Lutz vs. Araneta, 98 Phil.

148

may

1. CONSTITUTIONAL LAW; TAXATION; POWER OF STATE TO LEVY

TAX IN AND SUPPORT OF SUGAR INDUSTRY. As the protection and
promotion of the sugar industry is a matter of public concern the
Legislature may determine within reasonable bounds what is necessary
for its protection and expedient for its promotion. Here, the legislative
must be allowed full play, subject only to the test of reasonableness;
and it is not contended that the means provided in section 6 of
Commonwealth Act No. 567 bear no relation to the objective pursued
or are oppressive in character. If objective an methods are alike
constitutionally valid, no reason is seen why the state may not levy
taxes to raise funds for their prosecution and attainment. Taxation
may be made the implement. Taxation may be made the implement of
the states police power (Great Atl. & Pac. Tea Co. v. Grosjean, 301
U.S. 412, 81 L. Ed. 1193; U.S. v. Butler, 297 U.S. 1, 80 L. Ed. 477;
MCulloch v. Maryland, 4 Wheat, 316, 4 L. Ed. 579).

First, to place the sugar industry in a position to maintain itself despite

the gradual loss of the preferential position of the Philippine sugar in
the United States 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;

2. ID.; ID.; POWER OF STATE TO SELECT SUBJECT OF TAXATION.

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 (Carmicheal v. Southern
Coal & Coke Co., 301 U.S. 495, 81 L. Ed. 1245, citing numerous
authorities, at 1251).

DECISION

REYES, J. B. L., J.:

This case was initiated in the Court of First Instance of Negros

Occidental to test the legality of the taxes imposed by Commonwealth
Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a
declaration of emergency, due to the threat to our industry by the
imminent imposition of export taxes upon sugar as provided in the
Tydings-McDuffie Act, and the "eventual loss of its preferential position
in the United States market" ; wherefore, the national policy was
expressed "to obtain a readjustment of the benefits derived from the
sugar industry by the component elements thereof" and "to stabilize
the sugar industry so as to prepare it for the eventuality of the loss of
its preferential position in the United States market and the imposition
of
the
export
taxes."cralaw
virtua1aw
library
In section 2, Commonwealth Act 567 provides for an increase of the
existing tax on the manufacture of sugar, on a graduated basis, on
each picul of sugar manufactures; while section 3 levies on owners or
persons in control of lands devoted to the cultivation of sugar cane
and ceded to others for a consideration, on lease or otherwise

be

provided

by

law.

Second, to readjust the benefits derived from the sugar industry by all
of the component elements thereof the mill, the landowner, the
planter of the sugar cane, and the laborers in the factory and in the
field so that all might continue profitably to engage therein;
Third, to limit the production of sugar to areas more economically
suited
to
the
production
thereof;
and
Fourth, to afford labor employed in the industry a living wage and to
improve their living and working conditions: Provided, That the
President of the Philippines may, until the adjournment of the next
regular session of the National Assembly, make the necessary
disbursements from the fund herein created (1) for the establishment
and operation of sugar experiment station or stations and the
undertaking of researchers (a)to increase the recoveries of the
centrifugal sugar factories with the view of reducing manufacturing
costs, (b) to produce and propagate higher yielding varieties of sugar
cane more adaptable to different distinct conditions in the Philippines,
(c) to lower the costs of raising sugar cane, (d) to improve the buying
quality of denatured alcohol from molasses for motor fuel, (e) to
determine the possibility of utilizing the other by-products of the
industry, (f) to determine what crop or crops are suitable for rotation
and for the utilization of excess cane lands, and (g) on other problems
the solution of which would help rehabilitated and stabilize the
industry, and (2) for the improvement of living and working conditions
in sugar mills and sugar plantations, authorizing him to organize the
necessary agency or agencies to take charge of the expenditure and
allocation of said funds to carry out the purpose hereinbefore
enumerated, and, likewise, authorizing the disbursement from the fund
herein created of the necessary amount of amounts needed for
salaries, wages, travelling expenses, equipment, and other sundry
expenses or said agency or agencies."cralaw virtua1aw library
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the
Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the
Collector of Internal Revenue the sum of P14,666.40 paid by the
estate as taxes, under section 3 of the Act, for the crop years 19481949 and 1949-1950; alleging that such tax is unconstitutional and
void, being levied for the aid and support of the sugar industry
exclusively, which in plaintiffs opinion is not a public purpose for which
a tax may be constitutionally levied. The action having been dismissed
by the Court of First Instance, the plaintiffs appealed the case directly
to
this
Court
(Judiciary
Act,
section
17).

