioner filed with the
BIR Large Taxpayers Assessment and Investigation Division on 4 October
2005 an administrative claim for refund or issuance of its tax credit
certificate in the total amount of PHP 22,562,851.17. On the same date,

petitioner requested from the International Tax Affairs Division (ITAD) a

confirmation of its entitlement to the preferential tax rate of 10% under the
RP-Germany Tax Treaty.
The claim of petitioner for a refund was denied on the ground that the
application for a tax treaty relief was not filed with ITAD prior to the payment
by the former of its BPRT and actual remittance of its branch profits to DB
Germany, or prior to its availment of the preferential rate of ten percent
(10%) under the RP-Germany Tax Treaty provision. The court a quo held that
petitioner violated the fifteen (15) day period mandated under Section III
paragraph (2) of Revenue Memorandum Order (RMO) No. 1-2000.
Issue:
WON the failure to strictly comply with RMO No. 1-2000 will deprive persons
or corporations of the benefit of a tax treaty.
Held:
NO.
Tax Treaty vs. RMO No. 1-2000
Our Constitution provides for adherence to the general principles of
international law as part of the law of the land.15 Every treaty in force is
binding upon the parties, and obligations under the treaty must be
performed by them in good faith.16 More importantly, treaties have the force
and effect of law in this jurisdiction. Tax treaties are entered into "to reconcile
the national fiscal legislations of the contracting parties and, in turn, help the
taxpayer avoid simultaneous taxations in two different jurisdictions."
A state that has contracted valid international obligations is bound to make
in its legislations those modifications that may be necessary to ensure the
fulfillment of the obligations undertaken."20 Thus, laws and issuances must
ensure that the reliefs granted under tax treaties are accorded to the parties
entitled thereto. The BIR must not impose additional requirements that would
negate the availment of the reliefs provided for under international
agreements. More so, when the RP-Germany Tax Treaty does not provide for
any pre-requisite for the availment of the benefits under said agreement.
Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which
would indicate a deprivation of entitlement to a tax treaty relief for failure to
comply with the 15-day period. We recognize the clear intention of the BIR in
implementing RMO No. 1-2000, but the CTAs outright denial of a tax treaty
relief for failure to strictly comply with the prescribed period is not in
harmony with the objectives of the contracting state to ensure that the
benefits granted under tax treaties are enjoyed by duly entitled persons or
corporations.
Bearing in mind the rationale of tax treaties, the period of application for
the availment of tax treaty relief as required by RMO No. 1-2000
should not operate to divest entitlement to the relief as it would
constitute a violation of the duty required by good faith in
complying with a tax treaty. The denial of the availment of tax relief for
the failure of a taxpayer to apply within the prescribed period under the
administrative issuance would impair the value of the tax treaty. At most, the
application for a tax treaty relief from the BIR should merely operate to
confirm the entitlement of the taxpayer to the relief. The obligation to
comply with a tax treaty must take precedence over the objective of RMO
No. 1-2000.

Prior Application vs. Claim for Refund

The underlying principle of prior application with the BIR becomes moot in
refund cases, such as the present case, where the very basis of the claim is
erroneous or there is excessive payment arising from non-availment of a tax
treaty relief at the first instance. In this case, petitioner should not be faulted
for not complying with RMO No. 1-2000 prior to the transaction. It could not
have applied for a tax treaty relief within the period prescribed, or 15 days
prior to the payment of its BPRT, precisely because it erroneously paid the
BPRT not on the basis of the preferential tax rate under the RP-Germany Tax
Treaty, but on the regular rate as prescribed by the NIRC. Hence, the prior
application requirement becomes illogical. Therefore, the fact that petitioner
invoked the provisions of the RP-Germany Tax Treaty when it requested for a
confirmation from the ITAD before filing an administrative claim for a refund
should be deemed substantial compliance with RMO No. 1-2000.
Petitioner is entitled to a refund
The amount of PHP 67,688,553.51 paid by petitioner represented the 15%
BPRT on its RBU net income, due for remittance to DB Germany amounting
to PHP 451,257,023.29 for 2002 and prior taxable years.23
Likewise, both the administrative and the judicial actions were filed within
the two-year prescriptive period pursuant to Section 229 of the NIRC.24
Clearly, there is no reason to deprive petitioner of the benefit of a
preferential tax rate of 10% BPRT in accordance with the RP-Germany Tax
Treaty.
Petitioner is liable to pay only the amount of PHP 45,125,702.34 on its RBU
net income amounting to PHP 451,257,023.29 for 2002 and prior taxable
years, applying the 10% BPRT. Thus, it is proper to grant petitioner a refund
ofthe difference between the PHP 67,688,553.51 (15% BPRT) and PHP
45,125,702.34 (10% BPRT) or a total of PHP 22,562,851.17.

NURSERY CARE CORP. v ACEVEDO

The issue here concerns double taxation. The City of Manila assessed and
collected taxes from the individual petitioners pursuant to Section 15 (Tax on
Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of the
Revenue Code of Manila.3 At the same time, the City of Manila imposed
additional taxes upon the petitioners pursuant to Section 21 ofthe Revenue
Code of Manila.
Issue:
WON THE ACT OF THE CITY TREASURER OF MANILA IN IMPOSING, ASSESSING
AND COLLECTING THE ADDITIONAL BUSINESS TAX UNDER SECTION 21
OFORDINANCE NO. 7794, AS AMENDED BY ORDINANCE NO. 7807, ALSO
KNOWN AS THE REVENUE CODE OF THE CITY OFMANILA, IS CONSTITUTIVE
OF DOUBLE TAXATION
Held:
YES: Collection of taxes pursuant to Section 21 of the Revenue Code of
Manila constituted double taxation.
The petitioners point out that although Section 21 of the Revenue Code of
Manila was not itself unconstitutional or invalid, its enforcement against the
petitioners constituted double taxation because the local business taxes
under Section 15 and Section 17 of the Revenue Code of Manila were already
being paid by them.
The respondents counter, however, that double taxation did not occur from
the imposition and collection of the tax pursuant to Section 21 of the
Revenue Code of Manila;34 that the taxes imposed pursuant to Section 21
were in the concept of indirect taxes upon the consumers of the goods and
services sold by a business establishment;35and that the petitioners did not
exhaust their administrative remedies by first appealing to the Secretary of
Justice to challenge the constitutionality or legality of the tax ordinance.
On the basis of the rulings in Coca-Cola Bottlers Philippines, Inc., the Court
now holds that all the elements of double taxation concurred upon the Cityof
Manilas assessment on and collection from the petitioners of taxes for the
first quarter of 1999 pursuant to Section 21 of the Revenue Code of Manila.
Double taxation means taxingthe same property twice when it should be
taxed only once; that is, "taxing the same person twice by the same
jurisdictionfor the same thing." It is obnoxious when the taxpayer is taxed
twice, when it should be but once. Otherwise described as "direct duplicate
taxation," the two taxes must be imposed on the same subject matter, for
the same purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and the taxes must be of
the same kind or character.
Firstly, because Section 21 of the Revenue Code of Manila imposed the tax
on a person who sold goods and services in the course of trade or
business based on a certain percentage of his gross sales or receipts in the
preceding calendar year, while Section 15 and Section 17 likewise imposed
the tax on a person who sold goods and services in the course of
trade or business but only identified such person with particularity,
namely, the wholesaler, distributor or dealer (Section 15), and the retailer
(Section 17), all the taxes being imposed on the privilege of doing
business in the City of Manila in order to make the taxpayers

