SISON v.

ANCHETA
G.R. No. L-59431
July 25, 1984
PRINCIPLE:
The power to tax is an
attribute of sovereignty. It is the
strongest of all the powers of
government. It has the broadest
scope of all the powers of
government
because
in the
absence of limitations, it is
considered as unlimited, plenary,
comprehensive
and
supreme.
There are restrictions, however,
diversely affecting as it does
property rights, both the due
process and equal protection
clauses may properly be invoked,
to invalidate in appropriate cases
a revenue measure. If it were
otherwise, taxation would be a
destructive power.
FACTS:
Petitioners challenged the
constitutionality of Section 1 of
Batas Pambansa Blg. 135. It
amended Section 21 of the
National Internal Revenue Code of
1977, which provides for rates of
tax on citizens or residents on (a)
taxable compensation income, (b)
taxable net income, (c) royalties,
prizes, and other winnings, (d)
interest from bank deposits and
yield or any other monetary
benefit from deposit substitutes
and from trust fund and similar
arrangements, (e) dividends and
share of individual partner in the
net profits of taxable partnership,
(f) adjusted gross income.
Petitioner as taxpayer
alleged that "he would be unduly
discriminated against by the
imposition of higher rates of tax
upon his income arising from the
exercise of his profession vis-a-vis
those which are imposed upon
fixed income or salaried individual
taxpayers." He characterizes the
above
section
as
arbitrary
amounting to class legislation,
oppressive and capricious in
character.
For petitioner, therefore,
there is a transgression of both
the equal protection and due
process
clauses
of
the

Constitution as well as of the rule

requiring uniformity in taxation.
The OSG prayed for
dismissal of the petition due to
lack of merit.
ISSUE:
1. Whether the imposition of
a higher tax rate on
taxable
net
income
derived from business or
profession
than
on
compensation
is
constitutionally infirm.
2. WON
there
is
a
transgression of both the
equal protection and due
process clauses of the
Constitution as well as of
the
rule
requiring
uniformity in taxation
HELD:
NO. Petition is dismissed.
The need for more revenues is
rationalized by the government's
role to fill the gap not done by
public enterprise in order to meet
the needs of the times. It is better
equipped to administer for the
public welfare.
The power to tax, an
inherent prerogative, has to be
availed
of
to
assure
the
performance
of
vital
state
functions. It is the source of the
bulk of public funds.
The power to tax is an
attribute of sovereignty and the
strongest
power
of
the
government.
There
are
restrictions, however, diversely
affecting as it does property
rights, both the due process and
equal protection clauses may
properly be invoked, as petitioner
does, to invalidate in appropriate
cases a revenue measure. If it
were otherwise, taxation would be
a destructive power.
The petitioner failed to
prove that the statute ran counter
to the Constitution. He used
arbitrariness as basis without a
factual foundation. This is merely
to adhere to the authoritative
doctrine that where the due
process and equal protection
clauses are invoked, considering
that they are not fixed rules but
rather broad standards, there is a

need for proof of such persuasive

character as would lead to such a
conclusion.
It is undoubted that the
due process clause may be
invoked where a taxing statute is
so arbitrary that it finds no
support in the Constitution. An
obvious example is where it can
be shown to amount to the
confiscation of property. That
would be a clear abuse of power.
It has also been held that
where the assailed tax measure is
beyond the jurisdiction of the
state, or is not for a public
purpose, or, in case of a
retroactive statute is so harsh and
unreasonable, it is subject to
attack on due process grounds.
For equal protection, the
applicable standard to determine
whether this was denied in the
exercise of police power or
eminent domain was the presence
of the purpose of hostility or
unreasonable discrimination.
It suffices then that the
laws
operate
equally
and
uniformly on all persons under
similar circumstances or that all
persons must be treated in the
same manner, the conditions not
being different, both in the
privileges conferred and the
liabilities imposed. Favoritism and
undue preference cannot be
allowed. For the principle is that
equal protection and security
shall be given to every person
under circumstances, which if not
identical are analogous. If law be
looks upon in terms of burden or
charges, those that fall within a
class should be treated in the
same
fashion,
whatever
restrictions cast on some in the
group equally binding on the rest.
The
equal
protection
clause is, of course, inspired by
the
noble
concept
of
approximating the ideal of the
laws' benefits being available to
all and the affairs of men being
governed by that serene and
impartial uniformity, which is of
the very essence of the idea of
law.

The equality at which the

'equal protection' clause aims is
not a disembodied equality. The
Fourteenth Amendment enjoins
'the equal protection of the laws,'
and laws are not abstract
propositions. They do not relate to
abstract units A, B and C, but are
expressions of policy arising out
of specific difficulties, addressed
to the attainment of specific ends
by the use of specific remedies.
The Constitution does not require
things which are different in fact
or opinion to be treated in law as
though they were the same.
Lutz v Araneta- 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.
Petitionerkindred
concept of uniformity- CourtPhilippine Trust Company- The
rule of uniformity does not call for
perfect uniformity or perfect
equality, because this is hardly
attainable
Equality and uniformity in
taxation means that all taxable
articles or kinds of property of the
same class shall be taxed at the
same rate. The taxing power has
the authority to make reasonable
and natural classifications for
purposes of taxation
There is quite a similarity
then to the standard of equal
protection for all that is required
is that the tax "applies equally to
all
persons,
firms
and
corporations placed in similar
situation"
There was a difference
between a tax rate and a tax
base. There is no legal objection
to a broader tax base or taxable
income
by
eliminating
all
deductible items and at the same
time reducing the applicable tax
rate.
The discernible basis of
classification is the susceptibility
of the income to the application of
generalized rules removing all

deductible items for all taxpayers

within the class and fixing a set of
reduced tax rates to be applied to
all of them. As there is practically
no overhead expense, these
taxpayers are not entitled to
make deductions for income tax
purposes because they are in the
same situation more or less.
Taxpayers
who
are
recipients
of
compensation
income are set apart as a class.
On the other hand, in the case of
professionals in the practice of
their calling and businessmen,
there is no uniformity in the costs
or expenses necessary to produce
their income. It would not be just
then to disregard the disparities
by giving all of them zero
deduction and indiscriminately
impose on all alike the same tax
rates on the basis of gross
income.
There was a lack of a
factual foundation, the forcer of
doctrines on due process and
equal
protection,
and
he
reasonableness of the distinction
between
compensation
and
taxable
net
income
of
professionals and businessmen
not being a dubious classification.

COMMISSIONER OF INTERNAL
REVENUE v. ALGUE, INC., and
CTA
G.R. No.: L-28896, February
17, 1988.
Cruz, J
PRINCIPLES:
TAXATION

NATURE

OF

FACTS:

Algue,
Inc.
is
a
corporation engaged in
engineering,
construction, and other
allied activities.

Jan. 14, 1965 Algue

received a letter from
the
Commissioner
assessing
it
with
delinquency taxes from
1958-59,
totaling
P83,183.85. Algue filed a
letter of protest/ request
for consideration at the
office
of
the
Commissioner.
It was
stamp-received on the
same day.
o This was based
on a P75,000
deduction made
by Algue, which
the latter claims
was
paid
for
promotional fees,
from
services
rendered in the
creation of the
Vegetable
Oil
Investment
Corporation
of
the Phils. and its
subsequent
purchase of the
properties of the
Phil. Sugar Estate
Development Co.
(for which Algue
received
a
commission
of
P125,000).
o The 5 payees of
the P75,000 duly
reported
their
respective shares
of the fees in
their ITRs and
paid
the
corresponding
taxes thereon. No
distribution
of
dividends
was
done.
Mar. 12 a warrant of
distraint and levy was
presented
to
Algues
counsel, Atty. Guevara,
who refused to receive it
because of the pending
protest.
The
protest
could not be found in the
dockets. Atty. Guevara
gave a photostat to BIR
agent
Reyes,
who

deferred service of the

warrant.
Apr. 7 Atty. Guevara
was finally informed that
the BIR was not taking
any
action
on
the
protest.
He
then
accepted the warrant.
Apr. 23 (16 days later),
Algue filed a petition for
review with the CTA.

COMMISSIONER ARGUES: The

payments are fictitious because
most of the payees are members
of the same family in control of
Algue. There was no indication
was made as to how such
payments were made, whether
by check or in cash, and there is
not enough substantiation of
such payments. In short, this is a
tax dodge, an attempt to evade
a legitimate assessment by
invoking
an
imaginary
deduction.
ISSUE/S:
Main Issue: W/N the Collector of
Internal
Revenue
correctly
disallowed
the
P75,
000.00
deduction claimed by private
respondent Algue as legitimate
business expenses in its income
tax returns.
RATIO:
YES.

Algues president and its

accountant testified that
the payments were not
made in lump sum, but
periodically
and
in
different
amounts
as
each
payees
need
arose. This was a family
corporation;
strict
business
procedures
were not applied, and
the issuance of receipts
was not required.
Even so, at the end of
the year, each payee
made an accounting of
all the fees received, to
make up the total of
P75,000. This amount for

promotional fees is not

excessive. It was only
60%
of
the
total
commission; Algue still
had a balance of P50,000
as clear profit from the
transaction.
CTAs finding is in accord
with
the
following
provisions:
o Tax Code, Sec. 30.
Deductions from
gross income. In
computing
net
income,
there
shall be allowed
as deductions: All
the ordinary and
necessary
expenses paid or
incurred
during
the taxable year
in carrying on any
trade or business,
including
a
reasonable
allowance
for
salaries or other
compensation for
personal services
actually
rendered
o

Revenue
Regulations No. 2,
Sec.
70(1):
Among
the
ordinary
and
necessary
expenses paid or
incurred
in
carrying on any
trade or business
may be included a
reasonable
allowance
for
salaries or other
compensation for
personal services
actually rendered.
The
test
of
deductibility
in
the
case
of
compensation
payments
is
whether they are
reasonable
and
are,
in
fact,
payments purely

for service. This

test
and
its
practical
application
may
be further stated
and illustrated as
follows:
Any amount paid
in the form of
compensation,
but not in fact as
the
purchase
price of services,
is not deductible.
(a) An ostensible
salary paid by a
corporation may
be a distribution
of a dividend on
stock.
This
is
likely to occur in
the case of a
corporation
having
few
stockholders,
practically all of
whom
draw
salaries. If in such
a
case
the
salaries are in
excess of those
ordinarily paid for
similar
services,
and the excessive
payment
correspond
or
bear
a
close
relationship to the
stockholdings
of
the
officers
of
employees,
it
would seem likely
that the salaries
are
not
paid
wholly for services
rendered, but the
excessive
payments are a
distribution
of
earnings upon the
stock.

It is worth noting that

most of the payees were
not in the regular employ
of Algue, nor were they
its
controlling
stockholders.

The burden is on the

taxpayer to prove the
validity of the claimed
deduction.
In
this
case, the onus has
been
charged
satisfactorily.
Algue
has proved that the
payment of the fees was
necessary
and
reasonable in the light of
the efforts exerted by
the payees in inducing
investors and prominent
businessmen to venture
in
an
experimental
enterprise.
Taxes are what we pay
for civilized society.
Without
taxes,
the
government would be
paralyzed for lack of the
motive power to activate
and operate it. Hence,
despite
the
natural
reluctance to surrender
part of one's hardearned
income to the taxing
authorities, every person
who is able to must
contribute his share in
the
running
of
the
government.
o The government,
for its part, is
expected
to
respond in the
form of tangible
and
intangible
benefits intended
to improve the
lives
of
the
people
and
enhance
their
moral
and
material values.
This symbiotic
relationship is
the rationale of
taxation
and
should dispel the
erroneous notion
that it is an
arbitrary method
of exaction by
those in the seat
of power.
o Even
as
we
concede
the

inevitability and
indispensability
of taxation, it is a
requirement in all
democratic
regimes that it be
exercised
reasonably and in
accordance with
the
prescribed
procedure. If it is
not,
then
the
taxpayer has a
right to complain
and the courts
will then come to
his succor. For all
the
awesome
power of the tax
collector, he may
still be stopped in
his tracks if the
taxpayer
can
demonstrate, as
it has here, that
the law has not
been observed.
Opening
statement
of
this
ponencia:
Taxes
are
the
lifeblood of the government
and so should be collected
without unnecessary hindrance.
On
the
other
hand,
such
collection should be made in
accordance with law as any
arbitrariness will negate the
very reason for government
itself. It is therefore necessary to
reconcile
the
apparently
conflicting
interests
of
the
authorities and the taxpayers so
that
the
real
purpose
of
taxation, which is the promotion
of the common good, may be
achieved.
PHILIPPINE GUARANTY CO. v.
COMMISSIONER ON INTERNAL
REVENUE
The power to tax is an attribute of
sovereignty.
It
is
a
power
emanating from necessity. It is a
necessary burden to preserve the
State's sovereignty and a means
to give the citizenry an army to
resist an aggression, a navy to
defend its shores from invasion, a

corps of civil servants to serve,

public improvement designed for
the enjoyment of the citizenry
and those which come within the
State's territory, and facilities and
protection which a government is
supposed to provide.
FACTS:
Philippine Guaranty Co. (PGC)
entered into reinsurance contracts
with foreign insurance companies
not doing business
in the
Philippines, the agreed to cede to
foreign reinsurers a portion on the
premiums on insurance originally
underwritten in the Philippines.
The contracts signed specifically
provided that its provisions shall
be construed under the Philippine
law.
A proportionate amount of taxes
not recovered from the original
assured were to be paid by the
foreign
reinsurers,
also,
the
agreed
in
consideration
for
managing/ administering their
affairs in the Philippines to
compensate PGC in an amount of
5% of the reinsurance premiums.
In the year 1953 &1954 , PGC,
when it filed income tax returns, it
did not withhold/ pay tax on them.
Commission on Internal Revenue
(CIR) assessed PGC thus requiring
them to pay a withholding tax of
P230,673 for year 1953 & P
234,364 for year 1954.
PGC protested that reinsurance
premiums
ceded
to
foreign
reinsurers not doing business in
Philippines are not subject to
withholding tax. It was denied,
the appealed to CTA.
CTA:
Ordered PGC to pay withholding
tax for the year 1953-54 plus
statutory delinquency penalties.
SC:
Ordered PGC to pay withholding
tax for the year 1953-54.