The basic defect in the plaintiffs position is his assumption that the tax
provided for in Commonwealth Act No. 567 is a pure exercise of the
taxing power. Analysis of the Act, and particularly of section 6
(heretofore quoted in full), 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.

SEC. 6. 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

This Court can take judicial notice of the fact that sugar production in
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

"a tax equivalent to the difference between the money value of the
rental or consideration collected and the amount representing 12 per
centum of the assessed value of such land."cralaw virtua1aw library
According

to

section

of

the

law

the states wealth, is one of the important sources of foreign exchange

needed by our government, and is thus pivotal in the plans of a regime
committed to a policy of currency stability. Its promotion, protection
and advancement, therefore redounds greatly to the general welfare.
Hence it was competent for the legislature to find that the general
welfare demanded that the sugar industry should be stabilized in turn;
and in the wide field of its police power, the law-making body could
provide that the distribution of benefits therefrom be readjusted
among its components to enable it to resist the added strain of the
increase in taxes that it had to sustain (Sligh v. Kirkwood, 237 U. S.
52, 59 L. Ed. 835; Johnson v. State ex rel. Marey, 99 Fla. 1311, 128 So
853; Maxcy Inc. v. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson v. State ex rel. Marey, with reference to the citrus
industry
in
Florida

"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 interests as to be within
the
police
power
of
the
sovereign."
(128
So.
857)
Once it is conceded, as it must, that the protection and promotion of
the sugar industry is a matter of public concern, it follows that the
Legislature may determine within reasonable bounds what is necessary
for its protection and expedient for its promotion. Here, the legislative
discretion must be allowed full play, subject only to the test of
reasonableness; and it is not contended that the means provided in
section 6 of the law (above quoted) bear no relation to the objective
pursued or are oppressive in character. If objective and methods are
alike constitutionally valid, no reason is seen why the state may not be
levy taxes to raise funds for their prosecution and attainment. Taxation
may be made the implement of the states police power (Great Atl. &
Pac. Tea Co. v. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. v.
Butler, 297 U. S. 1, 80 L. Ed. 477; MCulloch v. Maryland, 4 Wheat.
318,
4
L.
Ed.
579).
That the tax to be levied should burden the sugar producers
themselves can hardly be a ground of complaint; indeed, it appears
rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any
rate, it is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that "inequalities
which result from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation" (Carmichael v.
Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing
numerous
authorities,
at
p.
1251).
From the point of view we have taken it appears of no moment that
the funds raised under the Sugar Stabilization Act, now in question,
should be exclusively spent in aid of the sugar industry, since it is that
very enterprise that is being protected. It may be that other industries
are also in need of similar protection; but the legislature is not
required by the Constitution to adhere to a policy of "all or none." As
ruled in Minnesota ex rel. Pearson v. Probate Court, 309 U. S. 270, 84
L. Ed. 744, "if the law presumably hits the evil where it is most felt, it
is not to be overthrown because there are other instances to which it
might have been applied;" and that the legislative authority, exerted
within its proper field, need not embrace all the evils within its reach"
(N. L. R. B. v. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed.
893).
Even from the standpoint that the Act is a pure tax measure, it cannot
be said that the devotion of tax money to experimental stations to

seek increase of efficiency in sugar production, utilization of byproducts and solution of allied problems, as well as to the
improvement of living and working conditions in sugar mills or
plantations, without any part of such money being channeled directly
to private persons, constitutes expenditure of tax money for private
purposes, (compare Everson v. Board of Education, 91 L. Ed. 472, 168
ALR
1392,
1400).
The decision appealed from is affirmed, with costs against appellant.
So ordered.

FACTS:
Appelant in this case Walter Lutz in his capacity as the Judicial
Administrator of the intestate of the deceased Antonio Jayme
Ledesma, seeks to recover from the Collector of the Internal Revenue
the total sum of fourteen thousand six hundred sixty six and forty
cents (P 14, 666.40) paid by the estate as taxes, under section 3 of
Commonwealth Act No. 567, also known as the Sugar Adjustment Act,
for the crop years 1948-1949 and 1949-1950. Commonwealth Act. 567
Section 2 provides for an increase of the existing tax on the
manufacture of sugar on a graduated basis, on each picul of sugar
manufacturer; while section 3 levies on the owners or persons in
control of the land devoted tot he cultivation of sugarcane and ceded
to others for consideration, on lease or otherwise - "a tax equivalent to
the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed
value of such land. It was alleged that such tax is unconstitutional and
void, being levied for the aid and support of the sugar industry
exclusively, which in plaintiff's opinion is not a public purpose for which
a tax may be constitutionally levied. The action was dismissed by the
CFI thus the plaintiff appealed directly to the Supreme Court.