contribute to the citys revenues were imposed on the same

subject matter and for the same purpose.
Secondly, the taxes were imposed by the same taxing authority (the
City of Manila) and within the same jurisdiction in the same taxing
period (i.e., per calendar year).
Thirdly, the taxes were all in the nature of local business taxes.
CITY OF MANILA v. COCA-COLA BOTTLERS PHIL. INC.
Respondent had been paying the City of Manilalocal business tax only under
Section 14 of Tax Ordinance No. 7794,[6] being expressly exempted from the
business tax under Section 21 of the same tax ordinance. Petitioner City of
Manila subsequently approved Tax Ordinance No. 7988,[7] amending certain
sections of Tax Ordinance No. 7794, particularly: (1) Section 14, by increasing
the tax rates applicable to certain establishments operating within the
territorial jurisdiction of the City of Manila; and (2) Section 21, by deleting
the proviso found therein, which stated that all registered businesses in the
City of Manila that are already paying the aforementioned tax shall be
exempted from payment thereof. Petitioner City of Manila approved only
after a year, on 22 February 2001, another tax ordinance, Tax Ordinance No.
8011, amending Tax Ordinance No. 7988.
Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null
and void in Coca-Cola Bottlers Philippines, Inc. v. City of Manila for the
following reasons: (1) Tax Ordinance No. 7988 was enacted in contravention
of the provisions of the Local Government Code (LGC) of 1991 and its
implementing rules and regulations; and (2) Tax Ordinance No. 8011 could
not cure the defects of Tax Ordinance No. 7988, which did not legally exist.
However, before the Court could declare Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 null and void, petitioner City of Manila assessed
respondent on the basis of Section 21 of Tax Ordinance No. 7794.
Respondent filed a protest with petitioner Toledo on the ground that the said
assessment amounted to double taxation, as respondent was taxed
twice,i.e., under Sections 14 and 21 of Tax Ordinance No. 7794, as amended
by Tax Ordinances No. 7988 and No. 8011.
Issue:
WON THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX ORDINANCE
NO. 7794, AS AMENDED] CONSTITUTES DOUBLE TAXATION.
Held:
YES. Section 14 of Tax Ordinance No. 7794 imposes local business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other article of
commerce, pursuant to Section 143(a) of the LGC. On the other hand, the
local business tax under Section 21 of Tax Ordinance No. 7794 is imposed
upon persons selling goods and services in the course of trade or business,
and those importing goods for business or otherwise, who, pursuant to
Section 143(h) of the LGC, are subject to excise tax, value-added tax (VAT),
or percentage tax under the National Internal Revenue Code (NIRC). Thus,
there can be no double taxation when respondent is being taxed under both
Sections 14 and 21 of Tax Ordinance No. 7794, for under the first, it is being
taxed as a manufacturer; while under the second, it is being taxed as a
person selling goods in the course of trade or business subject to excise, VAT,
or percentage tax.

Contrary to the assertions of petitioners, the Coca-Cola case is indeed

applicable to the instant case. The pivotal issue raised therein was whether
Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void,
which this Court resolved in the affirmative. Tax Ordinance No. 7988 was
declared by the Secretary of the Department of Justice (DOJ) as null and void
and
without
legal
effect
due
to
the
failure
of
herein petitioner City of Manila to satisfy the requirement under the law that
said
ordinance
be
published
for
three
consecutive
days. Petitioner City of Manila never appealed said declaration of the DOJ
Secretary; thus, it attained finality after the lapse of the period for appeal of
the same. The passage of Tax Ordinance No. 8011, amending Tax Ordinance
No. 7988, did not cure the defects of the latter, which, in any way, did not
legally exist.
By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 are null and void and without any legal effect. Therefore,
respondent cannot be taxed and assessed under the amendatory laws--Tax
Ordinance No. 7988 and Tax Ordinance No. 8011.
Petitioners insist that even with the declaration of nullity of Tax
Ordinance No. 7988 and Tax Ordinance No. 8011, respondent could still
be made liable for local business taxes under both Sections 14 and 21
of Tax Ordinance No. 7944 as they were originally read, without the
amendment by the null and void tax ordinances.
With the pronouncement by this Court in theCoca-Cola case that Tax
Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void
and without legal effect, then Section 21 of Tax Ordinance No. 7794, as
it has been previously worded, with its exempting proviso, is back in
effect
Double taxation means taxing the same property twice when it should be
taxed only once; that is, taxing the same person twice by the same
jurisdiction for the same thing. It is obnoxious when the taxpayer is taxed
twice, when it should be but once. Otherwise described as direct duplicate
taxation, the two taxes must be imposed on the same subject matter ,
for the same purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and the taxes must be of
the same kind or character.
Using the aforementioned test, the Court finds that there is indeed double
taxation if respondent is subjected to the taxes under both Sections 14 and
21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the
same subject matter the privilege of doing business in the City of Manila; (2)
for the same purpose to make persons conducting business within the City of
Manila contribute to city revenues; (3) by the same taxing authority
petitioner City of Manila; (4) within the same taxing jurisdiction within the
territorial jurisdiction of the City of Manila; (5) for the same taxing periods
per calendar year; and (6) of the same kind or character a local business tax
imposed on gross sales or receipts of the business.