Section 24 of the Tax Code

subjects foreign corporations to
tax on their income from sources
within the Philippines. The word
"sources" has been interpreted as
the activity, property or service
giving rise to the income. The
reinsurance
premiums
were
income
created
from
the
undertaking
of
the
foreign
reinsurance
companies
to
reinsure Philippine Guaranty Co.,
Inc., against liability for loss under
original
insurances.
Such
undertaking, as explained above,
took place in the Philippines.
These
insurance
premiums,
therefore, came from sources
within the Philippines and, hence,
are subject to corporate income
tax. What is controlling is not the
place of business but the place of
activity that created an income.
Tax Code does not require a
foreign corp to engage business
in the Philippines, it suffices that
the activity creating the income is
permitted/done in the Philippines.

proceedings were closed, the

Bureau
of
Internal
Revenue
investigated the income tax
liability of the estate for the years
1945, 1946, 1947 and 1948 and it
found that the corresponding
income tax returns were not filed.
Representative from BIR assessed
the property and issued a total
amount of P2707 for deficiency in
income tax and other fees.

The power to tax is an attribute of

sovereignty.
It
is
a
power
emanating from necessity. It is a
necessary burden to preserve the
State's sovereignty and a means
to give the citizenry an army to
resist an aggression, a navy to
defend its shores from invasion, a
corps of civil servants to serve,
public improvement designed for
the enjoyment of the citizenry
and those which come within the
State's territory, and facilities and
protection which a government is
supposed to provide.

The Commissioner appealed to

the SC and the proposed that
Manuel B. Pineda be liable for the
payment of all the taxes found by
the Tax Court to be due from the
estate in the total amount of
P760.28 instead of only for the
amount of taxes corresponding to
his share in the estate.

Manuel contested that he should

be liable only to the part or
portion of the land pertaining to
him.
The Court of Tax Appeal rendered
judgment reversing the decision
of the Commissioner on the
ground that his right to assess
and collect the tax on 1947 has
prescribed, but not on the year
1945 and 1946. So the CTA hold
that Manuel Pineda is liable for
the
amount
of
P760.28
corresponding to his share of the
taxes.

Manuel B. Pineda opposes the

proposition on the ground that as
an heir he is liable for unpaid
income tax due the estate only up
to the extent of and in proportion
to any share he received.

COMMISSIONER OF INTERNAL
REVENUE V. MANUEL PINEDA

ISSUE: Is Manuel Pineda liable for

the payment of the income tax of
the whole property?

(THEORY
AND
BASIS
OF
TAXATION

LIFEBLOOD
THEORY AND JURISDICTION
OVER SUBJECTS AND OBJECTS)

HELD: The SC held that the

Government can require Manuel
B. Pineda to pay the full amount
of the taxes assessed.

FACTS: Respondent
Manuel
Pineda is one of the heirs of land
of his late father. His share of the
property amounted to about
P2,500.
After
the
estate

Pineda
is
liable
for
the
assessment as an (1) heir and (2)
as a holder-transferee of property
belonging to the estate/taxpayer.

As an (1) heir he is
individually answerable for the
part of the tax proportionate to
the share he received from the
inheritance.3 His
liability,
however, cannot exceed the
amount of his share.
(2) As a holder of property
belonging to the estate, Pineda is
liable for he tax up to the amount
of the property in his possession.
The
reason
is
that
the
Government has a lien on the
P2,500.00 received by him from
the estate as his share in the
inheritance, for unpaid income
taxes4a for which said estate is
liable, pursuant to the last
paragraph of Section 315 of the
Tax Code, which we quote
hereunder:
If any person, corporation,
partnership, joint-account
(cuenta en participacion),
association, or insurance
company liable to pay the
income tax, neglects or
refuses to pay the same
after demand, the amount
shall be a lien in favor of
the Government of the
Philippines from the time
when the assessment was
made
by
the
Commissioner of Internal
Revenue until paid with
interest, penalties, and
costs that may accrue in
addition thereto upon all
property and rights to
property belonging to the
taxpayer: . . .
By virtue of such lien, the
Government has the right to
subject the property in Pineda's
possession, i.e., the P2,500.00, to
satisfy
the
income
tax
assessment in the sum of
P760.28. After such payment,
Pineda will have a right of
contribution from his co-heirs,5 to
achieve an adjustment of the
proper share of each heir in the
distributable estate.

There
are
two
ways
the
government can collect tax: First,
the Government filed an action
against all the heirs for the
collection of the tax. This action
rests on the concept
that
hereditary property consists only
of that part which remains after
the settlement of all lawful claims
against the estate, for the
settlement of which the entire
estate is first liable.6 The reason
why in case suit is filed against all
the heirs the tax due from the
estate is levied proportionately
against them is to achieve
thereby
two
results:
first,
payment of the tax; and second,
adjustment of the shares of each
heir in the distributed estate
as lessened by the tax.
Second, is by subjecting said
property of the estate which is in
the hands of an heir or transferee
to the payment of the tax due,
the estate. This second remedy is
the very avenue the Government
took in this case to collect the tax.
The Bureau of Internal Revenue
should be given, in instances like
the case at bar, the necessary
discretion to avail itself of the
most expeditious way to collect
the tax as may be envisioned in
the particular provision of the Tax
Code above quoted, because
taxes
are
the
lifeblood
of
government and their prompt and
certain availability is an imperious
need.7 And as afore-stated in this
case the suit seeks to achieve
only one objective: payment of
the tax. The adjustment of the
respective shares due to the heirs
from the inheritance, as lessened
by the tax, is left to await the suit
for contribution by the heir from
whom the Government recovered
said tax.

PHILIPPINE GUARANTY CO. v.

COMMISSIONER ON INTERNAL
REVENUE
The power to tax is an attribute of
sovereignty.
It
is
a
power

emanating from necessity. It is a

necessary burden to preserve the
State's sovereignty and a means
to give the citizenry an army to
resist an aggression, a navy to
defend its shores from invasion, a
corps of civil servants to serve,
public improvement designed for
the enjoyment of the citizenry
and those which come within the
State's territory, and facilities and
protection which a government is
supposed to provide.
FACTS:
Philippine Guaranty Co. (PGC)
entered into reinsurance contracts
with foreign insurance companies
not doing business
in the
Philippines, the agreed to cede to
foreign reinsurers a portion on the
premiums on insurance originally
underwritten in the Philippines.
The contracts signed specifically
provided that its provisions shall
be construed under the Philippine
law.
A proportionate amount of taxes
not recovered from the original
assured were to be paid by the
foreign
reinsurers,
also,
the
agreed
in
consideration
for
managing/ administering their
affairs in the Philippines to
compensate PGC in an amount of
5% of the reinsurance premiums.
In the year 1953 &1954 , PGC,
when it filed income tax returns, it
did not withhold/ pay tax on them.
Commission on Internal Revenue
(CIR) assessed PGC thus requiring
them to pay a withholding tax of
P230,673 for year 1953 & P
234,364 for year 1954.
PGC protested that reinsurance
premiums
ceded
to
foreign
reinsurers not doing business in
Philippines are not subject to
withholding tax. It was denied,
the appealed to CTA.

SC:
Ordered PGC to pay withholding
tax for the year 1953-54.
Section 24 of the Tax Code
subjects foreign corporations to
tax on their income from sources
within the Philippines. The word
"sources" has been interpreted as
the activity, property or service
giving rise to the income. The
reinsurance
premiums
were
income
created
from
the
undertaking
of
the
foreign
reinsurance
companies
to
reinsure Philippine Guaranty Co.,
Inc., against liability for loss under
original
insurances.
Such
undertaking, as explained above,
took place in the Philippines.
These
insurance
premiums,
therefore, came from sources
within the Philippines and, hence,
are subject to corporate income
tax. What is controlling is not the
place of business but the place of
activity that created an income.
Tax Code does not require a
foreign corp to engage business
in the Philippines, it suffices that
the activity creating the income is
permitted/done in the Philippines.
The power to tax is an attribute of
sovereignty.
It
is
a
power
emanating from necessity. It is a
necessary burden to preserve the
State's sovereignty and a means
to give the citizenry an army to
resist an aggression, a navy to
defend its shores from invasion, a
corps of civil servants to serve,
public improvement designed for
the enjoyment of the citizenry
and those which come within the
State's territory, and facilities and
protection which a government is
supposed to provide.

CTA:
Ordered PGC to pay withholding
tax for the year 1953-54 plus
statutory delinquency penalties.

G.R. No. L-28896 February 17,

1988

COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT
OF TAX APPEALS, respondents.
CRUZ, J.:
FACTS
on January 14, 1965, the private
respondent,
a
domestic
corporation
engaged
in
engineering, construction and
other allied activities, received a
letter
from
the
petitioner
assessing it in the total amount of
P83,183.85
as
delinquency
income taxes for the years 1958
and 1959
On January 18, 1965, Algue flied a
letter of protest or request for
reconsideration, which letter was
stamp received on the same day
in the office of the petitioner.
On March 12, 1965, a warrant of
distraint and levy was presented
to
the
private
respondent,
through its counsel, Atty. Alberto
Guevara, Jr., who refused to
receive it on the ground of the
pending protest. Atty. Guevara
produced his file copy and gave a
photostat to BIR agent Ramon
Reyes, who deferred service of
the warrant.
On April 7, 1965, Atty. Guevara
was finally informed that the BIR
was not taking any action on the
protest and it was only then that
he accepted the warrant of
distraint and levy earlier sought
to be served.
On April 23, 1965, Algue filed a
petition for review of the decision
of the Commissioner of Internal
Revenue with the Court of Tax
Appeals.
ISSUE
1.

The main issue in this

case is whether or not the
Collector
of
Internal
Revenue
correctly
disallowed the P75,000.00
deduction
claimed
by

2.

private respondent Algue

as legitimate business
expenses in its income
tax returns.
The corollary issue is
whether or not the appeal
of the private respondent
from the decision of the
Collector
of
Internal
Revenue was made on
time and in accordance
with law.

RULING

The Court of Tax Appeals correctly

noted," the
protest
filed
by
private respondent was not pro
forma and was based on strong
legal considerations. It thus had
the effect of suspending on
January 18, 1965, when it was
filed, the reglementary period
which started on the date the
assessment was received, viz.,
January 14, 1965. The period
started running again only on
April 7, 1965, when the private
respondent
was
definitely
informed of the implied rejection
of the said protest and the
warrant was finally served on it.
Hence, when the appeal was filed
on April 23, 1965, only 20 days of
the reglementary period had been
consumed.
The petitioner contends that the
claimed deduction of P75,000.00
was properly disallowed because
it was not an ordinary reasonable
or necessary business expense.
The Court of Tax Appeals had
seen it differently. Agreeing with
Algue, it held that the said
amount had been legitimately
paid by the private respondent for
actual services rendered. The
payment was in the form of
promotional fees. These were
collected by the Payees for their
work in the creation of the
Vegetable
Oil
Investment
Corporation of the Philippines and
its subsequent purchase of the
properties of the Philippine Sugar
Estate Development Company.
In fact, as the said court found,
the amount was earned through
the joint efforts of the persons
among whom it was distributed It
has been established that the