ISSUE:
Whether or not the tax imposition in the Commonwealth Act No. 567
are unconstitutional.

RULING:
Yes, the Supreme Court held that the fact that sugar production is one
of the greatest industry of our nation, sugar occupying a leading
position among its export products; that it gives employment to
thousands of laborers in the fields and factories; that it is a great
source of the state's wealth, is one of the important source of foreign
exchange needed by our government and is thus pivotal in the plans of
a regime committed to a policy of currency stability. Its promotion,
protection and advancement, therefore redounds greatly to the
general welfare. Hence it was competent for the legislature to find that
the general welfare demanded that the sugar industry be stabilized in
turn; and in the wide field of its police power, the law-making body
could provide that the distribution of benefits therefrom be readjusted
among its components to enable it to resist the added strain of the
increase in taxes that it had to sustain.
The subject 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 a valid exercise of police power.
Facts: Commonwealth Act No. 567, otherwise known as Sugar
Adjustment Act was promulgated in 1940 to stabilize the sugar

industry so as to prepare it for the eventuality of the loss of its

preferential position in the United States market and the imposition of
export taxes. Plaintiff, Walter Lutz, in his capacity as Judicial
Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks
to recover from the Collector of Internal Revenue the sum of
P14,666.40 paid by the estate as taxes, under Sec.3 of the Act,
alleging that such tax is unconstitutional and void, being levied for the
aid and support of the sugar industry exclusively, which in plaintiffs
opinion is not a public purpose for which a tax may be constitutionally
levied. The action has been dismissed by the Court of First Instance.
Issue: Whether or not the tax imposed is constitutional.
Held: Yes. The act is primarily an exercise of the police power. It is
shown in the Act that the tax is levied with a regulatory purpose, to
provide means for the rehabilitation and stabilization of the threatened
sugar industry.
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 Act should be exclusively spent in aid of
the sugar industry, since it is that very enterprise that is being
protected. It may be that other industries are also in need of similar
protection; but the legislature is not required by the Constitution to
adhere to a policy of all or none.

Sison vs. Ancheta, 130 SCRA 654

The success of the challenge posed in this suit for declaratory relief or
prohibition proceeding 1 on the validity of Section I of Batas Pambansa
Blg. 135 depends upon a showing of its constitutional infirmity. The
assailed provision further amends 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. 2 Petitioner 3 as taxpayer
alleges that by virtue thereof, "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. 4 He characterizes
the above sction as arbitrary amounting to class legislation, oppressive
and capricious in character 5 For petitioner, therefore, there is a
transgression of both the equal protection and due process clauses 6 of
the Constitution as well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents
to file an answer within 10 days from notice. Such an answer, after
two extensions were granted the Office of the Solicitor General, was
filed on May 28, 1982. 8The facts as alleged were admitted but not the
allegations which to their mind are "mere arguments, opinions or
conclusions on the part of the petitioner, the truth [for them] being
those stated [in their] Special and Affirmative Defenses." 9 The answer
then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the
State's power to tax. The authorities and cases cited while correctly
quoted or paraghraph do not support petitioner's stand." 10 The
prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be
dismissed.
1. It is manifest that the field of state activity has assumed a much
wider scope, The reason was so clearly set forth by retired Chief
Justice Makalintal thus: "The areas which used to be left to private
enterprise and initiative and which the government was called upon to
enter optionally, and only 'because it was better equipped to
administer for the public welfare than is any private individual or group
of individuals,' continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its
sovereign capacity if it is to meet the increasing social challenges of
the times." 11 Hence the need for more revenues. 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. To praphrase a recent decision, taxes being the lifeblood
of the government, their prompt and certain availability is of the
essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an
attribute of sovereignty. It is the strongest of all the powers of of
government." 13 It is, of course, to be admitted that for all its
plenitude 'the power to tax is not unconfined. There are restrictions.
The Constitution sets forth such limits . Adversely affecting as it does
properly rights, both the due process and equal protection clauses inay
properly be invoked, all petitioner does, to invalidate in appropriate
cases a revenue measure. if it were otherwise, there would -be truth
to the 1803 dictum of Chief Justice Marshall that "the power to tax

involves the power to destroy." 14 In a separate opinion in Graves v.