CIR v. . THE ESTATE OF BENIGNO P. TODA, JR.,

The case at bar stemmed from a Notice of Assessment sent to CIC by the
Commissioner of Internal Revenue for deficiency income tax arising from an
alleged simulated sale of a 16-storey commercial building known as Cibeles
Building.
CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its
issued and outstanding capital stock, to sell the Cibeles Building and the two
parcels of land on which the building stands for an amount of not less
than P90 million. Toda purportedly sold the property for P100 million to
Rafael A. Altonaga, who, in turn, sold the same property on the same day to
Royal Match Inc. (RMI) for P200 million. For the sale of the property to RMI,
Altonaga paid capital gains tax in the amount ofP10 million. CIC filed its
corporate annual income tax return [7] for the year 1989, declaring, among
other things, its gain from the sale of real property in the amount
of P75,728.021The Bureau of Internal Revenue (BIR) sent an assessment
notice[10] and demand letter to the CIC for deficiency income tax for the year
1989 in the amount of P79,099,999.22. The Estate thereafter filed a letter of
protest.
The Commissioner dismissed the protest, stating that a fraudulent scheme
was deliberately perpetuated by the CIC wholly owned and controlled by
Toda by covering up the additional gain of P100 million, thus evading the
higher corporate income tax rate of 35%; that the two transactions actually
constituted a single sale of the property by CIC to RMI, and that Altonaga
was neither the buyer of the property from CIC nor the seller of the same
property to RMI. The additional gain of P100 million (the difference between
the second simulated sale for P200 million and the first simulated sale
for P100 million) realized by CIC was taxed at the rate of only 5% purportedly
as capital gains tax of Altonaga, instead of at the rate of 35% as corporate
income tax of CIC.
Issue:
WON the RESPONDENT COMMITTED FRAUD WITH INTENT TO EVADE THE TAX
ON THE SALE OF THE PROPERTIES OF CIBELES INSURANCE CORPORATION. (Is
this a case of tax evasion or tax avoidance?)

Held:
YES.
Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving device
within the means sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the other hand, is
a scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities.[23]
Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e.,the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due; (2)
an accompanying state of mind which is described as being evil, in bad faith,
willfull,or deliberate and not accidental; and (3) a course of action or failure
of action which is unlawful.[24]
All these factors are present in the instant case. It is significant to note
that as early as 4 May 1989, prior to the purported sale of the Cibeles
property by CIC to Altonaga on 30 August 1989, CIC received P40 million
from RMI,[25] and not from Altonaga. That P40 million was debited by RMI and
reflected in its trial balance[26] as other inv. Cibeles Bldg. Also, as of 31 July
1989, another P40 million was debited and reflected in RMIs trial balance as
other inv. Cibeles Bldg. This would show that the real buyer of the properties
was RMI, and not the intermediary Altonaga.
Here, it is obvious that the objective of the sale to Altonaga was to reduce
the amount of tax to be paid especially that the transfer from him to RMI
would then subject the income to only 5% individual capital gains tax, and
not the 35% corporate income tax.
The scheme resorted to by CIC in making it appear that there were two sales
of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga
to RMI cannot be considered a legitimate tax planning. Such scheme is
tainted with fraud.
The intermediary transaction, i.e., the sale of Altonaga, which was
prompted more on the mitigation of tax liabilities than for legitimate
business purposes constitutes one of tax evasion.
Issue: WON the period of assessment has prescribed.
Held:
NO. In cases of (1) fraudulent returns; (2) false returns with intent to
evade tax; and (3) failure to file a return, the period within which to assess
tax is 10 years from discovery of the fraud, falsification or omission, as
the case may be.
It is true that in a query dated 24 August 1989, Altonaga, through his
counsel, asked the Opinion of the BIR on the tax consequence of the two sale
transactions.[36] Thus, the BIR was amply informed of the transactions even
prior to the execution of the necessary documents to effect the transfer.
Subsequently, the two sales were openly made with the execution of public
documents and the declaration of taxes for 1989. However, these
circumstances do not negate the existence of fraud. As earlier discussed
those
two
transactions
were
tainted
with
fraud.
And
even
assuming arguendo that there was no fraud, we find that the income tax
return filed by CIC for the year 1989 was false. It did not reflect the true or
actual amount gained from the sale of the Cibeles property. Obviously, such
was done with intent to evade or reduce tax liability.

As stated above, the prescriptive period to assess the correct taxes in

case of false returns is ten years from the discovery of the falsity. The false
return was filed on 15 April 1990, and the falsity thereof was claimed to have
been discovered only on 8 March 1991. [37] The assessment for the 1989
deficiency income tax of CIC was issued on 9 January 1995. Clearly, the
issuance of the correct assessment for deficiency income tax was well within
the prescriptive period.
Issue: WON respondent estate is liable for the deficiency income tax.
Held:
YES. A corporation has a juridical personality distinct and separate from the
persons owning or composing it. Thus, the owners or stockholders of a
corporation may not generally be made to answer for the liabilities of a
corporation and vice versa. It is worth noting that when the late Toda sold his
shares of stock to Le Hun T. Choa, he knowingly and voluntarily held himself
personally liable for all the tax liabilities of CIC and the buyer.
Paragraph g of the Deed of Sale of Shares of Stocks specifically provides:
x x x SELLER undertakes and agrees to hold the BUYER and Cibeles
free from any and all income tax liabilities of Cibeles for the fiscal
years 1987, 1988 and 1989.
When the late Toda undertook and agreed to hold the BUYER and Cibeles
free from any all income tax liabilities of Cibeles for the fiscal years 1987,
1988, and 1989, he thereby voluntarily held himself personally liable
therefor. Respondent estate cannot, therefore, deny liability for CICs
deficiency income tax for the year 1989 by invoking the separate corporate
personality of CIC, since its obligation arose from Todas contractual
undertaking, as contained in the Deed of Sale of Shares of Stock.

FRANCIA v IAC & FERNANDEZ

Engracio Francia is the registered owner of a residential lot and a two-story
house built upon it situated at Barrio San Isidro, now District of Sta. Clara,
Pasay City, Metro Manila. A 125 square meter portion of Francia's property
was expropriated by the Republic of the Philippines for the sum of P4,116.00
representing the estimated amount equivalent to the assessed value of the
aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes.
Thus, on December 5, 1977, his property was sold at public auction in order
to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest
bidder for the property. Francia was not present during the auction sale.On
March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P
"In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez.
Francia filed a complaint to annul the auction sale.
Issue:
WON PETITIONER'S OBLIGATION TO PAY FOR SUPPOSED TAX DELINQUENCY
can be SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS
INDEBTED TO THE FORMER.