Philippine
Sugar
Estate
Development
Company
had
earlier appointed Algue as its
agent, authorizing it to sell its
land,
factories
and
oil
manufacturing process. Pursuant
to
such
authority,
Alberto
Guevara, Jr., Eduardo Guevara,
Isabel Guevara, Edith, O'Farell,
and Pablo Sanchez, worked for
the formation of the Vegetable Oil
Investment Corporation, inducing
other persons to invest in
it. Ultimately,
after
its
incorporation largely through the
promotion of the said persons,
this new corporation purchased
the PSEDC properties. 15 For this
sale, Algue received as agent a
commission of P126,000.00, and
it was from this commission that
the P75,000.00 promotional fees
were paid to the aforenamed
individuals.
There is no dispute that the
payees
duly
reported
their
respective shares of the fees in
their income tax returns and paid
the
corresponding
taxes
thereon. The Court of Tax Appeals
also found, after examining the
evidence, that no distribution of
dividends was involved.
We find that these suspicions
were adequately met by the
private respondent when its
President, Alberto Guevara, and
the accountant, Cecilia V. de
Jesus, testified that the payments
were not made in one lump sum
but periodically and in different
amounts as each payee's need
arose. It should be remembered
that this was a family corporation
where strict business procedures
were not applied and immediate
issuance of receipts was not
required. Even so, at the end of
the year, when the books were to
be closed, each payee made an
accounting of all of the fees
received by him or her, to make
up the total of P75,000.00.
We agree with the respondent
court that the amount of the
promotional
fees
was
not
excessive. The total commission
paid by the Philippine Sugar
Estate Development Co. to the
private
respondent
was
P125,000.00. 21After
deducting
the said fees, Algue still had a
balance of P50,000.00 as clear
profit from the transaction. The

amount of P75,000.00 was 60% of

the total commission. This was a
reasonable
proportion,
considering that it was the payees
who did practically everything,
from the formation of the
Vegetable
Oil
Investment
Corporation
to
the
actual
purchase by it of the Sugar Estate
properties.
It is worth noting at this point that
most of the payees were not in
the regular employ of Algue nor
were
they
its
controlling
stockholders.
We hold that the appeal of the
private respondent from the
decision of the petitioner was filed
on time with the respondent court
in accordance with Rep. Act No.
1125. And we also find that the
claimed deduction by the private
respondent was permitted under
the Internal Revenue Code and
should therefore not have been
disallowed by the petitioner.
ACCORDINGLY,
the
appealed
decision of the Court of Tax
Appeals
is
AFFIRMED in
toto, without costs.
RATIO
This finding of the respondent
court is in accord with the
following provision of the Tax
Code:
SEC.
30. Deductions
from
gross
income.--In
computing
net
income there shall
be
allowed
as
deductions
(a) Expenses:
(1) In general.--All
the ordinary and
necessary
expenses paid or
incurred
during
the taxable year
in carrying on any
trade or business,
including
a
reasonable
allowance
for
salaries or other
compensation for

personal services
actually rendered;
... 22

having
few
stockholders,
Practically all of
whom
draw
salaries. If in such
a
case
the
salaries are in
excess of those
ordinarily paid for
similar
services,
and the excessive
payment
correspond
or
bear
a
close
relationship to the
stockholdings
of
the
officers
of
employees,
it
would seem likely
that the salaries
are
not
paid
wholly for services
rendered, but the
excessive
payments are a
distribution
of
earnings upon the
stock.
.
.
.
(Promulgated Feb.
11, 1931, 30 O.G.
No. 18, 325.)

and Revenue Regulations No. 2,

Section 70 (1), reading as follows:
SEC.
70. Compensation
for
personal
services.--Among
the ordinary and
necessary
expenses paid or
incurred
in
carrying on any
trade or business
may be included a
reasonable
allowance
for
salaries or other
compensation for
personal services
actually rendered.
The
test
of
deductibility
in
the
case
of
compensation
payments
is
whether they are
reasonable
and
are,
in
fact,
payments purely
for service. This
test
and
deductibility
in
the
case
of
compensation
payments
is
whether they are
reasonable
and
are,
in
fact,
payments purely
for service. This
test
and
its
practical
application
may
be further stated
and illustrated as
follows:
Any amount paid
in the form of
compensation,
but not in fact as
the
purchase
price of services,
is not deductible.
(a) An ostensible
salary paid by a
corporation may
be a distribution
of a dividend on
stock.
This
is
likely to occur in
the case of a
corporation

PHILIPPINE AIRLINES V EDU

GR NO L-41383, AUGUST 15,
1988

FACTS:
PAL is engaged in the air
transportation business under a
legislative franchise (Act 4271),
wherein it is exempt from the
payment of taxes. On the strength
of an opinion of the Secretary of
Justice, PAL was determined to
have not been paying motor
vehicle registration fees since
1956. The Land Transportation
Commissioner required all taxexempt entities, including PAL, to
pay motor vehicle registration
fees. PAL protested. The trial
court dismissed PALs complaint.
Hence, this petition.

ISSUE:

Are motor vehicle registration

fees taxes or regulatory taxes?

RULING:
They are taxes. Tax are for
revenue,
whereas
fees
are
exactions
for
purposes
of
regulation and inspection, and are
for that reason limited in amount
to what is necessary to cover the
cost of the services rendered in
that connection.

It is the object of the charge, and

not the name, that determines
whether a charge is a tax or a fee.
The money collected under the
Motor Vehicle Law is not intended
for the expenditures of the Motor
Vehicle Law is not intended for
the expenditures of the Motor
Vehicles Office but accrues to the
funds for the construction and
maintenance of public roads,
streets and bridges.

As the fees are not collected for

regulatory
purposes
as
an
incident to the enforcement of
regulations
governing
the
operation of motor vehicles on
public highways, but to provide
revenue
with
which
the
Government is to construct and
maintain public highways for
everyones use, they are veritable
taxes, not merely fees.

PAL is, thus, exempt from paying

such fees, except for the period
between June 27, 1968 to April 9,
1979, where its tax exception in
the franchise was repealed.

1.
CASE
TITLE:
CALTEX
PHILIPPINES,
INC.
v.
THE
HONORABLE COMMISSION ON
AUDIT,
HONORABLE
COMMISSIONER BARTOLOME C.
FERNANDEZ
and HONORABLE

COMMISSIONER
ALBERTO
P.
CRUZ, G.R. No. 92585, May 8,
1992
2. PRINCIPLE: PURPOSE
TAXATION - Regulatory

OF

3. FACTS: On 2 February 1989,

the COA directed Caltex to remit
to the OPSF its collection of the
additional tax on petroleum
products authorized under Section
8 of P.D. No. 1956, excluding that
unremitted for the years 1986
and 1988, which the grand total
of its unremitted collections of the
above tax is P1,287,668,820.00.
COA likewise informed Caltex
that, pending such remittance, all
of its claims for reimbursement
from the OPSF shall be held in
abeyance; and, further directed it
to desist from further offsetting
the
taxes
collected
against
outstanding claims in 1989 and
subsequent periods.
In its letter of 3 May 1989, Caltex
requested the COA for an early
release of its reimbursement
certificates
from
the
OPSF
covering claims with the Office of
Energy Affairs (OEA) since June
1987 up to March 1989, invoking
in support thereof COA Circular
No. 89-299 on the lifting of preaudit of government transactions
of national government agencies
and
government-owned
or
controlled
corporations.
COA
denied this request and repeated
its earlier directive to Caltex to
forward payment of the latter's
unremitted collections to the
OPSF to facilitate COA's audit
action on the reimbursement
claims.
Caltex submitted to the COA a
proposal for the payment of the
collections and the recovery of
claims,
since
the
outright
payment of the sum of P1.287
billion
to
the
OEA
as
a
prerequisite for the processing of
said claims against the OPSF will
cause a very serious impairment
of its cash position. COA approved
the proposal but prohibited Caltex

from
further
offsetting
remittances and reimbursements
for the current and ensuing years.
Caltex moved for reconsideration
but was denied. Hence, the
present petition.
4. ISSUE: Whether or not the
amounts due to the OPSF from
Caltex may be offset against its
outstanding claims from said
fund.
Caltex contends that it should be
allowed to offset its claims from
the OPSF against its contributions
to the fund as this has been
allowed in the past, particularly in
the years 1987 and 1988. Caltex
further cites, as bases for
offsetting, the provisions of the
New Civil Code on compensation
and Section 21, Book V, Title I-B of
the Revised Administrative Code
which provides for "Retention of
Money
for
Satisfaction
of
Indebtedness to Government."
COA, on the other hand, citing
Francia vs. IAC and Fernandez,
contends that there can be no
offsetting of taxes against the
claims that a taxpayer may have
against the government, as taxes
do not arise from contracts or
depend upon the will of the
taxpayer, but are imposed by law.
Respondents also allege that
Caltex's reliance on Section 21,
Book V, Title I-B of the Revised
Administrative Code, is misplaced
because "while this provision
empowers the COA to withhold
payment
of
a
government
indebtedness to a person who is
also indebted to the government
and
apply
the
government
indebtedness to the satisfaction
of the obligation of the person to
the government, like authority or
right to make compensation is not
given to the private person." The
reason for this, as stated in
Commissioner of Internal Revenue
vs. Algue, Inc., is that money due
the government, either in the
form of taxes or other dues, is its
lifeblood and should be collected
without hindrance. Thus, instead

of giving Caltex a reason for

compensation or set-off, the
Revised
Administrative
Code
makes it the COAs duty to collect
Caltex's indebtedness to the
OPSF.
Refuting COA's contention, Caltex
claims that the amounts due from
it do not arise as a result of
taxation because "P.D. 1956,
amended, did not create a source
of taxation; it instead established
a special fund . . .," and that the
OPSF contributions do not go to
the general fund of the state and
are not used for public purpose,
i.e., not for the support of the
government, the administration of
law, or the payment of public
expenses. This alleged lack of a
public purpose behind OPSF
exactions distinguishes such from
a tax. Hence, the ruling in the
Francia case is inapplicable.
Lastly, Caltex cites R.A. No. 6952
creating the Petroleum Price
Standby Fund to support the
OPSF; the said law provides in
part
that:
Sec.
2.
Application of the fund
shall be subject to the following
conditions: xxx xxx
xxx
(3)
That no amount of the
Petroleum Price Standby Fund
shall be used to pay any oil
company
which
has
an
outstanding obligation to the
Government
without
said
obligation being offset first,
subject to the requirements of
compensation or offset under the
Civil Code.
5. SC RULING/RATIO: The SC
found no merit in Caltexs
contention
that
the
OPSF
contributions are not for a public
purpose because they go to a
special fund of the government.
Taxation
is
no
longer
envisioned as a measure
merely to raise revenue to
support the existence of the
government; taxes may be
levied
with
a
regulatory
purpose to provide means for
the
rehabilitation
and
stabilization of a threatened

industry which is affected

with public interest as to be
within the police power of the
state. There can be no doubt that
the oil industry is greatly imbued
with public interest as it vitally
affects the general welfare. Any
unregulated increase in oil prices
could hurt the lives of a majority
of the people and cause economic
crisis of untold proportions. It
would have a chain reaction in
terms of, among others, demands
for wage increases and upward
spiraling of the cost of basic
commodities. The stabilization
then of oil prices is of prime
concern which the state, via its
police
power,
may
properly
address.

__________________________________
__________________________________
_________

Also, P.D. No. 1956, as amended

by E.O. No. 137, explicitly
provides that the source of OPSF
is taxation. No amount of
semantical juggleries could dim
this fact.

Said Act provides for an

increase of the existing tax on
the manufacture of sugar on a
graduated basis, on each picul
of sugar manufactured and
levies on owners or persons in
control of lands devoted to
the cultivation of sugar cane
and ceded to others for a
consideration
on
a
tax
equivalent to the difference
between money value of the
rental
or
consideration
collected and the amount
representing 12 per centum of
the assessed value of such
land.

DISPOSITIVE
PORTION:
WHEREFORE, in view of the
foregoing, judgment is hereby
rendered
AFFIRMING
the
challenged
decision
of
the
Commission on Audit, except that
portion
thereof
disallowing
petitioner's
claim
for
reimbursement of underrecovery
arising from sales to the National
Power Corporation, which is
hereby allowed.

WALTER LUTZ (As Judicial

Administrator of the Intestate
Estate
of
the
Deceased
Antonio Jayme Ledesma) v. J.
ANTONIO ARANETA (As the
Collector of Internal Revenue)
G.R. No. L-7859, 22 December
1955
J. J.B L. Reyes
PRINICPLE/S:
(1)
PURPOSE OF TAXATION
(2)
POWER
OF
TAXATION
V.
POLICE POWER OF EMINENT
DOM
AIN

This is a case initiated to test the

legality of the taxes imposed by
Commonwealth
Act.
567,
otherwise known as the Sugar
Adjustment Act (Promulgated in
1940). This law was instituted to
obtain a readjustment of the
benefits derived from the sugar
industry
by
the
component
elements thereof (threat to the
industry
by
the
imminent
imposition of export taxes upon
sugar as provided in the TydingsMcDuffe Act) and to stabilize the
sugar industry so as to prepare it
for the eventuality of the loss of
its preferential position in the US
market and the imposition of the
export taxes.

All collections made under this act

shall accrue to a special fund in
the Philippine Treasury, to be
known as the Sugar Adjustment
and Stabilization Fund and shall
be paid out only for any or all of
the following purposes or to attain
any or all of the following
objectives, as may be provided by
law. Such as:
To maintain the sugar
industry in a position to
maintain itself, despite
the gradual loss of the
preferential position of the
Philippine sugar in the US
Market and ultimately to
insure
its
continued
existence notwithstanding
the loss of that market
and
the
consequent
necessity
of
meeting
competition in the free
markets of the world;

To readjust the benefits

derived from the sugar
industry by all of the
component
elements
thereof the mill, the land
owner, the planter, the
laborers in the factory
so that all might continue
profitably
to
engage
therein;
To limit the production of
sugar to areas more
economically suited to the
production thereof; and
To afford labor employed
in the industry a living
wage and to improve their
living
and
working
conditions.