New York, 15 Justice Frankfurter, after referring to it as an 1,
unfortunate remark characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times following] a free
use of absolutes." 16 This is merely to emphasize that it is riot and
there cannot be such a constitutional mandate. Justice Frankfurter
could rightfully conclude: "The web of unreality spun from Marshall's
famous dictum was brushed away by one stroke of Mr. Justice
Holmess pen: 'The power to tax is not the power to destroy while this
Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the
fundamental law overrides any legislative or executive, act that runs
counter to it. In any case therefore where it can be demonstrated that
the challenged statutory provision as petitioner here alleges fails
to abide by its command, then this Court must so declare and adjudge
it null. The injury thus is centered on the question of whether the
imposition of a higher tax rate on taxable net income derived from
business or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges
arbitrariness. A mere allegation, as here. does not suffice. There must
be a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void or its face, he
has not made out a case. This is merely to adhere to the authoritative
doctrine that were the due process and equal protection clauses are
invoked, considering that they arc not fixed rules but rather broad
standards, there is a need for of such persuasive character as would
lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail. 18
5. 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 then becomes the duty of this Court to say that such an arbitrary act
amounted to the exercise of an authority not conferred. That properly
calls for the application of the Holmes dictum. 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. 19
6. Now for equal protection. The applicable standard to avoid the
charge that there is a denial of this constitutional mandate whether the
assailed act is in the exercise of the lice power or the power of
eminent domain is to demonstrated that the governmental act
assailed, far from being inspired by the attainment of the common
weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. 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 circumtances which if not Identical are
analogous. If law be looked 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." 20 That same formulation applies as well to taxation measures.
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. There is,
however, wisdom, as well as realism in these words of Justice
Frankfurter: "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, address 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." 21Hence the constant reiteration
of the view that classification if rational in character is allowable. As a
matter of fact, in a leading case of Lutz V. Araneta, 22 this Court,
through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is
inherent in the power to tax that a state be free to select the subjects
of taxation, and it has been repeatedly held that 'inequalities which
result from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity.
According to the Constitution: "The rule of taxation shag be uniform
and equitable." 24 This requirement is met according to Justice Laurel
in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax
"operates with the same force and effect in every place where the
subject may be found. " 26 He likewise added: "The rule of uniformity
does not call for perfect uniformity or perfect equality, because this is
hardly attainable." 27 The problem of classification did not present
itself in that case. It did not arise until nine years later, when the
Supreme Court held: "Equality and uniformity in taxation means that
all taxable articles or kinds of property of the same class shall be taxed
at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation, ...
. 28 As clarified by Justice Tuason, where "the differentiation"
complained of "conforms to the practical dictates of justice and equity"
it "is not discriminatory within the meaning of this clause and is
therefore uniform." 29 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." 30
8. Further on this point. Apparently, what misled petitioner is his
failure to take into consideration the distinction 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. Taxpayers may be classified into
different categories. To repeat, it. is enough that the classification
must rest upon substantial distinctions that make real differences. In
the case of the gross income taxation embodied in Batas Pambansa
Blg. 135, 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. Taxpayers who are
recipients of compensation income are set apart as a class. As there is
practically no overhead expense, these taxpayers are e not entitled to
make deductions for income tax purposes because they are in the
same situation more or less. 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 is ample
justification then for the Batasang Pambansa to adopt the gross
system of income taxation to compensation income, while continuing
the system of net income taxation as regards professional and
business income.

9. Nothing can be clearer, therefore, than that the petition is without

merit, considering the (1) lack of factual foundation to show the
arbitrary character of the assailed provision; 31 (2) the force of
controlling doctrines on due process, equal protection, and uniformity
in taxation and (3) the reasonableness of the distinction between
compensation and taxable net income of professionals and
businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.

Facts: Section 1 of BP Blg 135 amended the Tax Code and petitioner
Antero M. Sison, as taxpayer, alleges 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 said provision as arbitrary amounting to class legislation,
oppressive and capricious in character. It therefore violates both the
equal protection and due process clauses of the Constitution as well
asof
the
rule
requiring
uniformity
in
taxation.
Issue: Whether or not the assailed provision violates the equal
protection and due process clauses of the Constitution while also
violating the rule that taxes must be uniform and equitable.
Held: The
petition
is
without
merit.
On due process - it is undoubted that it 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 from abuse of power. Petitioner alleges
arbitrariness but his mere allegation does not suffice and there must
be a factual foundation of such unconsitutional taint.
On equal protection - it suffices that the laws operate equally and
uniformly on all persons under similar circumstances, both in the
privileges
conferred
and
the
liabilities
imposed.
On the matter that the rule of taxation shall be uniform and equitable this requirement is met when the tax operates with the same force and
effect in every place where the subject may be found." Also, :the rule
of uniformity does not call for perfect uniformity or perfect equality,
because this is hardly unattainable." When the problem of classification
became of issue, the Court said: "Equality and uniformity in taxation
means that all taxable articles or kinds of property of the same class
shall be taxed the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation..."
As provided by this Court, where "the differentation" complained of
"conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore
uniform."