Held:
NO. There can be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person cannot refuse to
pay a tax on the ground that the government owes him an amount equal to
or greater than the tax being collected
By legal compensation, obligations of persons, who in their own right are
reciprocally debtors and creditors of each other, are extinguished.
A claim for taxes is not such a debt, demand, contract or judgment
as is allowed to be set-off under the statutes of set-off. Neither are
they a proper subject of recoupment since they do not arise out of the
contract or transaction sued on. ... The general rule based on grounds of
public policy is well-settled that no set-off admissible against demands for
taxes levied for general or local governmental purposes. The reason on
which the general rule is based, is that taxes are not in the nature
of contracts between the party and party but grow out of duty to,
and are the positive acts of the government to the making and
enforcing of which, the personal consent of individual taxpayers is
not required.
"... internal revenue taxes can not be the subject of compensation:
Reason: government and taxpayer are not mutually creditors and
debtors of each other' under Article 1278 of the Civil Code and a "claim
for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off.
There are other factors which compel us to rule against the petitioner. The
tax was due to the city government while the expropriation was effected by
the national government. Moreover, the amount of P4,116.00 paid by the
national government for the 125 square meter portion of his lot was
deposited with the Philippine National Bank long before the sale at public
auction of his remaining property.
Petitioner contends that "the auction sale in question was made without
complying with the mandatory provisions of the statute governing tax sale.
No evidence was presented that the procedure outlined by law on sales of
property for tax delinquency was followed. We agree with the petitioner's
claim that Ho Fernandez, the purchaser at the auction sale, has the burden of
proof to show that there was compliance with all the prescribed requisites for
a tax sale.
There is no presumption of the regularity of any administrative
action which results in depriving a taxpayer of his property through
a tax sale. This is actually an exception to the rule that administrative
proceedings are presumed to be regular.
DOMINGO v GARLITOS
It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No.
L-14674, January 30, 1960, this Court declared as final and executory the
order for the payment by the estate of the estate and inheritance
taxes, charges and penalties, amounting to P40,058.55, issued by the
Court of First Instance of Leyte. In order to enforce the claims against the
estate the fiscal presented a petition to the court below for the execution of
the judgment. The petition was, however, denied by the court which held
that the execution is not justifiable as the Government is indebted to the
estate under administration in the amount of P262,200. The orders of

the court below dated August 20, 1960 and September 28, 1960,
respectively, are as follows:
x x x Considering these facts, the Court orders that the payment of
inheritance taxes in the sum of P40,058.55 due the Collector of Internal
Revenue as ordered paid by this Court on July 5, 1960 in accordance with
the order of the Supreme Court promulgated July 30, 1960 in G.R. No. L14674, be deducted from the amount of P262,200.00 due and
payable to the Administratrix Simeona K. Price, in this estate, the
balance to be paid by the Government to her without further delay. (Order of
August 20, 1960)
The Court has nothing further to add to its order dated August 20, 1960 and
it orders that the payment of the claim of the Collector of Internal Revenue
be deferred until the Government shall have paid its accounts to the
administratrix herein amounting to P262,200.00. It may not be amiss to
repeat that it is only fair for the Government, as a debtor, to its
accounts to its citizens-creditors before it can insist in the prompt
payment of the latter's account to it, specially taking into consideration
that the amount due to the Government draws interests while the credit due
to the present state does not accrue any interest. (September 28, 1960)
Issue:
WON the petition to set aside the above order must be denied.
Held:
YES. A ground for denying the petition of the provincial fiscal is the fact that
the claim of the estate against the Government has been recognized and an
amount of P262,200 has already been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700). Apparently, both the claim of the
Government for inheritance taxes and the claim of the intestate for
services rendered have already become overdue and demandable is
well as fully liquidated. Compensation, therefore, takes place by
operation of law, in accordance with the provisions of Articles 1279 and
1290 of the Civil Code, thus:
ART. 1200. When all the requisites mentioned in article 1279 are present,
compensation takes effect by operation of law, and extinguished both debts
to the concurrent amount, eventhough the creditors and debtors are
not aware of the compensation.
Art. 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.
It is clear, therefore, that the petitioner has no clear right to execute the
judgment for taxes against the estate of the deceased Walter Scott Price.

DIAZ v Sec of FINANCE

Assailing the validity of the impending imposition of value-added tax (VAT)

by the Bureau of Internal Revenue (BIR) on the collections of tollway
operators.
Issue:
WON toll fees are taxable.
Held:
YES.
First, do tollway operators render services for a fee?
Essentially, tollway operators construct, maintain, and operate expressways,
also called tollways, at the operators expense. Tollways serve as alternatives
to regular public highways that meander through populated areas and
branch out to local roads. When a tollway operator takes a toll fee from a
motorist, the fee is in effect for the latters use of the tollway facilities over
which the operator enjoys private proprietary rights. Tollway operators are
franchise. The word franchise broadly covers government grants of a special
right to do an act or series of acts of public concern
Petitioners contend that tollway operators cannot be considered franchise
grantees under Section 108 since they do not hold legislative franchises. But
nothing in Section 108 indicates that the franchise grantees it speaks of are
those who hold legislative franchises. Franchises granted by some other
government agency. The latter, properly constituted, may grant franchises.
Indeed, franchises conferred or granted by local authorities, as agents of the
state, constitute as much a legislative franchise as though the grant had
been made by Congress itself.[15] The term franchise has been broadly
construed as referring, not only to authorizations that Congress directly
issues in the form of a special law, but also to those granted by
administrative agencies to which the power to grant franchises has been
delegated by Congress.
Petitioners contend that the public nature of the services rendered by tollway
operators excludes such services from the term sale of services under
Section 108 of the Code. But, again, nothing in Section 108 supports this
contention. The reverse is true. In specifically including by way of example
electric utilities, telephone, telegraph, and broadcasting companies in its list
of VAT-covered businesses, Section 108 opens other companies rendering
public service for a fee to the imposition of VAT. Businesses of a public nature
such as public utilities and the collection of tolls or charges for its use or
service is a franchise.
Petitioners argue that a toll fee is a users tax and to impose VAT on toll
fees is tantamount to taxing a tax. .Tollway fees are not taxes. Indeed, they
are not assessed and collected by the BIR and do not go to the general
coffers of the government.
Fees paid by the public to tollway operators for use of the tollways, are not
taxes in any sense. A tax is imposed under the taxing power of the
government principally for the purpose of raising revenues to fund public
expenditures.[27] Toll fees, on the other hand, are collected by private tollway
operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure
them a reasonable margin of income. Although toll fees are charged for the
use of public facilities, therefore, they are not government exactions that can