Facts:
Walter Lutz seeks to recover from
the Collector of Internal Revenue
the sum of Php 14,666.00 paid by
the estate as taxes in accordance
with the above Act for the crop
years 1948-1949 and 1949-150,
alleging that such tax is
unconstitutional
and
void
being levied for the aid and
support of the sugar industry
exclusively, which in his opinion
not a public purpose for which
a tax may be constitutionally
levied.
Court of First Instance (Negros
Occidental): Dismissed the case.
Lutz appealed the cased directly
to the Supreme Court.
Issue:
W/N the Sugar Regulatory Act in
terms of its provisions to collect
increased tax from one sector has
a valid purpose and in accordance
with the Constitution.
Ratio:
The Act is a pure exercise of
the taxing power. An analysis
of the Act, and particularly of
section 6, will show that the
tax is levied with a regulatory
purpose, to provide means for
the
rehabilitation
and
stabilization of the threatened
sugar industry.
In other

words, the act is primarily an

exercise of the police power.
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
states wealth, is one of the
important sources of foreign
exchanged
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 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 atted
strain of the increase in taxes
that it had to sustain.
The protection of a large
industry constituting one of
the great sources of the
states wealth and therefore
directly or indirectly affecting
the welfare of so great a
portion of the population of
the State is affected to such
an extent by public interest
as to be within the police
power of the sovereign.
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. In
this
case,
the
legislative
discretion must be allowed fully
play, subject only to the test of
reasonableness because taxation
may be made the implement
of the States police power.
The tax to be levied should
burden the sugar producers as 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. 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.
The funds raised under the Sugar
Stabilization
Act
should
be
exclusively spent in aid of the
sugar industry, since that very
enterprise that is being protected.
Dispositive Portion:
The decision of the CFI is
affirmed.

VALENTIN TIO doing business

under the name and style of
OMI ENTERPRISES, petitioner,
vs. VIDEOGRAM REGULATORY
BOARD,
MINISTER
OF
FINANCE,
METRO
MANILA
COMMISSION,
CITY
MAYOR
and
CITY
TREASURER
OF
MANILA, respondents.
G.R. No. L-75697
Regulatory
FACTS:
Promulgation
of
Presidential
Decree No. 1994 particularly
Section 10. Tax on Sale, Lease or
Disposition of Videograms.
Notwithstanding any provision of
law to the contrary, the province
shall collect a tax of thirty percent
(30%) of the purchase price or
rental rate, as the case may be,
for every sale, lease or disposition
of a videogram containing a
reproduction
of
any
motion
picture or audiovisual program.
Fifty percent (50%) of the
proceeds of the tax collected shall
accrue to the province, and the
other fifty percent (50%) shall
acrrue to the municipality where
the tax is collected; PROVIDED,
That in Metropolitan Manila, the

tax shall be shared equally by the

City/Municipality
and
the
Metropolitan Manila Commission.
amended the National Internal
Revenue Code providing, inter
alia:
SEC. 134. Video Tapes. There
shall be collected on each
processed video-tape cassette,
ready for playback, regardless of
length, an annual tax of five
pesos; Provided, That locally
manufactured or imported blank
video tapes shall be subject to
sales tax.
Petitioner also submits that the
thirty percent (30%) tax imposed
is
harsh
and
oppressive,
confiscatory, and in restraint of
trade.
Issue:
Constitutionality of Presidential
Decree No. 1987 entitled "An Act
Creating the Videogram Regultory
Board" with broad powers to
regulate
and
supervise
the
videogram industry?

Government of an additional
source of revenue. It is an enduser tax, imposed on retailers for
every videogram they make
available for public viewing. It is
similar to the 30% amusement
tax imposed or borne by the
movie industry which the theaterowners pay to the government,
but which is passed on to the
entire cost of the admission
ticket, thus shifting the tax
burden on the buying or the
viewing public. It is a tax that is
imposed
uniformly
on
all
videogram operators.
The levy of the 30% tax is for a
public purpose. It was imposed
primarily to answer the need for
regulating the video industry,
particularly
because
of
the
rampant film piracy, the flagrant
violation of intellectual property
rights, and the proliferation of
pornographic video tapes. And
while it was also an objective of
the DECREE to protect the movie
industry, the tax remains a valid
imposition.

RULING:
However, it is beyond serious
question that a tax does not
cease to be valid merely because
it regulates, discourages, or even
definitely deters the activities
taxed. 8 The power to impose
taxes is one so unlimited in force
and so searching in extent, that
the courts scarcely venture to
declare that it is subject to any
restrictions whatever, except such
as rest in the discretion of the
authority which exercises it. 9 In
imposing a tax, the legislature
acts upon its constituents. This is,
in general, a sufficient security
against erroneous and oppressive
taxation.
The tax imposed by the DECREE
is not only a regulatory but also a
revenue measure prompted by
the realization that earnings of
videogram
establishments
of
around P600 million per annum
have not been subjected to tax,
thereby
depriving
the

ORBOS v. OSMENA
G.R. No. 99886
March 31, 1993
PRINCIPLE:
29(3),
Article
VI
of
the
Constitution, reading as follows:
3) All money collected
on any tax levied for a
special purpose shall be
treated as a special fund and
paid out for such purposes
only. If the purpose for which
a special fund was created
has
been
fulfilled
or
abandoned, the balance, if
any, shall be transferred to
the general funds of the
Government.
The delegation relates to the
exercise of the power of taxation,
the
limits,
limitations
and
restrictions must be quantitative,
that is, the law must not only
specify how to tax, who shall be
taxed and what the tax is for, but

also impose a specific limit on

how much to tax.
The Congress may, by law,
authorize the President to fix,
within specified limits, and subject
to
such
limitations
and
restrictions as it may impose,
tariff rates, import and export
quotas, tonnage and wharfage
dues, and other duties or imposts
within the framework of the
national development program of
the Government
FACTS:
The petitioner seeks the
corrective, prohibitive
and
coercive remedies provided by
Rule 65 of the Rules of Court,
upon
the
following
posited
grounds, viz.:
1) the invalidity of the
"TRUST ACCOUNT" in the books of
account of the Ministry of Energy
(now, the Office of Energy Affairs),
created
pursuant
to

8,
paragraph 1, of P.D. No. 1956, as
amended, "said creation of a trust
fund being contrary to Section 29
(3), Article VI of the . .
Constitution;
2) the unconstitutionality of
8, paragraph 1 (c) of P.D. No.
1956, as amended by Executive
Order No. 137, for "being an
undue and invalid delegation of
legislative power . . to the Energy
Regulatory Board;"
3) the illegality of the
reimbursements to oil companies,
paid out of the Oil Price
Stabilization
Fund, because
it
contravenes 8, paragraph 2 (2)
of
P. D. 1956, as amended; and
4) the consequent nullity of
the Order dated December 10,
1990 and the necessity of a
rollback of the pump prices and
petroleum products to the levels
prevailing prior to the said Order.
It will be recalled that on October
10, 1984, President Ferdinand
Marcos issued P.D. 1956 creating
a Special Account in the General
Fund, designated as the Oil Price
Stabilization Fund (OPSF). The
OPSF was designed to reimburse
oil companies for cost increases in

crude oil and imported petroleum

products resulting from exchange
rate
adjustments
and
from
increases in the world market
prices of crude oil.
Subsequently, the OPSF was
reclassified into a "trust liability
account," in virtue of E.O.
1024, and ordered released from
the National Treasury to the
Ministry of Energy. The same
Executive Order also authorized
the investment of the fund in
government securities, with the
earnings from such placements
accruing to the fund.
President Corazon C. Aquino,
amended
P.D.
1956.
She
promulgated Executive Order No.
137 on February 27, 1987,
expanding
the
grounds
for
reimbursement to oil companies
for
possible cost
underrecovery incurred as a result
of the reduction of domestic
prices of petroleum products, the
amount of the underrecovery
being left for determination by the
Ministry of Finance.

appears to the Court that the

establishment and maintenance
of the OPSF is well within that
pervasive
and
non-waivable
power and responsibility of the
government
to
secure
the
physical and economic survival
and well-being of the community,
that comprehensive sovereign
authority we designate as the
police power of the State.
Moreover, that the OPSF is a
special fund is plain from the
special treatment given it by E.O.
137. It is segregated from the
general fund; and while it is
placed in what the law refers to as
a "trust liability account," the fund
nonetheless remains subject to
the scrutiny and review of the
COA. The Court is satisfied that
these measures comply with the
constitutional description of a
"special
fund."
Indeed,
the
practice is not without precedent.

1.)WON the OPSF is a

form
of
revenue
measure
drawing
from a special tax to
be expended for a
special purpose.
2.)
WON
the
delegation
of
legislative power is
undue.

2.) NO. the Court finds that the

provision conferring the authority
upon
the
ERB
to
impose
additional amounts on petroleum
products provides a sufficient
standard by which the authority
must be exercised. In addition to
the general policy of the law to
protect the local consumer by
stabilizing
and
subsidizing
domestic pump rates, 8(c) of
P.D. 1956 expressly authorizes the
ERB
to
impose
additional
amounts to
augment
the
resources of the Fund.

HELD:
1.) NO. Petition is dismissed. The
OPSF is thus a buffer mechanism
through which the domestic
consumer prices of oil and
petroleum products are stabilized,
instead of fluctuating every so
often, and oil companies are
allowed to recover those portions
of their costs which they would
not otherwise recover given the
level of domestic prices existing
at any given time. To the extent
that some tax revenues are also
put into it, the OPSF is in effect a
device
through
which
the
domestic prices of petroleum
products are subsidized in part. It

For a valid delegation of power, it

is
essential
that
the
law
delegating the power must be (1)
complete in itself, that is it must
set forth the policy to be executed
by the delegate and (2) it must fix
a standard limits of which
are sufficiently determinate or
determinable to which the
delegate must conform.
As pointed out in Edu v. Ericta: To
avoid the taint of unlawful
delegation, there must be a
standard, which implies at the
very least that the legislature
itself determines matters of
principle
and
lays
down

ISSUE:

fundamental policy. Otherwise,

the charge of complete abdication
may be hard to repel. A standard
thus defines legislative policy,
marks its limits, maps out its
boundaries and specifies the
public agency to apply it. It
indicates the circumstances under
which the legislative command is
to be effected. It is the criterion
by which the legislative purpose
may be carried out.
Thereafter, the executive or
administrative office designated
may in pursuance of the above
guidelines
promulgate
supplemental
rules
and
regulations. The standard may
either be express or implied. If the
former,
the
non-delegation
objection is easily met. The
standard though does not have to
be spelled out specifically. It could
be implied from the policy and
purpose of the act considered as
a whole. It would seem that from
the above-quoted ruling, the
petition for prohibition should fail.

FRANCISCO I. CHAVEZ VS.

JAIME
B.
ONGPIN
AND
FIDELINA CRUZ,
G.R. NO. 76778. JUNE 6, 1990
MEDIALDEA, J.
PRINCIPLE: FISCAL ADEQUACY
FACTS:
Section 21 of Presidential
Decree No. 464 provides that
every five years starting calendar
year 1978, there shall be a
provincial or city general revision
of real property assessments.
The revised assessment shall be
the basis for the computation of
real property taxes for the five
succeeding years.
On the strength of the
aforementioned law, the general
revision of assessments was
completed in 1984.
However,
Executive Order No. 1019 was
issued,
which
deferred
the

collection of real property taxes

based on the 1984 values to
January 1, 1988 instead of January
1, 1985.
On November 25, 1986,
President Corazon Aquino issued
Executive order No. 73. It states
that beginning January 1, 1987,
the 1984 assessments shall be
the basis of the real property
collection.
Thus, it effectively
repealed Executive Order No.
1019.

since then, is not in consonance

with a sound tax system. Fiscal
adequacy, which is one of the
characteristics of a sound tax
system, requires that sources
of revenues must be adequate
to
meet
government
expenditures
and
their
variations.

congress did not, when it enacted

the National Internal Revenue
Code (NIRC) intend to include toll
fees within the meaning of sale of
services that are subject to VAT.

DIAZ
v.
FINANCE

SC:

SECRETARY

Administrative

OF

feasibility

Francisco
Chavez,
a
taxpayer and a land-owner,
questioned the constitutionality of
Executive Order No. 73.
He
alleges
that
it
will
bring
unreasonable increase in real
property taxes. In fact, according
to him, the application of the
assailed order will cause an
excessive
increase
in
real
property taxes by 100% to 400%
on improvements and up to 100%
on land.

is one of the canons of a sound

ISSUE:

extent that specific constitutional

Whether or not Executive Order

no. 73 imposes unreasonable
increase in real property taxes,
thus,
should
be
declared
unconstitutional.
RULING:
The attack on Executive
Order No. 73 has no legal basis as
the
general
revision
of
assessments is a continuing
process mandated by Section 21
of Presidential Decree No. 464. If
at all, it is Presidential Decree No.
464 which should be challenged
as
constitutionally
infirm.
However, Chavez failed to raise
any objection against said decree.
Without Executive Order
No. 73, the basis for collection of
real property taxes will still be the
1978 revision of property values.
Certainly, to continue collecting
real property taxes based on
valuations arrived at several
years ago, in disregard of the
increases in the value of real
properties that have occurred

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

or

statutory

impaired.

limitations

Thus,

imposition

of

even

VAT

operations

are

if

on

the

tollway

may

seem

burdensome to implement, it is
not

necessarily

invalid

unless

some aspect of it is shown to

violate

any

law

or

the

Constitution.
FACTS:
Diaz and Timbol filed a petition for
declaratory relief assailing the
validity
of
the
impending
imposition of value-added tax
(VAT) by the BIR on the collections
of tollway operators.
Diaz and Timbol allege that upon
Noy Aquinos assumption of office
in 2010, BIR would impose the
challenged tax on toll fees
beginning Aug. 16 2010 unless
judicially enjoined. Diaz and
Timbol hold the view that

On Aug 13, 2010, the Court issued

TRO,
enjoining
the
implementation of VAT.