be properly treated as a tax. Taxes may be imposed only by the government

under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership. [28]
VAT on tollway operations cannot be deemed a tax on tax due to the nature
of VAT as an indirect tax. In indirect taxation, a distinction is made between
the liability for the tax and burden of the tax. The seller who is liable for the
VAT may shift or pass on the amount of VAT it paid on goods, properties or
services to the buyer. In such a case, what is transferred is not the sellers
liability but merely the burden of the VAT.
Thus, the seller remains directly and legally liable for payment of the
VAT, but the buyer bears its burden since the amount of VAT paid by the
former is added to the selling price. Once shifted, the VAT ceases to be a
tax[30] and simply becomes part of the cost that the buyer must pay in order
to purchase the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the
tollway user, but on the tollway operator. Under Section 105 of the
Code, [31] VAT is imposed on any person who, in the course of trade or
business, sells or renders services for a fee. In other words, the seller of
services, who in this case is the tollway operator, is the person liable for VAT.
The latter merely shifts the burden of VAT to the tollway user as part of the
toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll
fees were deemed as a users tax. VAT is assessed against the tollway
operators gross receipts and not necessarily on the toll fees. Although the
tollway operator may shift the VAT burden to the tollway user, it will not
make the latter directly liable for the VAT. The shifted VAT burden simply
becomes part of the toll fees that one has to pay in order to use the tollways.
Finally, petitioners assert that the substantiation requirements for claiming
input VAT make the VAT on tollway operations impractical and incapable of
implementation. They cite the fact that, in order to claim input VAT, the
name, address and tax identification number of the tollway user must be
indicated in the VAT receipt or invoice. The manner by which the BIR intends
to implement the VAT by rounding off the toll rate and putting any excess
collection in an escrow account is also illegal, while the alternative of giving
change to thousands of motorists in order to meet the exact toll rate would
be a logistical nightmare. Thus, according to them, the VAT on tollway
operations is not administratively feasible.
Administrative feasibility is one of the canons of a sound tax
system. It simply means that the tax system should be capable of being
effectively administered and enforced with the least inconvenience to the
taxpayer. Non-observance of the canon, however, will not render a tax
imposition invalid except to the extent that specific constitutional or
statutory limitations are impaired. [34] Thus, even if the imposition of VAT on
tollway operations may seem burdensome to implement, it is not necessarily
invalid unless some aspect of it is shown to violate any law or the
Constitution.
The Commissioner of Internal Revenue did not usurp legislative
prerogative or expand the VAT laws coverage when she sought to impose
VAT on tollway operations. Section 108(A) of the Code clearly states that
services of all other franchise grantees are subject to VAT, except as may be

provided under Section 119 of the Code. Tollway operators are not among
the franchise grantees subject to franchise tax under the latter
provision. Neither are their services among the VAT-exempt transactions
under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as
petitioners so strongly allege, then it would have been well for the law to
clearly say so. Tax exemptions must be justified by clear statutory grant and
based on language in the law too plain to be mistaken.
The grant of tax exemption is a matter of legislative policy that is within the
exclusive prerogative of Congress.

ABAYA v EBDANE
The crux of this case is about taxpayers suit. The assailed resolution
recommended the award to private respondent China Road & Bridge
Corporation of the contract for the implementation of civil works for Contract
Package No. I (CP I).
Issue:
WON petitioners have standing to file the instant petition as taxpayers.
Held:
YES. Locus standi is "a right of appearance in a court of justice on a given
question."38 More particularly, it is a partys personal and substantial interest
in a case such that he has sustained or will sustain direct injury as a result of
the governmental act being challenged. Consequently, the Court, in a catena
of cases,44 has invariably adopted a liberal stance on locus standi, including
those cases involving taxpayers.
The prevailing doctrine in taxpayers suits is to allow taxpayers to question
contracts entered into by the national government or government- owned or
controlled corporations allegedly in contravention of law.45 A taxpayer is
allowed to sue where there is a claim that public funds are illegally
disbursed, or that public money is being deflected to any improper purpose,
or that there is a wastage of public funds through the enforcement of an
invalid or unconstitutional law.46 Significantly, a taxpayer need not be a party
to the contract to challenge its validity.
In the present case, the petitioners are suing as taxpayers. They have
sufficiently demonstrated that, notwithstanding the fact that the CP I project
is primarily financed from loans obtained by the government from the JBIC,
nonetheless, taxpayers money would be or is being spent on the project
considering that the Philippine Government is required to allocate a pesocounterpart therefor. The public respondents themselves admit that
appropriations for these foreign-assisted projects in the GAA are composed
of the loan proceeds and the peso-counterpart. The counterpart funds, the
Solicitor General explains, refer to the component of the project cost to be
financed from government-appropriated funds, as part of the governments
commitment in the implementation of the project.48 Hence, the petitioners
correctly asserted their standing since a part of the funds being utilized in
the implementation of the CP I project partakes of taxpayers money.

GONZALES v MARCOS
The issue centered on the validity of the creation in Executive Order No. 30
of a trust for the benefit of the Filipino people under the name and style of
the Cultural Center of the Philippines entrusted with the task to construct a
national theatre, a national music hall, an arts building and facilities, to
awaken our people's consciousness in the nation's cultural heritage and to
encourage its assistance in the preservation, promotion, enhancement and
development thereof, with the Board of Trustees to be appointed by the
President, the Center having as its estate the real and personal property
vested in it as well as donations received, financial commitments that could
thereafter be collected, and gifts that may be forthcoming in the future. 2 It
was likewise alleged that the Board of Trustees did accept donations from the
private sector and did secure from the Chemical Bank of New York a loan of
$5 million guaranteed by the National Investment & Development
Corporation as well as $3.5 million received from President Johnson of the
United States in the concept of war damage funds, all intended for the
construction of the Cultural Center building estimated to cost P48 million.
The Board of Trustees has as its Chairman the First Lady, Imelda Romualdez
Marcos, who is named as the principal respondent
Issue:
WON petitioner has locus standi as taxpayer.
Held:
NO. Petitioner did not have the requisite personality to contest as a taxpayer
the validity of the executive order in question, as the funds held by the
Cultural Center came from donations and contributions, not one centavo
being raised by taxation It is only to make clear that petitioner has not
satisfied the elemental requisite for a taxpayer's suit.

LIWAYWAY-VINZONS-CHATO v. FORTUNE TOBACCO CORP

On June 10, 1993, the legislature enacted Republic Act No. 7654 (RA 7654),
which took effect on July 3, 1993. Prior to its effectivity, cigarette
brandsChampion, Hope, and More were considered local brands subjected to
an ad valorem tax at the rate of 20-45%. However, on July 1, 1993, or two
days before RA 7654 took effect, petitioner issued RMC 37-93
reclassifying Champion, Hope, and More as locally manufactured cigarettes
bearing a foreign brand subject to the 55% ad valorem tax.
On July 2, 1993, at about 5:50 p.m., BIR Deputy Commissioner Victor A.
Deoferio, Jr. sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it
was addressed to no one in particular. On July 15, 1993, Fortune Tobacco
received, by ordinary mail, a certified xerox copy of RMC 37-93.
Respondent filed before the RTC a complaint for damages against petitioner
in her private capacity. Respondent contended that the latter should be held
liable for damages under Article 32 of the Civil Code considering that the
issuance of RMC 37-93 violated its constitutional right against deprivation of
property without due process of law and the right to equal protection of the
laws.
Issue:
WON Liwayway, as a public officer, can be held liable.
Held:
NO. It is a fundamental principle in the law of public officers that a duty
owing to the public in general cannot give rise to a liability in favor of
particular individuals.[1] The failure to perform a public duty can constitute
an individual wrong only when a person can show that, in the public duty, a
duty to himself as an individual is also involved, and that he has suffered a
special and peculiar injury by reason of its improper performance or nonperformance.[2]
Thus, the rule restated is that an individual cannot have a particular action
against a public officer without a particular injury, or a particular right, which
are the grounds upon which all actions are founded.[18]
Juxtaposed with Article 32[19] of the Civil Code, the principle may now
translate into the rule that an individual can hold a public officer personally
liable for damages on account of an act or omission that violates a
constitutional right only if it results in a particular wrong or injury to the
former.

In the instant case, what is involved is a public officers duty owing to the
public in general. But it is a duty owed not to the respondent alone, but to
the entire body politic who would be affected, directly or indirectly, by the
administrative rule.
Furthermore, as discussed above, to have a cause of action for damages
against the petitioner, respondent must allege that it suffered a particular or
special injury on account of the non-performance by petitioner of the public
duty. A careful reading of the complaint filed with the trial court reveals that
no particular injury is alleged to have been sustained by the respondent. In
contrast, the facts of the case eloquently demonstrate that the petitioner
took nothing from the respondent, as the latter did not pay a single centavo
on the tax assessment levied by the former by virtue of RMC 37-93.
The complaint in this case does not impute bad faith on the petitioner.
Without any allegation of bad faith, the cause of action in the respondents
complaint (specifically, paragraph 2.02 thereof) for damages under Article 32
of the Civil Code would be premised on the findings of this Court
in Commissioner of Internal Revenue v. Court of Appeals (CIR v. CA),
[33]
where we ruled that RMC No. 37-93, issued by petitioner in her capacity
as Commissioner of Internal Revenue, had fallen short of a valid and
effective administrative issuance. But this does not mean that such
lehislative action was unconstitutional.
Furthermore, in an action for damages under Article 32 of the Civil Code
premised on violation of due process, it may be necessary to harmonize the
Civil Code provision with subsequent legislative enactments, particularly
those related to taxation and tax collection. Judicial notice may be taken of
the provisions of the National Internal Revenue Code, as amended, and of
the law creating the Court of Tax Appeals. Both statutes provide ample
remedies to aggrieved taxpayers; remedies which, in fact, were availed of by
the respondentwithout even having to pay the assessment under protest
The availability of the remedies against the assailed administrative action,
the opportunity to avail of the same, and actual recourse to these remedies,
contradict the respondents claim of due process infringement.
Because the respondents complaint does not impute negligence or
bad faith to the petitioner, any money judgment by the trial court against her
will have to be assumed by the Republic of the Philippines. As such, the
complaint is in the nature of a suit against the State.[46]
Court ruled in favor of CIR. The civil case pending in the RTC was ordered
dismissed.

BRITISH AMERICAN TOBACCO v SECRETARY of the DEPT. OF FINANCE

& CIR

There was an old law (RA 8240) in which a 4tier scheme was laid down to
determine the tax rate of cigarette packs depending on its net retail price. A
survey of the net retail prices per pack of cigarettes was conducted as of
October 1, 1996, the results of which were embodied in Annex "D" of the
NIRC as the duly registered, existing or active brands of cigarettes. IN
SHORT, NEW brands of cigarettes shall be taxed according to

their CURRENT net retail price while existing or "OLD" brands shall
be taxed based on their NET retail price as of October 1, 1996.
To implement RA 8240, the BIR issued Revenue Regulations No. 197,2 which classified the existing brands of cigarettes as those duly
registered or active brands prior to January 1, 1997. New brands, or those
registered AFTER January 1, 1997, shall be initially assessed at their
suggested retail price until such time that the appropriate survey to
determine their current net retail price is conducted.
In June 2001, Lucky strike Filter, Lucky Strike lights and Lucky strike Menthol
cigarettes were newly introduced by the plaintiff (British American Tobacco)
and were taxed at P8.96 since its SRP was pegged at P9.90.
A revenue order (Revenue Regulations No 9-2003) was issued by the BIR
which provides that there shall be a periodic review conducted once every 2
years to determine the current retail price of the taxable new brands.
However, notwithstanding any increase in the current net retail
price, the tax classification of such NEW brands shall remain in force
UNTIL the same is altered or changed through the issuance of an appropriate
Revenue Regulations.
Subsequently, Revenue Regulations No 22-2003 was issued to
implement the revised tax classification of certain new brands introduced in
the market AFTER January 1, 1997, based on the survey of their current
net retail price. It was found out that the current retail price of Lucky
cigarette is P22. Respondent Commissioner of the BIR thus recommended
the applicable tax rate of P13.44 per pack inasmuch as Lucky Strikes
average net retail price is above P10.00 per pack.
Thus, on September 1, 2003, petitioner filed before the Regional Trial Court
(RTC) of Makati, a petition for injunction with prayer for the issuance of a
temporary restraining on the ground that they discriminate against new
brands of cigarettes, in violation of the equal protection and uniformity
provisions of the Constitution.
Court DENIED the application for TRO, holding that it has no
authority to restrain the collection of tax.
Meanwhile, respondent Secretary of Finance filed a Motion to
Dismiss, contending that the petition is premature for lack of an
actual controversy or urgent necessity to justify judicial
intervention.
In an Order dated March 4, 2004, the trial court DENIED the motion to
dismiss and issued a writ of preliminary injunction to enjoin the
implementation of Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and
Revenue Memorandum Order No. 6-2003. Respondents filed a Motion for
Reconsideration and Supplemental Motion for Reconsideration. At the
hearing on the said motions, petitioner and respondent Commissioner
of Internal Revenue stipulated that the only issue in this case is the
constitutionality of the assailed law, order, and regulations.