Dismisses the petition for lack of

merit and set aside the TRO.
VAT is levied, assessed, and
collected, according to Section
108, on the gross receipts derived
from the sale or exchange of
services as well as from the use
or lease of properties. The third
paragraph of Section 108 defines
sale or exchange of services as
follows:
The phrase sale or exchange of
services means the performance
of all kinds of services in the
Philippines for others for a fee,
remuneration or consideration,
including those performed or
rendered by construction and
service contractors; stock, real
estate, commercial, customs and
immigration brokers; lessors of
property, whether personal or
real;
warehousing
services;
lessors
or
distributors
of
cinematographic films; persons
engaged in milling, processing,
manufacturing or repacking goods
for others; proprietors, operators
or keepers of hotels, motels,
resthouses, pension houses, inns,
resorts; proprietors or operators
of
restaurants,
refreshment
parlors, cafes and other eating
places,
including
clubs
and
caterers; dealers in securities;
lending investors; transportation
contractors on their transport of
goods
or cargoes,
including
persons who transport goods or
cargoes for hire and other
domestic common carriers by
land relative to their transport of
goods
or
cargoes;
common
carriers by air and sea relative to
their transport of passengers,
goods or cargoes from one place

in the Philippines to another place

in the Philippines; sales of
electricity
by
generation
companies,
transmission,
and
distribution companies; services
of franchise grantees of electric
utilities, telephone and telegraph,
radio and television broadcasting
and all other franchise grantees
except those under Section 119 of
this Code and non-life insurance
companies (except their crop
insurances),
including
surety,
fidelity, indemnity and bonding
companies; and similar services
regardless of whether or not the
performance thereof calls for the
exercise or use of the physical or
mental faculties.
The enumeration above is not
exclusive. Every activity that can
be imagined as a form of service
rendered for a fee should be
deemed included unless some
provision
of
law
especially
excludes it.
Tollway
operators
construct,
maintain,
and
operate
expressways/tollways,
at
the
operators
expense,
in
consideration
of
constructing
tollways at their expense, the
operators are allowed to collect
govt
approved
fees
from
motorists using the tollways until
such operators could fully recover
their
expenses
and
earn
reasonable
returns
from
investment.
Tollway operators come under the
specific class described in Sec
108 as all other franchise
grantees who are subject to VAT,
except those who are under Sec
119 of this code. The word
franchise broadly covers govt
grants of a special right to do an
act or series of acts of public
concern.
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.
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 and simply
becomes part of the cost that the
buyermust pay in order to
purchase the good, property/
service.
Under Section 105 of the Code,
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.
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. 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.
Any concern about how the VAT
on tollway operations will be
enforced must first be addressed
to the BIR on whom the task of
implementing tax laws primarily
and exclusively rests. The Court
cannot
preempt
the
BIRs
discretion on the matter, absent
any clear violation of law or the
Constitution.

WALTER LUTZ (As Judicial

Administrator of the Intestate
Estate
of
the
Deceased
Antonio Jayme Ledesma) v. J.
ANTONIO ARANETA (As the
Collector of Internal Revenue)
G.R. No. L-7859, 22 December
1955
J. J.B L. Reyes
PRINICPLE/S:
(1)
PURPOSE OF TAXATION
(2)
POWER
OF
TAXATION
V.
POLICE POWER OF EMINENT
DOM
AIN
__________________________________
__________________________________
_________
This is a case initiated to test the
legality of the taxes imposed by
Commonwealth
Act.
567,
otherwise known as the Sugar
Adjustment Act (Promulgated in
1940). This law was instituted to
obtain a readjustment of the
benefits derived from the sugar
industry
by
the
component
elements thereof (threat to the
industry
by
the
imminent
imposition of export taxes upon
sugar as provided in the TydingsMcDuffe Act) and to stabilize the
sugar industry so as to prepare it
for the eventuality of the loss of
its preferential position in the US
market and the imposition of the
export taxes.
Said Act provides for an
increase of the existing tax on
the manufacture of sugar on a
graduated basis, on each picul
of sugar manufactured and
levies on owners or persons in

control of lands devoted to

the cultivation of sugar cane
and ceded to others for a
consideration
on
a
tax
equivalent to the difference
between money value of the
rental
or
consideration
collected and the amount
representing 12 per centum of
the assessed value of such
land.
All collections made under this act
shall accrue to a special fund in
the Philippine Treasury, to be
known as the Sugar Adjustment
and Stabilization Fund and shall
be paid out only for any or all of
the following purposes or to attain
any or all of the following
objectives, as may be provided by
law. Such as:
To maintain the sugar
industry in a position to
maintain itself, despite
the gradual loss of the
preferential position of the
Philippine sugar in the US
Market and ultimately to
insure
its
continued
existence notwithstanding
the loss of that market
and
the
consequent
necessity
of
meeting
competition in the free
markets of the world;
To readjust the benefits
derived from the sugar
industry by all of the
component
elements
thereof the mill, the land
owner, the planter, the
laborers in the factory
so that all might continue
profitably
to
engage
therein;
To limit the production of
sugar to areas more
economically suited to the
production thereof; and
To afford labor employed
in the industry a living
wage and to improve their
living
and
working
conditions.
Facts:
Walter Lutz seeks to recover from
the Collector of Internal Revenue
the sum of Php 14,666.00 paid by
the estate as taxes in accordance
with the above Act for the crop

years 1948-1949 and 1949-150,

alleging that such tax is
unconstitutional
and
void
being levied for the aid and
support of the sugar industry
exclusively, which in his opinion
not a public purpose for which
a tax may be constitutionally
levied.
Court of First Instance (Negros
Occidental): Dismissed the case.
Lutz appealed the cased directly
to the Supreme Court.
Issue:
W/N the Sugar Regulatory Act in
terms of its provisions to collect
increased tax from one sector has
a valid purpose and in accordance
with the Constitution.
Ratio:
The Act is a pure exercise of
the taxing power. An analysis
of the Act, and particularly of
section 6, will show that the
tax is levied with a regulatory
purpose, to provide means for
the
rehabilitation
and
stabilization of the threatened
sugar industry.
In other
words, the act is primarily an
exercise of the police power.
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
states wealth, is one of the
important sources of foreign
exchanged
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 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 atted
strain of the increase in taxes
that it had to sustain.

The protection of a large

industry constituting one of
the great sources of the
states wealth and therefore
directly or indirectly affecting
the welfare of so great a
portion of the population of
the State is affected to such
an extent by public interest
as to be within the police
power of the sovereign.
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. In
this
case,
the
legislative
discretion must be allowed fully
play, subject only to the test of
reasonableness because taxation
may be made the implement
of the States police power.
The tax to be levied should
burden the sugar producers as 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. 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.
The funds raised under the Sugar
Stabilization
Act
should
be
exclusively spent in aid of the
sugar industry, since that very
enterprise that is being protected.
Dispositive Portion:
The decision of the CFI is
affirmed.

LTO V. CITY OF BUTUAN

(POWER
OF
TAXATION
V.
POLICE POWER AND EMINENT
DOMAIN)

FACTS: RTC of Butuan City held in

favor of Respondent City that the
authority to register tricycles, the
grant of franchise, the issuance of
tricycle drivers' license, and the
collection of fees are all vested in
the Local Government Units
("LGUs") not with the LTO. It held
the issuance of a permanent writ
of
injunction
against
LTO,
prohibiting it, as well as its
employees and other persons
acting in its behalf, from (a)
registering tricycles
and (b)
issuing licenses to drivers of
tricycles. The Court of Appeals, on
appeal to it, sustained the trial
court.
Respondent City of Butuan asserts
on the grounds one of the
provisions introduced by the Local
Government Code is in the area of
local taxation which allows LGUs
to collect registration fees or
charges along with, in its view,
the corresponding issuance of all
kinds of licenses or permits for
the driving of tricycles.
Sec. 129 and Section 133
of the Local Government
Code read:
Sec. 129. Power to Create
Sources or Revenue.
Each local government
unit shall exercise its
power to create its own
sources of revenue and to
levy taxes, fees, and
charges subject to the
provisions
herein,
consistent with the basic
policy of local autonomy.
Such taxes, fees, and
charges
shall
accrue
exclusively to the local
government units.
Sec.
133. Common
Limitations on the Taxing
Powers
of
Local

Government
Units.

Unless otherwise provided

herein, the exercise of the
taxing
powers
of
provinces,
cities,
municipalities,
and
barangays
shall
not
extend to the levy of the
following:
xxx
xxx
xx
x
(l) Taxes, fees or charges
for the registration of
motor vehicles and for the
issuance of all kinds of
licenses or permits for the
driving thereof, except
tricycles.
Petitioner LTO explains that one of
the functions of the national
government does not transfer the
authority of LTO to the LGU with
regards to the registration all
motor vehicles and to issue
licenses to drive such vehicles.
ISSUE:
Whether the local
government units (City of Butuan
in this case) could, by its inherent
power of taxation, charge fees,
tax or charges for the registration
of its local tricycles and for the
issuance of all kinds of licenses or
permits for its driving.
HELD: The LGU (City of Butuan)
cannot impose its power of
taxation on the registration of its
local for-hire tricycles and control
the issuance of licenses of the
tricycle drivers.
The reliance made by
respondents on the broad taxing
power of local government units,
specifically under Section 133 of
the Local Government Code, is
tangential. Police power and
taxation, along with eminent
domain, are inherent powers of
sovereignty which the State might
share with local government units
by delegation given under a
constitutional or a statutory fiat.
All these inherent powers are for a
public purpose and legislative in
nature but the similarities just

about end there. The basic aim of

police power is public good and
welfare. Taxation, focuses and the
power of government to raise
revenue in order to support its
existence and carry out its
legitimate objectives.
To
construe
the
tax
provisions of Section 133(1)
indistinctively would result in the
repeal to that extent of LTO's
regulatory power which evidently
has not been intended. Repeal by
implication is not favored.20 The
power over tricycles granted
under Section 458(8)(3)(VI) of the
Local Government Code to LGUs
is the power to regulate their
operation and to grant franchises
for the operation thereof. The
exclusionary clause contained in
the tax provisions of Section
133(1) of the Local Government
Code must not be held to have
had the effect of withdrawing the
express power of LTO to cause the
registration of all motor vehicles
and the issuance of licenses for
the
driving
thereof.
These
functions
of
the
LTO
are
essentially regulatory in nature,
exercised pursuant to the police
power of the State, whose basic
objectives are to achieve road
safety by insuring the road
worthiness
of
these
motor
vehicles and the competence of
drivers prescribed by R.A. 4136.
Not insignificant is the rule that a
statute must not be construed in
isolation but must be taken in
harmony with the extant body of
laws
Under the Local Government
Code, certain functions of the
DOTC were transferred to the
LGUs, thusly:
Sec. 458. Powers, Duties,
Functions
and
Compensation.
(VI)
Subject
to
the
guidelines prescribed by
the
Department
of
Transportation
and
Communications,

regulate the operation of

tricycles
and
grant
franchises
for
the
operation thereof
within
the territorial jurisdiction
of the city. (Emphasis
supplied).
The SC reiterates the SolGens
statement:
If
the
tricycle
registration
function
of
respondent LTO is
decentralized, the
incidence of theft
of tricycles will
most certainly go
up, and stolen
tricycles
registered in one
local government
could
be
registered
in
another
with
ease.
The
determination of
ownership thereof
will also become
very difficult.
Fake
driver's
licenses
will
likewise
proliferate.
This
likely
scenario
unfolds where a
tricycle driver, not
qualified
by
petitioner
LTO's
testing,
could
secure a license
from
one
municipality, and
when the same is
confiscated, could
just go another
municipality
to
secure
another
license.