On May 12, 2004, the trial court rendered a decision upholding the
constitutionality of Section 145 of the NIRC and the Revenue Regulations.
The trial court also lifted the writ of preliminary injunction.
Petitioner brought the instant petition for review directly with this
Court on a pure question of law.
While the petition was pending, RA 9334 (An Act Increasing The Excise Tax
Rates Imposed on Alcohol And Tobacco Products, Amending For The Purpose
Sections 131, 141, 143, 144, 145 and 288 of the NIRC of 1997, As Amended),
took effect on January 1, 2005.
Under RA 9334, the excise tax due on petitioners products was
increased to P25.00 per pack. Hence, petitioner filed a Motion to Admit
Attached Supplement and a Supplement to the petition for review, assailing
the constitutionality of RA 9334 insofar as it retained Annex "D" and
praying for a downward classification of Lucky Strike products at the bracket
taxable at P8.96 per pack.
Petitioner contended that the continued use of Annex "D" as the tax base of
existing brands of cigarettes gives undue protection to said brands which are
still taxed based on their price as of October 1996 notwithstanding that they
are now sold at the same or even at a higher price than new brands like
Lucky Strike. Thus, old brands of cigarettes such as Marlboro and
Philip Morris which, like Lucky Strike, are sold at or more than
P22.00 per pack, are taxed at the rate of P10.88 per pack, while
Lucky Strike products are taxed at P26.06 per pack.
So, the other cigarette manufacturing company filed a motion for
intervention. Court admitted them. Fortune Tobacco claims that the
challenge to the validity of the BIR issuances should have been
brought by petitioner before the Court of Tax Appeals (CTA) and not
the RTC because it is the CTA which has exclusive appellate
jurisdiction over decisions of the BIR in tax disputes.
Held:
The jurisdiction of the Court of Tax Appeals is defined in Republic Act
No. 1125, as amended by Republic Act No. 9282. Section 7 thereof states,
in pertinent part:
Sec. 7. Jurisdiction. The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein
provided:
1. Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties in relation thereto, or
other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relations thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal Revenue Code
provides a specific period of action, in which case the inaction shall be
deemed a denial; xxx.25
While the above statute confers on the CTA jurisdiction to resolve
tax disputes in general, this does NOT include cases where the
constitutionality of a law or rule is challenged. Where what is assailed
is the validity or constitutionality of a law, or a rule or regulation issued by
the administrative agency in the performance of its quasi-legislative
function, the regular courts have jurisdiction to pass upon the same. The
determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts.
This is within the scope of judicial power, which includes the authority of
the courts to determine in an appropriate action the validity of the
acts of the political departments. Judicial power includes the duty of the
courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there
has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government.
The petition for injunction filed by petitioner before the RTC is a DIRECT
attack on the constitutionality of Section 145(C) of the NIRC, as amended,
and the validity of its implementing rules and regulations. Petitioner,
therefore, properly filed the subject case before the RTC.
2. We come now to the issue of whether petitioner is estopped from assailing
the authority of the Commissioner of Internal Revenue. Fortune Tobacco
raises this objection by pointing out that when petitioner requested the
Commissioner for a ruling that its Lucky Strike Soft Pack cigarettes was a
"new brand" rather than a variant of an existing brand, and thus subject to a
lower specific tax rate, petitioner executed an undertaking to comply with
the procedures under existing regulations for the assessment of deficiency
internal revenue taxes.
We find that petitioner was not guilty of estoppel. When it made the
undertaking to comply with all issuances of the BIR, which at that time it
considered as valid, petitioner did not commit any false misrepresentation or
misleading act. Indeed, petitioner cannot be faulted for initially undertaking
to comply with, and subjecting itself to the operation of Section 145(C), and
only later on filing the subject case praying for the declaration of its
unconstitutionality when the circumstances change and the law results in
what it perceives to be unlawful discrimination. The mere fact that a law has
been relied upon in the past and all that time has not been attacked as
unconstitutional is not a ground for considering petitioner estopped from
assailing its validity.

As can be seen, the law creates a four-tiered system which we may refer to
as the low-priced,33medium-priced,34 high-priced,35 and premium-priced36 tax
brackets. When a brand is introduced in the market, the current net retail
price is determined through the aforequoted specified procedure. The current
net retail price is then used to classify under which tax bracket the brand
belongs in order to finally determine the corresponding excise tax rate on a
per pack basis. The assailed feature of this law pertains to the mechanism
where, after a brand is classified based on its current net retail price, the
classification is frozen and only Congress can thereafter reclassify the same.
From a practical point of view, Annex "D" is merely a by-product of the whole
mechanism and philosophy of the assailed law. That is, the brands under
Annex "D" were also classified based on their current net retail price, the
only difference being that they were the first ones so classified since they
were the only brands surveyed as of October 1, 1996, or prior to the
effectivity of RA 8240 on January 1, 1997.37

THE PHILIPPINE AMERICAN LIFE

COMPANY v Sec of FINANCE & CIR

AND

GENERAL

INSURANCE

Petitioner The Philippine American Life and General Insurance Company

(Philamlife) used to own 498,590 Class A shares in Philam Care Health
Systems, Inc. (PhilamCare), representing 49.89% of the latter's outstanding
capital stock. In 2009, petitioner offered to sell its shareholdings in
PhilamCare through competitive bidding. Thus, on September 24, 2009,
petitioner's Class A shares were sold for USD 2,190,000, or PhP 104,259,330
based on the prevailing exchange rate at the time of the sale, to STI
Investments, Inc., who emerged as the highest bidder.
After the sale was completed Philamlife filed an application for a certificate
authorizing registration/tax clearance with the Bureau of Internal Revenue
(BIR) to facilitate the transfer of the shares. Months later, petitioner was
informed that it needed to secure a BIR ruling in connection with its
application due to potential donors tax liability. In compliance, petitioner, on
January 4, 2012, requested a ruling to confirm that the sale was NOT subject
to donors tax, pointing out, in its request, the following: that the transaction
cannot attract donors tax liability since there was no donative intent
and,ergo, no taxable donation; that the shares were sold at their actual fair
market value and at arms length; that as long as the transaction conducted
is at arms lengthsuch that a bona fide business arrangement of the
dealings is done inthe ordinary course of businessa sale for less than an
adequate consideration is not subject to donors tax; and that donors tax
does not apply to saleof shares sold in an open bidding process.
On January 4, 2012, however, respondent CIR denied Philamlifes request
through BIR Ruling No. 015-12. As determined by the Commissioner, the
selling price of the shares thus sold was lower than their book value

based on the financial statements of PhilamCare as of the end of

2008.6 As such, the Commisioner held, donors tax became imposable on the
price difference pursuant to Sec. 100 of the National Internal Revenue Code
(NIRC):
SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where
property, other than real property referred to in Section 24(D), is transferred
for less than an adequate and full consideration in money or moneys worth,
then the amount by which the fair market value of the property exceeded the
value of the consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift x x x.
In view of the foregoing, the Commissioner ruled that the difference between
the book value and the selling price in the sales transaction is taxable
donation subject to a 30% donors tax under Section 99(B) of the NIRC.
Aggrieved, petitioner requested respondent Secretary of Finance to review
BIR Ruling No. 015-12, but to no avail. For on November 26, 2012,
respondent Secretary affirmed the Commissioners assailed ruling in its
entirety.
Not contented with the adverse results, petitioner elevated the case to the
CA via a petition for review under Rule 43. The CA issued the assailed
Resolution dismissing the CA Petition. It ruled that it is the Court of Tax
Appeals (CTA), pursuant to Sec. 7(a)(1) of RA 1125, 11 which has jurisdiction
over the issues raised. The outright dismissal is predicated on the postulate
that BIR Ruling No. 015-12 was issued in the exercise of the Commissioners
power to interpret the NIRC and other tax laws. Consequently, requesting for
its review can be categorized as "other matters arising under the NIRC or
other laws administered by the BIR," which is under the jurisdiction of the
CTA, not the CA.
Philamlife eventually sought reconsideration but the CA, in its equally
assailed January 21, 2014 Resolution, maintained its earlier position. Hence,
the instant recourse.
Issue:
Whether or not the CA erred in dismissing the CA Petition for lack of
jurisdiction
Held:
NO.
Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC
are appealable to the CTA.
As correctly pointed out by petitioner, Sec. 4 of the NIRC readily provides
that the Commissioners power to interpret the provisions of this
Code and other tax laws is subject to review by the Secretary of
Finance. The issue that now arises is thiswhere does one seek immediate

recourse from the adverse ruling of the Secretary of Finance in its exercise of
its power of review under Sec. 4?
Admittedly, there is NO PROVISION IN LAW that expressly provides where
exactly the ruling of the Secretary of Finance under the adverted NIRC
provision is appealable to. However, We find that Sec. 7(a)(1) of RA
1125, as amended, addresses the seeming gap in the law as it vests
the CTA, albeit impliedly, with jurisdiction over the CA petition as
"other matters" arising under the NIRC or other laws administered
by the BIR.
Sec. 7. Jurisdiction.- The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by the Bureau of
Internal Revenue.
Even though the provision suggests that it only covers rulings of the
Commissioner, We hold that it is, nonetheless, sufficient enough to
include appeals from the Secretarys review under Sec. 4 of the
NIRC.
To remedy this situation, We imply from the purpose of RA 1125 and its
amendatory laws that the CTA is the proper forum with which to
institute the appeal. This is not, and should not, in any way, be
taken as a derogation of the power of the Office of President but
merely as recognition that matters calling for technical knowledge
should be handled by the agency or quasi-judicial body with
specialization over the controversy.
Republic Act No. 1125 creating the Court of Tax Appeals did not
grant it blanket authority to decide any and all tax disputes. Defining
such special courts jurisdiction, the Act necessarily limited its authority
to those matters enumerated therein.
The appellate power of the CTA includes certiorari.
While the above statute confers on the CTA jurisdiction to resolve
tax disputes in general, this does not include cases where the

constitutionality of a law or rule is challenged. Where what is

assailed is the validity or constitutionality of a law, or a RULE or
REGULATION issued by the administrative agency in the
performance of its quasi legislative function, the REGULAR COURTS
have jurisdiction to pass upon the same. . Indeed, the Constitution
vests the power of judicial review or the power to declare a law,
treaty, international or executive agreement, presidential decree,
order, instruction, ordinance, or regulation in the courts, including
the regional trial courts.
The respective teachings in British American Tobacco and Asia
International Auctioneers, at first blush, appear to bear no conflictthat
when the validity or CONSTITUTIONALITY of an administrative rule
or regulation is assailed, the REGULAR COURTS have jurisdiction;
and if what is assailed are RULINGS or OPINIONS of the
Commissioner on tax treatments, jurisdiction over the controversy
is lodged with the CTA. The problem with the above postulates, however,
is that they failed to take into consideration one crucial pointa taxpayer
can raise both issues simultaneously.
Petitioner essentially questions the CIRs ruling that Petitioners sale of
shares is a taxable donation under Sec. 100 of the NIRC. The validity of Sec.
100 of the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely questioned
incidentally since it was used by the CIR as bases for its unfavourable
opinion. Clearly, the Petition involves an issue on the TAXABILITY of
the transaction rather than a direct attack on the
CONSTITUTIONALTY of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC
25-11. Thus, the instant Petition properly pertains to the CTA under
Sec. 7 of RA 9282.
In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc has
ruled that the CTA now has the power of certiorari in cases within its
appellate jurisdiction. To elucidate:
The prevailing doctrine is that the authority to issue writs of certiorari
involves the exercise of original jurisdiction which must be
expressly conferred by the Constitution or by law and cannot be
implied from the mere existence of appellate jurisdiction.
While there is no express grant of such power, with respect to the
CTA, Section 1, Article VIII of the 1987 Constitution provides,

nonetheless, that judicial power shall be vested in one Supreme

Court and in such LOWER COURTS as may be established by law and
that judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable,
and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.
It can be fairly interpreted that the power of the CTA includes that
of determining whether or not there has been grave abuse of
discretion . It, thus, follows that the CTA, by constitutional mandate, is
vested with jurisdiction to issue writs of certiorari in these cases.
Indeed, in order for any appellate court to effectively exercise its
appellate jurisdiction, it must have the authority to issue, among
others, a writ of certiorari. In transferring exclusive jurisdiction over
appealed tax cases to the CTA, it can reasonably be assumed that the law
intended to transfer also such power as is deemed necessary, if not
indispensable, in aid of such appellate jurisdiction.
Guided by the doctrinal teaching in resolving the case at bar, the fact that
the CA petition not only contested the applicability of Sec. 100 of the NIRC
over the sales transaction but likewise questioned the validity of Sec. 7
(c.2.2) of RR 06-08 and RMC 25-11 DOES NOT divest the CTA of its
jurisdiction over the controversy, contrary to petitioner's arguments.

MANILA MEMORIAL PARK Case

Assailing the constitutionality of the tax deduction scheme prescribed under
RA 9257 granting 20% discount to senior citizens
Issue:
WON the 20% senior citizen discount is an exercise of police power.
Ruling:
YES. The 20% discount is intended to improve the welfare of senior citizen.
As to its nature and effects, the 20% discount is a regulation affecting the
ability of private establishments to price their products and services relative
to a special class of individuals, senior citizens, for which the Constitution
affords preferential concern. In turn, the subject regulation affects the
pricing, and, hence, the profitability of a private establishment. However, it
does not purport to appropriate or burden specific properties, used in the

operation or conduct of the business of private establishments, but merely

regulates the pricing of goods and services relative to, and the amount of
profits or income/gross sales that such private establishments may derive
from, senior citizens.
Central Luzon Drug Corp: (only an obiter dictum)
Central Luzon Drug Corporation describes the 20% discount as an exercise of
the power of eminent domain. Accordingly, the tax credit benefit granted to
these establishments can be deemed as their just compensation for private
property taken by the State for public use. The discount privilege to which
senior citizens are entitled is actually a benefit enjoyed by the general public
to which these citizens belong. The discounts given would have entered the
coffers and formed part of the gross sales of the private establishments,
were it not for RA 7432. The permanent reduction in their total revenues is a
forced subsidy corresponding to the taking of private property for public use.
As a result of the 20% discount, respondent becomes entitled to a just
compensation. Besides, the taxation power can also be used as an
implement for the exercise of the power of eminent domain. Tax measures
are but "enforced contributions exacted on pain of penal sanctions" and
"clearly imposed for a public purpose."

Carlos Superdrug Corp:

Carlos Superdrug Corporation describes the 20% discount and tax deduction
scheme a valid exercise of the police power. The tax deduction scheme does
not fully reimburse petitioners for the discount privilege accorded to senior
citizens. It is an amount that is allowed by law to reduce the income prior to
the application of the tax rate to compute the amount of tax which is due.
Being a tax deduction, the discount does not reduce taxes owed on a peso
for peso basis but merely offers a fractional reduction in taxes owed. As such,
it would not meet the definition of just compensation which is real,
substantial, full and ample.