ROXAS V. CTA, 23 SCRA 276

(1968)
G.R. NO. L-25043
APRIL 26, 1968

ANTONIO ROXAS, EDUARDO

ROXAS and ROXAS Y CIA., in
their own respective behalf
and as judicial co-guardians of
JOSE
ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and
COMMISSIONER OF INTERNAL
REVENUE, respondents.
BENGZON, J.P., J.:
FACTS
Don Pedro Roxas and Dona
Carmen Ayala, Spanish subjects,
transmitted to their grandchildren
by hereditary succession several
properties. To manage the abovementioned
properties,
said
children, namely, Antonio Roxas,
Eduardo Roxas and Jose Roxas,
formed a partnership called Roxas
y Compania. At the conclusion of
the WW2, the tenants who have
all been tilling the lands in
Nasugbu
for
generations
expressed
their
desire
to
purchase from Roxas y Cia. the
parcels
which
they
actually
occupied.
For its part, the
Government, in consonance with
the constitutional mandate to
acquire big landed estates and
apportion them among landless
tenant-farmers, persuaded the
Roxas brothers to part with their
landholdings. Conferences were
held with the farmers in the early
part of 1948 and finally the Roxas
brothers agree to sell 13,500
hectares to the Government for
distribution to actual occupants
for a price of P2,079,048.47 plus
P300,000
for
survey
and
distribution expenses. It turned
out however that the Government
did not have funds to cover the
purchase price, and so a special
arrangement was made for the
Rehabilitation Finance Corporation
to advance to Roxas y Cia. the
amount of P1,500,000.00 as loan.
Collateral for such loan were the
lands proposed to be sold to the
farmers. Under the arrangement,
Roxas y Cia. allowed the farmers
to buy the lands for the same
price but by installment, and
contracted with the Rehabilitation
Finance Corporation to pay its
loan from the proceeds of the
yearly amortizations paid by the
farmers.
The CIR demanded from Roxas y
Cia. the payment of deficiency

income taxes resulting from the

inclusion as income of Roxas y
Cia. of the unreported 50% of the
net profits for 1953 and 1955
derived from the sale of the
Nasugbu
farmlands
to
the
tenants, and the disallowance of
deductions from gross income of
various business expenses and
contributions claimed by Roxas y
Cia. and the Roxas brothers. For
the reason that Roxas y CIa.
subdivided its Nasugbu farmlands
and sold them to the farmers on
installment, the Commissioner
considered the partnership as
engaged in the business of real
estate, hence, 100% of the profits
derived there from was taxed.
The Roxas brothers protested the
assessment but inasmuch as said
protest
was
denied,
they
instituted an appeal in the CTA
which sustained the assessment.
Hence, this appeal.
ISSUE
1.

Is the gain derived from

the sale of the Nasugbu
farm lands an ordinary
gain,
hence
100%
taxable? And is

Roxas y Cia liable for the

payment of deficiency income for
the sale of Nasugbu farmlands?

2.

Are the deductions for

business expenses and
contributions deductible?

Ruling:
I.
The proposition of the CIR cannot
be favorably accepted in this
isolated transaction with its
peculiar circumstances inspite of
the fact that there were hundreds
of vendees. Although they paid
for their respective holdings in
installment for the period of 10
years, it would nevertheless make
the vendor Roxas y Cia. a real
estate dealer during the 10-year
amortization period. It should be
borne in mind that the sale of the
Nasugbu farmlands 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
Governments
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 peoples
gratitude.
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 land 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%.

II.
Roxas y Cia. deducted from its
gross income the amount of
P40.00 for tickets to a banquet
given in honor of Sergio Osmena
and P28.00 for San Miguel beer
given as gifts to various persons.
The deduction were claimed as
representation
expenses.
Representation
expenses
are
deductible from gross income as
expenditures incurred in carrying
on a trade or business under
Section 30(a) of the Tax Code
provided the taxpayer proves that
they are reasonable in amount,
ordinary and necessary, and
incurred in connection with his
business. In the case at bar, the
evidence does not show such link
between the expenses and the
business of Roxas y Cia. The
findings of the Court of Tax
Appeals
must
therefore
be
sustained (disallowed deduction).
The
petitioners
also
claim
deductions for contributions to
the Pasay City Police, Pasay City
Firemen, and Baguio City Police
Christmas funds, Manila Police

Trust Fund, Philippines Herald's

fund for Manila's neediest families
and Our Lady of Fatima chapel at
Far Eastern University.
The
contributions
to
the
Christmas funds of the Pasay
City
Police,
Pasay
City
Firemen
and Baguio
City
Police are not deductible for
the reason that the Christmas
funds were not spent for public
purposes but as Christmas gifts to
the families of the members of
said entities. Under Section 39(h),
a contribution to a government
entity is deductible when used
exclusively for public purposes.
For this reason, the disallowance
must be sustained. On the other
hand, the contribution to the
Manila Police trust fund is an
allowable deduction for said trust
fund belongs to the Manila Police,
a government entity, intended to
be used exclusively for its public
functions.
The
contributions
to
the
Philippines Herald's fund for
Manila's
neediest
families
were disallowed on the ground
that the Philippines Herald is not a
corporation or an association
contemplated in Section 30 (h) of
the Tax Code. It should be noted
however that the contributions
were not made to the Philippines
Herald but to a group of civic
spirited citizens organized by the
Philippines Herald solely for
charitable purposes. There is no
question that the members of this
group of citizens do not receive
profits, for all the funds they
raised were for Manila's neediest
families. Such a group of citizens
may
be
classified
as
an
association organized exclusively
for charitable purposes mentioned
in Section 30(h) of the Tax Code.
Rightly, the Commissioner of
Internal Revenue disallowed the
contribution to Our Lady of
Fatima chapel at the Far
Eastern University on the
ground that the said university
gives dividends to its stockholders
(it should be non-profit institution.
Located within the premises of
the university, the chapel in
question has not been shown to
belong to the Catholic Church or
any religious organization. On the
other hand, the lower court found
that it belongs to the Far Eastern

University, contributions to which

are not deductible under Section
30(h) of the Tax Code for the
reason that the net income of said
university injures to the benefit of
its stockholders. The disallowance
should be sustained.
WHEREFORE,
the
decision
appealed from is modified. Roxas
y Cia. is hereby ordered to pay
the sum of P150.00 as real estate
dealer's fixed tax for 1952, and
Antonio Roxas, Eduardo Roxas
and Jose Roxas are ordered to pay
the respective sums of P109.00,
P91.00 and P49.00 as their
individual deficiency income tax
all corresponding for the year
1955. No costs. So ordered.

RATIO
Sale of property by landowners to
tenants under government policy
to allocate lands to the landless
subject not subject to real estate
dealers tax.
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 with Our sense of justice
in the instant case 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%.

FRANCIA v. IAC

Francia contents that his tax

delinquency of P2,400 has been
extinguished
by
legal
compensation. He claims that the
government owed him P4116
when a portion of his land was
expropriated on October 15,
1977. Hence, his tax obligation
had been set off by operation of
law as of October 15, 1977.

There is no legal basis for the

contention. We have consistently
ruled that there can be no
offsetting 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 equal to
or greater than the tax being
collected. The collection of a tax
cannot await the results of a
lawsuit against the government.

In the case of republic V.

Mambulao lumber co., this court
ruled that the internal revenue
taxes cannot be the subject of set
off or compensation. We stated
that:

A claim for taxes is not such a

debt,
demand,
contract
or
judgment as is allowed to be set
off under the statutes of set off,
which are construed uniformly, in
the light of public policy, to
exclude the remedy in an action
or any indebtedness of the state
or municipality to the one who is
liable to the state or municipality
for taxes. 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 is
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 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.

This rule was reiterated in the

case of Cordero V. Gonda where
we settled that: internal revenue
taxes cannot 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.

1.
CASE
TITLE:
CALTEX
PHILIPPINES,
INC.
v.
THE
HONORABLE COMMISSION ON
AUDIT,
HONORABLE
COMMISSIONER BARTOLOME C.
FERNANDEZ
and HONORABLE
COMMISSIONER
ALBERTO
P.
CRUZ, G.R. No. 92585, May 8,
1992
2.
PRINCIPLE:
DISTINGUISHED FROM
IMPOSITIONS - DEBT

TAXES
OTHER

3. FACTS: On 2 February 1989,

the COA directed Caltex to remit
to the OPSF its collection of the
additional tax on petroleum
products authorized under Section
8 of P.D. No. 1956, excluding that
unremitted for the years 1986
and 1988, which the grand total
of its unremitted collections of the
above tax is P1,287,668,820.00.
COA likewise informed Caltex
that, pending such remittance, all
of its claims for reimbursement

from the OPSF shall be held in

abeyance; and, further directed it
to desist from further offsetting
the
taxes
collected
against
outstanding claims in 1989 and
subsequent periods.
In its letter of 3 May 1989, Caltex
requested the COA for an early
release of its reimbursement
certificates
from
the
OPSF
covering claims with the Office of
Energy Affairs (OEA) since June
1987 up to March 1989, invoking
in support thereof COA Circular
No. 89-299 on the lifting of preaudit of government transactions
of national government agencies
and
government-owned
or
controlled
corporations.
COA
denied this request and repeated
its earlier directive to Caltex to
forward payment of the latter's
unremitted collections to the
OPSF to facilitate COA's audit
action on the reimbursement
claims.
Caltex submitted to the COA a
proposal for the payment of the
collections and the recovery of
claims,
since
the
outright
payment of the sum of P1.287
billion
to
the
OEA
as
a
prerequisite for the processing of
said claims against the OPSF will
cause a very serious impairment
of its cash position. COA approved
the proposal but prohibited Caltex
from
further
offsetting
remittances and reimbursements
for the current and ensuing years.
Caltex moved for reconsideration
but was denied. Hence, the
present petition.
4. ISSUE: Whether or not taxes
are considered as debts.
Caltex
cites,
as
bases
for
offsetting, the provisions of the
New Civil Code on compensation
and Section 21, Book V, Title I-B of
the Revised Administrative Code
which provides for "Retention of
Money
for
Satisfaction
of
Indebtedness to Government."

COA, on the other hand, citing

Francia vs. IAC and Fernandez,
contends that there can be no
offsetting of taxes against the
claims that a taxpayer may have
against the government, as taxes
do not arise from contracts or
depend upon the will of the
taxpayer, but are imposed by law.
Respondents also allege that
Caltex's reliance on Section 21,
Book V, Title I-B of the Revised
Administrative Code, is misplaced
because "while this provision
empowers the COA to withhold
payment
of
a
government
indebtedness to a person who is
also indebted to the government
and
apply
the
government
indebtedness to the satisfaction
of the obligation of the person to
the government, like authority or
right to make compensation is not
given to the private person." The
reason for this, as stated in
Commissioner of Internal Revenue
vs. Algue, Inc., is that money due
the government, either in the
form of taxes or other dues, is its
lifeblood and should be collected
without hindrance. Thus, instead
of giving Caltex a reason for
compensation or set-off, the
Revised
Administrative
Code
makes it the COAs duty to collect
Caltex's indebtedness to the
OPSF.
5. SC RULING/RATIO: The SC
held that a taxpayer may not
offset taxes due from the claims
that he may have against the
government. Taxes cannot be the
subject of compensation because
the government and taxpayer are
not
mutually
creditors
and
debtors of each other and a claim
for taxes is not such a debt,
demand, contract or judgment as
is allowed to be set-off.
The Court further states that
technically, in respect to the taxes
for the OPSF, the oil companies
merely act as agents for the
Government
in
the
latter's
collection since the taxes are, in
reality, passed unto the end-users
the consuming public. In that

capacity, Caltex, as one of such

companies, has the primary
obligation to account for and
remit the taxes collected to the
administrator of the OPSF. This
duty stems from the fiduciary
relationship between the two;
Caltex
certainly
cannot
be
considered merely as a debtor. In
respect, therefore, to its collection
for the OPSF vis-a-vis its claims
for
reimbursement,
no
compensation is likewise legally
feasible. Firstly, the Government
and Caltex cannot be said to be
mutually debtors and creditors of
each other. Secondly, there is no
proof that Caltex's claim is
already due and liquidated. Under
Article 1279 of the Civil Code, in
order that compensation may be
proper, it is necessary that:
(1)
each one of the obligors
be bound principally, and that he
be at the same time a principal
creditor of the other;
(2)
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)
the two (2) debts be due;
(4)
they be liquidated and
demandable;
(5)
over neither of them there
be any retention or controversy,
commenced by third persons and
communicated in due time to the
debtor.
That compensation had been the
practice in the past can set no
valid precedent. Such a practice
has no legal basis. Lastly, R.A. No.
6952 does not authorize oil
companies to offset their claims
against their OPSF contributions.
Instead,
it
prohibits
the
government from paying any
amount from the Petroleum Price
Standby Fund to oil companies
which
have
outstanding
obligations with the government,
without said obligation being
offset first subject to the rules on
compensation in the Civil Code.

DISPOSITIVE
PORTION:
WHEREFORE, in view of the
foregoing, judgment is hereby
rendered
AFFIRMING
the
challenged
decision
of
the
Commission on Audit, except that
portion
thereof
disallowing
petitioner's
claim
for
reimbursement of underrecovery
arising from sales to the National
Power Corporation, which is
hereby allowed.
With costs against petitioner.

PHILEX MINING CORPORATION

V.
COMMISSIONER
OF
INTERNAL REVENUE, COURT
OF APPEALS, AND COURT OF
TAX APPEALS
G.R. No. 125704, 28 August
1998
J. Romero
PRINCIPLE/S: (1)
TAXES
DISTINGUISH FROM OTHER
IMPOSITIONS (DEBT)

Facts:
On 5 August 1992, the BIR sent a
letter to Philex asking it to settle
its tax liabilities for the 2 nd, 3rd,
and 4th Quarter of 1991 as well as
the 1st and 2nd Quarter of 1992 in
the
total
amount
of
Php
123,821,982.52. In a letter dated
20 August 1992, Philex protested
the demand for payment of the
tax liabilities stating that it has
pending claims for VAT input
credit/refund for the taxes paid for
the years 1989 to 1991 in the
amount of Php 119,997,037.02
plus interest.
In reply, the BIR in a letter dated
7 September 1992, found no
merit in Philex position since
these pending claims have not
yet
been
established
or
determined with certainty, it
follows
that
no
legal
compensation can take place,
hence the BIR reiterated the

demand that Philex to settle the

amount within 30 days.
Philex raised the issued to the
Court of Tax Appeals on 6
November 1992, however in the
course of proceedings, the BIR
issued Tax Credit Certificate in the
amount of Php 13,144,313.88
which, applied to the total tax
liabilities of Philex and effectively
lowered the latters tax obligation
to Php 110,667,688.52.
But
despite the reduction, the CTA
still
Philex
to
pay
the
remaining balance of Php
110,667,688.52.
The CTA
rationalized that for legal
compensation to take place
both obligations must be
liquidated and demandable.
Liquidated debts are those
where the exact amount has
already been determined.
In this case, the claims of the
petitioner for VAT refund is still
pending litigation, and still has to
be determined by the CTA. The
liquidated
debt
of
the
petitioner to the government
cannot be set-off against the
unliquidated
claim
which
petitioner conceived to exist
in its favor. The CTA ruled that
taxes cannot be subject to
set-off on compensation since
claim for taxes is not a debt
or contract.
Thereby denying
the petition and ordered the
petitioner to pay said amount, of
which was affirmed by the Court
of Appeals as well.
Few days after the denial from the
CA, Philex was able to obtain its
VAT input credit/refund not only
for the taxable year 1989 to 1991
but also for 1992 and 1994. In
view of the grant of its VAT input
credit/refund, Philex contents that
the same should ipso jure offset
its excise tax liabilities since both
had already become due and
demandable as well as fully
liquidated
hence,
legal
compensation can properly take
place.

Issue:
W/N
Philex
can
use
legal
compensation (using its VAT
refunds) to offset its existing tax
obligation.
Ratio:
Taxes cannot be subject to
compensation for the simple
reason that the government
and the taxpayer are not
creditors and debtors of each
other.
There is a material
distinction between a tax and
debt. Debts are due to the
government in its corporate
capacity, while taxes are due
to the government in its
sovereign capacity.
In citing the case of Francia v. IAC,
it was categorically held that
taxes cannot be subject to set-off
of compensation. That there can
be no off-setting of taxes against
the claims that the tax payer may
have against the government. A
person cannot refuse to pay
tax on the ground that the
government
oes
him
an
amount equal to or greater
that the tax being collected.
The collection of a tax cannot
await the results of a lawsuit
against the government.
The logic of Philexs claim for this
is an outright disregard of the
basic principle in tax law that
taxes are the lifeblood of the
government and so should be
collected without unnecessary
hindrance.
To countenance
Philexs
whimsical
reason
would render ineffective our
tax collection system. It must
be noted that a distinguishing
feature of a tax is that is
compulsory rather than a
matter of bargain. Hence, a
tax does not depend upon the
consent of the taxpayer.
If
any taxpayer can defer the
payment of taxes by raising
the defense that it still has a
pending claim for refund or
credit, this would adversely

affect
the
revenue system.

government

Side Issue: BIR violated the

National Internal Revenue Code of
1977 which requires the refund of
input taxes within 60 days, when
it took five years for the BIR to
grant its tax claim for VAT input
credit/refund.
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
publics trust and confidence
in the government this power
must be used justly and not
treacherously.
Moreover, the
State is not bout by the neglect of
its agents and officers but Philexs
contention is still not a valid
reason for the non-payment of its
tax liabilities.
Dispo:
Petition is dismissed and
affirms the decision of the CA.

VICTORIAS MILLING CO., INC.,

plaintiff-appellant, vs. THE
MUNICIPALITY OF VICTORIAS,
PROVINCE OF NEGROS
OCCIDENTAL, defendantappellant.
G.R. No. L-21183
September 27, 1968
License fee as compared to
taxes imposed
FACTS:
Ordinance was approved by the
municipal Council of Victorias on
September 22, 1956 by way of an
amendment to two municipal
ordinances separately imposing
license taxes on operators of
sugar
centrals
and
sugar
refineries.
The changes were:
with respect to sugar centrals, by

increasing the rates of license

taxes; and as to sugar refineries,
by increasing the rates of license
taxes as well as the range of
graduated schedule of annual
output capacity.
ISSUE: Declaring that Ordinance
No. 1, series of 1956, of the
municipality of Victorias, Negros
Occidental is valid or not?
RULING:
The ordinance itself recites that
its source of taxing power
emanates from Commonwealth
Act 472, Section 1 of which reads:

upon the municipality. 14 It is so

granted under Commonwealth Act
472.
To be recalled at this point is that
Ordinance No. 1, series of 1956, is
but an amendment of Ordinance
No. 18, series of 1947, in
reference
to
refineries,
and
Ordinance No. 25, series of 1953,
covering
sugar
centrals.
Ordinance
No.
18
imposes
"municipal taxes on persons,
firms or corporations operating
refinery mills in this municipality."
Ordinance No. 25 speaks of
municipal taxes "relative to the
output of the sugar centrals."

Section 1. A municipal council or

municipal district council shall
have
authority
to
impose
municipal license taxes upon
persons
engaged
in
any
occupation
or
business,
or
exercising
privileges
in
the
municipality or municipal district,
by requiring them to secure
licenses at rates fixed by the
municipal council, or municipal
district council, and to collect fees
and charges for services rendered
by the municipality or municipal
district and shall otherwise have
power to levy for public local
purposes,
and
for
school
purposes,
including
teachers'
salaries, just and uniform taxes
other than percentage taxes and
taxes on specified articles.

What are these taxes for?

Resolution No. 60 of the municipal
council of Victorias, 17 adopted
also on September 22, 1956 in
conjunction with Ordinance No. 1,
series of 1956, furnishes a ready
answer. It reads in part:

Under the statute just quoted and

pertinent
jurisprudence,
a
municipality is authorized to
impose three kinds of licenses: (1)
license for regulation of useful
occupations or enterprises; (2)
license for restriction or regulation
of non-useful occupations or
enterprises; and (3) license for
revenue. 12 The first two easily
fall within the broad police power
granted under the general welfare
clause. 13 The third class,
however, is for revenue purposes.
It is not a license fee, properly
speaking, and yet it is generally
so termed. It rests on the taxing
power. That taxing power must be
expressly conferred by statute

WHEREAS,
this
local
administration is committed to
the plan of ameliorating the
deplorable situation existing in
the barrios, sitios and rural areas
by giving them essential and
necessary facilities calculated to
improve conditions thereat thru
improvements
of
roads
and
feeder roads;

WHEREAS,
the
Municipal
Treasurer informed the Municipal
Council of the revenue of the
Municipality
and
the
heavy
obligations which confront it
because of the implementation of
Minimum Wage Law on the
salaries and wages it pays to its
municipal employees and laborers
thus
greatly
draining
the
Municipal Treasury;

WHEREAS, one of the causes of

the
municipality's
financial
difficulty is low rates of municipal
taxes imposed by some of the
ordinances enacted by the local
legislative body;

WHEREAS, [in] . . . the ordinances

known as Ordinance No. 25,
Series of 1953, dealing on the
operation of Sugar Central, and
Ordinance No. 18, Series of 1947,
which exclusively deals with the
operation of Sugar Refinery Mill,
the rates so given are rates
suggested and determined by the
Provincial Circular No. 12-A, dated
February 27, 1940 issued by the
Department of Finance as regards
to Sugar Centrals;

WHEREAS, the Municipal Council

has come to the conclusion that
the rates provided for in such
ordinances
are
no
longer
adequate if made in keeping with
the present high cost of living;
WHEREAS, the Municipal Council
has also taken cognizance of the
fact that the price of sugar per
picul today is more than twice its
pre-war average price; . . . .
Given
the
purposes
just
mentioned, we find no warrant in
logic to give our assent to the
view that the ordinance in
question is solely for regulatory
purpose. Plain is the meaning
conveyed. The ordinance is for
raising money. To say otherwise is
to misread the purpose of the
ordinance.
Besides, the term "license tax"
has not acquired a fixed meaning.
It is often "used indiscriminately
to designate impositions exacted
for the exercise of various
privileges." It does not refer
solely
to
a
license
for
regulation. In many instances,
it refers to "revenue-raising
exactions on privileges or
activities." On the other hand,
license fees are commonly called
taxes. But, legally speaking, the
latter are "for the purpose of
raising revenues," in contrast to
the former which are imposed "in
the exercise of police power
for purposes of regulation."

We accordingly say that the

designation
given
by
the
municipal authorities does not
decide whether the imposition is
properly a license tax or a license
fee. The determining factors are
the purpose and effect of the
imposition as may be apparent
from the provisions of the
ordinance.
Thus, "[w]hen no
police inspection, supervision, or
regulation is provided, nor any
standard set for the applicant to
establish, or that he agrees to
attain or maintain, but any and all
persons engaged in the business
designated, without qualification
or hindrance, may come, and a
license on payment of the
stipulated sum will issue, to do
business, subject to no prescribed
rule of conduct and under no
guardian eye, but according to
the unrestrained judgment or
fancy of the applicant and
licensee, the presumption is
strong that the power of taxation,
and not the police power, is being
exercised."
Precisely
because
of
these
considerations
the
present
imposition must be treated as a
levy for revenue purposes. A
quick glance at the big amount of
maximum annual tax set forth in
the ordinance, P40,000.00 for
sugar centrals, and P40,000.00
for sugar refineries, will readily
convince one that the tax is really
a revenue tax. And then, we read
in the ordinance nothing which
would as much as indicate that
the tax imposed is merely for
police inspection, supervision or
regulation.
We,
accordingly,
rule
that
Ordinance No. 1, series of 1956,
of the Municipality of Victorias,
was promulgated not in the
exercise of the municipality's
regulatory power but as a
revenue measure a tax on
occupation or business. The
authority to impose such tax is
backed by the express grant of
power
in
Section
1
of
Commonwealth Act 472.

CU UNJIENG v. PATSTONE
G.R. No. L-16254
Feb. 21, 1922
PRINCIPLE:
The allowable amount of a
license fee or tax depends so
much
on
the
special
circumstances of each particular
case that it is difficult to
harmonize
the
numerous
decisions on the subject and to
formulate definite rules; but
generally,
the
adjudications
appear to recognize three classes
been taken into consideration in
determining the reasonableness
of the license fee: First, license for
the
regulation
of
useful
occupation
or
enterprises;
secondly,
license
for
the
regulation or restriction of nonuseful occupation or enterprises,
and thirdly, license for revenue
only.
A right to license an
employment does not imply a
right to charge a license fee
therefore with a view to revenue,
unless such seems to be the
manifest purpose of the power;
but
the
authority
of
the
corporation will be limited to such
a charge for the license as will
cover the necessary expenses of
issuing it, and the additional labor
of officers and other expenses
thereby imposed.
A license is issued under
the police power; but the exaction
of a license fee with a view to
revenue would be an exercise of
the power of taxation; and the
character must plainly show
intent to confer that power, or the
municipal
corporation
cannot
assume it.
The legislature of the
state is not without power to
impose a tax on a business in the
form of a license fee, when it
deems such to be warranted by
considerations of public interest
and for the general welfare, and
the only limitation upon its
exercise of power, in the respect,
is that there shall be no
discrimination or oppression, and

that the burden shall be equally

charged upon all person in similar
circumstances.
FACTS:
Cuunjieng desired to erect
a warehouse in Azcarraga Street
but was denied a building permit
until he shall have made provision
for the construction of an arcade
over the sidewalk in front of the
building and until he shall have
further complied with Section 1 of
Ordinance 301 of the City of
Manila, which states that those
persons or entities having a right
in any property located at the
principal streets/avenues in the
city of Manila (such as Legarda,R.
Hidalgo,
Carriedo,
Echague,
Moriones, Azcarraga, Rizal, Taft,
San Miguel, and others) who
desires to construct a building
shall pay one-half of the assessed
value of the city land. Cuunjieng
filed a petition for a writ of
mandamus to compel the city
engineer to issue the permit.
ISSUE:
Whether
under
the
charter, the City of Manila may,
under the guise of a license fee
and as a prerequisite for the
issuance of a building permit,
exact the payment of 12 of the
assessed value of the portion of
the sidewalk covered by the
arcade
HELD:
No. The allowable amount
of license fee or tax depends so
much on the special circumstance
of
each
particular
case.
Adjudications, however, appear to
recognize 3 classes of licenses:
(1) licenses for regulation of
useful occupations or
enterprises;
(2) licenses
for
the
regulation of non-useful
occupations
or
enterprises;
(3) licenses for revenue only.
This
should
be taken
into
consideration in determining the
reasonableness of the license fee.
Herein, imposing a fee equal to
12 of the assessed value of the
portion of the sidewalk covered

by the arcade, the municipal

board exceeded its powers.
The
construction
of
buildings is a useful enterprise
and the amount of the license fee
should therefore be limited to the
cost of licensing, regulating, and
surveillance. As it does not
appear such cost would materially
increase through the construction
of the arcade, the excess fee is
clearly imposed for the purpose of
revenue. There is nothing in the
charter of the city indicating
legislative intent to confer to the
municipal board to impose a
license tax for revenue on the
construction of buildings. Thus,
the license fee prescribed is
illegal.

REPUBLIC OF THE PHILIPPINES

vs. PEDRO B. PATANAO
G.R. No. L-22356
21, 1967

In
applying
the
principle
underlying the civil liability of an
offender under the Penal Code to
a case involving the collection of
taxes, the court a quo fell into
error.
The
two
cases
are
circumscribed by factual premises
which are diametrically opposed
to each either, and are founded
on entirely different philosophies.
1.

2.

July

ANGELES, J
PRINCIPLE/S:
LIABILITY

PENALTY-CIVIL

FACTS:
Defendant, Pedro B. Patanao, was
the holder of an ordinary timber
license
with
concession
at
Esperanza,
Agusan.
The
defendant failed to file income tax
returns for 1953 and 1954 and
although he filed income tax
returns for 1951, 1952, and 1955,
the
same
were
false
and
fraudulent because he did not
report substantial income earned
by him from his business. He was
acquitted by the lower court. But,
the Deputy Commissioner of
Internal Revenue contends that
the assessment for the payment
of the taxes in question has
become final because it was not
appealed.
ISSUE:
Whether the action is barred by
prior judgment, defendant having
been acquitted
HELD:

3.

Under the Penal Code the

civil liability is incurred by
reason of the offender's
criminal
act.
Stated
differently, the criminal
liability gives birth to the
civil obligation such that
generally, if one is not
criminally liable under the
Penal Code, he cannot
become
civilly
liable
thereunder. The situation
under the income tax law
is the exact opposite.
In Income Tax Law, civil
liability to pay taxes
arises from the fact,
for instance, that one
has engaged himself in
business,
and
not
because
of
any
criminal act committed
by him. The criminal
liability arises upon failure
of the debtor to satisfy his
civil
obligation.
The
incongruity of the factual
premises and foundation
principles of the two
cases is one of the
reasons for not imposing
civil indemnity on the
criminal infractor of the
income tax law.
Another reason, of course,
is found in the fact that
while section 73 of the
National
Internal
Revenue
Code
has
provided
the
imposition
of
the
penalty
of
imprisonment or fine,
or both, for refusal or
neglect to pay income
tax or to make a return
thereof, it failed to
provide the collection
of said tax in criminal
proceedings. The only
civil remedies provided,
for
the
collection
of
income tax, in Chapters I

and II, Title IX of the Code

and section 316 thereof,
are distraint of goods,
chattels, etc. or by judicial
action, which remedies
are generally exclusive in
the absence of a contrary
intent from the legislator.

WALTER LUTZ (As Judicial

Administrator of the Intestate
Estate
of
the
Deceased
Antonio Jayme Ledesma) v. J.
ANTONIO ARANETA (As the
Collector of Internal Revenue)
G.R. No. L-7859, 22 December
1955
J. J.B L. Reyes
PRINICPLE/S:
(1)
PURPOSE OF TAXATION
(2)
POWER
OF
TAXATION
V.
POLICE POWER OF EMINENT
DOM
AIN
__________________________________
__________________________________
_________
This is a case initiated to test the
legality of the taxes imposed by
Commonwealth
Act.
567,
otherwise known as the Sugar
Adjustment Act (Promulgated in
1940). This law was instituted to
obtain a readjustment of the
benefits derived from the sugar
industry
by
the
component
elements thereof (threat to the
industry
by
the
imminent
imposition of export taxes upon
sugar as provided in the TydingsMcDuffe Act) and to stabilize the
sugar industry so as to prepare it
for the eventuality of the loss of
its preferential position in the US
market and the imposition of the
export taxes.
Said Act provides for an
increase of the existing tax on
the manufacture of sugar on a
graduated basis, on each picul
of sugar manufactured and
levies on owners or persons in
control of lands devoted to
the cultivation of sugar cane
and ceded to others for a
consideration
on
a
tax
equivalent to the difference
between money value of the
rental
or
consideration
collected and the amount

representing 12 per centum of

the assessed value of such
land.
All collections made under this act
shall accrue to a special fund in
the Philippine Treasury, to be
known as the Sugar Adjustment
and Stabilization Fund and shall
be paid out only for any or all of
the following purposes or to attain
any or all of the following
objectives, as may be provided by
law. Such as:
To maintain the sugar
industry in a position to
maintain itself, despite
the gradual loss of the
preferential position of the
Philippine sugar in the US
Market and ultimately to
insure
its
continued
existence notwithstanding
the loss of that market
and
the
consequent
necessity
of
meeting
competition in the free
markets of the world;
To readjust the benefits
derived from the sugar
industry by all of the
component
elements
thereof the mill, the land
owner, the planter, the
laborers in the factory
so that all might continue
profitably
to
engage
therein;
To limit the production of
sugar to areas more
economically suited to the
production thereof; and
To afford labor employed
in the industry a living
wage and to improve their
living
and
working
conditions.
Facts:
Walter Lutz seeks to recover from
the Collector of Internal Revenue
the sum of Php 14,666.00 paid by
the estate as taxes in accordance
with the above Act for the crop
years 1948-1949 and 1949-150,
alleging that such tax is
unconstitutional
and
void
being levied for the aid and
support of the sugar industry
exclusively, which in his opinion
not a public purpose for which

a tax may be constitutionally

levied.
Court of First Instance (Negros
Occidental): Dismissed the case.
Lutz appealed the cased directly
to the Supreme Court.
Issue:
W/N the Sugar Regulatory Act in
terms of its provisions to collect
increased tax from one sector has
a valid purpose and in accordance
with the Constitution.
Ratio:
The Act is a pure exercise of
the taxing power. An analysis
of the Act, and particularly of
section 6, will show that the
tax is levied with a regulatory
purpose, to provide means for
the
rehabilitation
and
stabilization of the threatened
sugar industry.
In other
words, the act is primarily an
exercise of the police power.
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
states wealth, is one of the
important sources of foreign
exchanged
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 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 atted
strain of the increase in taxes
that it had to sustain.
The protection of a large
industry constituting one of
the great sources of the
states wealth and therefore
directly or indirectly affecting
the welfare of so great a
portion of the population of
the State is affected to such

an extent by public interest

as to be within the police
power of the sovereign.
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. In
this
case,
the
legislative
discretion must be allowed fully
play, subject only to the test of
reasonableness because taxation
may be made the implement
of the States police power.
The tax to be levied should
burden the sugar producers as 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. 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.
The funds raised under the Sugar
Stabilization
Act
should
be
exclusively spent in aid of the
sugar industry, since that very
enterprise that is being protected.
Dispositive Portion:
The decision of the CFI is
affirmed.

BAGATSING v. RAMIREZ
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.
FACTS:
The question 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 (RA 409)
which requires publication of the
ordinance before its enactment
and after its approval or the Local
Tax Code (PD 231), which only
demands
publication
after
approval.
On June 12, 1974, the Municipal
Board
of
Manila
enacted
Ordinance
No.
7522,
"AN
ORDINANCE REGULATING THE
OPERATION OF PUBLIC MARKETS
AND PRESCRIBING FEES FOR THE
RENTALS
OF
STALLS
AND
PROVIDING
PENALTIES
FOR
VIOLATION THEREOF AND FOR
OTHER PURPOSES." The petitioner
City Mayor, Ramon D. Bagatsing,
approved the ordinance on June
15, 1974.
On February 17, 1975, respondent
Federation of Manila Market
Vendors, Inc. commenced Civil
Case 96787 before the Court of
First Instance of Manila presided
over
by
respondent
Judge,
seeking the declaration of nullity
of Ordinance No. 7522
Judge rendered its decision on
August 29, 1975, declaring the
nullity of Ordinance No. 7522 of
the City of Manila on the primary
ground of non-compliance with
the requirement of publication
under the Revised City Charter.
Petitioners
moved
for
reconsideration of the adverse
decision, stressing that (a) only a
post-publication is required by the
Local Tax Code, which was denied,
hence a petition for review upon
SC.
SC:
Ordinace No 7522 of the city of
manila dated June 15, 1975 id
validly enacted.
Revised Charter of the City of
Manila is a special act since it
relates only to the City of Manila,
whereas the Local Tax Code is a
general law because it applies

universally
to
governments.

all

local

A general provision must give way

to a particular provision. Special
provision
governs. This
is
especially true where the law
containing the particular provision
was enacted later than the one
containing the general provision.
The City Charter of Manila was
promulgated on June 18, 1949 as
against the Local Tax Code which
was decreed on June 1, 1973.
Private respondent bewails that
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." The assumption is of
course saddled on erroneous
premise. 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.
18

Nor can the ordinance be stricken

down as violative of Section 3(e)
of the Anti-Graft and Corrupt
Practices
Act
because
the
increased rates of market stall

fees as levied by the ordinance

will necessarily inure to the
unwarranted
benefit
and
advantage of the corporation. 19
We are concerned only with the
issue whether the ordinance in
question is intra vires. Once
determined in the affirmative, the
measure may not be invalidated
because of consequences that
may arise from its enforcement.

PASCUAL (IN HIS OFFICIAL

CAPACITY
AS
PROVINCIAL
GOVERNOR OF RIZAL) V. THE
SEC. OF PUBLIC WORKS
(INHERENT
LIMITATIONS
PUBLIC PURPOSE)

FACTS: Petitioner
Wenceslao
Pascual, as Provincial Governor of
Rizal,
disaffirm
and
seeks
declaratory relief with injunction
on Republic Act No. 920, entitled
"An Act Appropriating Funds for
Public Works" containing section
1-C (a) thereof, an item (43[h]) of
P85,000.00 "for the construction,
reconstruction, repair, extension
and improvement" of Pasig feeder
road terminals.
Pascual argued that the
mentioned feeder roads were
nothing
but
projected
and
planned subdivision roads, not yet
constructed. It was also proven
that the projected feeder roads do
not connect any government
property
or
any
important
premises to the main highway
except
that
of
Antonio
Subdivision, a private property of
respondent
Senator
Jose
C.

Zulueta, situated at Pasig, Rizal. It

was admitted by Zulueta that the
subdivision is his property. But
Zulueta avers that he was not
aware of any law which makes
illegal the appropriation of public
funds for the improvements of
private property, and that he
offered to donate 4 parcels of land
constituting the said feeder road
in favor of the Government, which
was accepted by the Executive
Secretary.
The
petition
further
alleges that the construction of
said roads, to be undertaken with
amount of P85,000.00 would
relieve respondent Zulueta of the
burden
of
constructing
his
subdivision streets or roads at his
own expenses, and would greatly
enhance or increase the value of
the
subdivision
of
said
respondent.
RTC ruled in favor of the
respondents on the grounds that
the petitioner Pascual does not
have legal standing, because his
interests are not directly affected
thereby.
ISSUE 1: Whether the funds and
the feeder road in furtherance of
this law is legal and within the
scope of public use.
HELD: No. 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.
As regards the legal
feasibility of appropriating public
funds for a public purpose, 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. (25 R.L.C. pp. 398-400)
In accordance with the
rule that the taxing power must
be exercised for public purposes
only,
discussedsupra sec.
14,
money raised by taxation can be
expended only
for
public
purposes
and
not
for
the
advantage of private individuals.
(85 C.J.S. pp. 645-646)
Generally,
under
the
express or implied provisions of
the constitution, public funds may
be used only for public purpose.
The right of the legislature to
appropriate funds is correlative
with its right to tax, and, under
constitutional provisions against
taxation
except
for
public
purposes and prohibiting the
collection of a tax for one purpose
and the devotion thereof to
another
purpose, no
appropriation of state funds can
be made for other than for a
public purpose.
The
test
of
the
constitutionality of a statute
requiring the use of public funds
is whether the statute is designed
to promote the public interest, as
opposed to the furtherance of the
advantage
of
individuals,
although each advantage to
individuals
might incidentally serve
the
public. (81 C.J.S. pp. 1147)
ISSUE 2: If the petitioner has the
legal standing for this case.
HELD: Yes.
Again, it is well-stated
that the validity of a statute may

be contested only by one who will

sustain
a
direct
injury
in
consequence of its enforcement.
Yet, there are many decisions
nullifying, at the instance of
taxpayers, laws providing for the
disbursement
of
public
funds, 5upon the theory that "the
expenditure of public funds by an
officer of the State for the
purpose
of
administering
an unconstitutional act
constitutes
a misapplication of
such funds," which may be
enjoined at the request of a
taxpayer.
The general rule is that
not only persons individually
affected, but alsotaxpayers, have
sufficient interest in preventing
the illegal expenditure of moneys
raised by taxation and may
therefore
question
the
constitutionality
of
statutes
requiring expenditure of public
moneys.
Petitioner herein is not
merely a taxpayer. The Province
of Rizal, which he represents
officially
as
its
Provincial
Governor, is our most populated
political subdivision, 8and, the
taxpayers
therein
bear
a
substantial portion of the burden
of taxation, in the Philippines.