Lladoc vs. Commissioner of Internal Revenue, 14 SCRA 292

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated

P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of
Victorias, Negros Occidental, and predecessor of herein petitioner, for
the construction of a new Catholic Church in the locality. The total
amount was actually spent for the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift
tax return. Under date of April 29, 1960, the respondent Commissioner
of Internal Revenue issued an assessment for donee's gift tax against
the Catholic Parish of Victorias, Negros Occidental, of which petitioner
was the priest. The tax amounted to P1,370.00 including surcharges,
interests of 1% monthly from May 15, 1958 to June 15, 1960, and the
compromise for the late filing of the return.
Petitioner lodged a protest to the assessment and requested the
withdrawal thereof. The protest and the motion for reconsideration
presented to the Commissioner of Internal Revenue were denied. The
petitioner appealed to the Court of Tax Appeals on November 2, 1960.
In the petition for review, the Rev. Fr. Casimiro Lladoc claimed, among
others, that at the time of the donation, he was not the parish priest in
Victorias; that there is no legal entity or juridical person known as the
"Catholic Parish Priest of Victorias," and, therefore, he should not be
liable for the donee's gift tax. It was also asserted that the assessment
of the gift tax, even against the Roman Catholic Church, would not be
valid, for such would be a clear violation of the provisions of the
Constitution.
After hearing, the CTA rendered judgment, the pertinent portions of
which are quoted below:
... . Parish priests of the Roman Catholic Church under
canon laws are similarly situated as its Archbishops and
Bishops with respect to the properties of the church within
their parish. They are the guardians, superintendents or
administrators of these properties, with the right of
succession and may sue and be sued.
xxx

xxx

xxx

The petitioner impugns the, fairness of the assessment with

the argument that he should not be held liable for gift taxes
on donation which he did not receive personally since he
was not yet the parish priest of Victorias in the year 1957
when said donation was given. It is intimated that if
someone has to pay at all, it should be petitioner's
predecessor, the Rev. Fr. Crispin Ruiz, who received the
donation in behalf of the Catholic parish of Victorias or the
Roman Catholic Church. Following petitioner's line of
thinking, we should be equally unfair to hold that the
assessment now in question should have been addressed to,
and collected from, the Rev. Fr. Crispin Ruiz to be paid from
income derived from his present parish where ever it may
be. It does not seem right to indirectly burden the present
parishioners of Rev. Fr. Ruiz for donee's gift tax on a
donation to which they were not benefited.
xxx

xxx

xxx

We saw no legal basis then as we see none now, to include

within the Constitutional exemption, taxes which partake of
the nature of an excise upon the use made of the properties
or upon the exercise of the privilege of receiving the
properties. (Phipps vs. Commissioner of Internal Revenue,
91 F [2d] 627; 1938, 302 U.S. 742.)
It is a cardinal rule in taxation that exemptions from
payment thereof are highly disfavored by law, and the party
claiming exemption must justify his claim by a clear,
positive, or express grant of such privilege by law. (Collector
vs. Manila Jockey Club, G.R. No. L-8755, March 23, 1956; 53
O.G. 3762.)
The phrase "exempt from taxation" as employed in Section
22(3), Article VI of the Constitution of the Philippines, should
not be interpreted to mean exemption from all kinds of
taxes. Statutes exempting charitable and religious property
from taxation should be construed fairly though strictly and
in such manner as to give effect to the main intent of the
lawmakers. (Roman Catholic Church vs. Hastrings 5 Phil.
701.)
xxx

xxx

xxx

WHEREFORE, in view of the foregoing considerations, the

decision of the respondent Commissioner of Internal
Revenue appealed from, is hereby affirmed except with
regard to the imposition of the compromise penalty in the
amount of P20.00 (Collector of Internal Revenue v. U.S.T.,
G.R. No. L-11274, Nov. 28, 1958); ..., and the petitioner, the
Rev. Fr. Casimiro Lladoc is hereby ordered to pay to the
respondent the amount of P900.00 as donee's gift tax, plus
the
surcharge
of
five per
centum (5%)
as ad
valorem penalty under Section 119 (c) of the Tax Code, and
one per centum (1%) monthly interest from May 15, 1958 to
the date of actual payment. The surcharge of 25% provided
in Section 120 for failure to file a return may not be imposed
as the failure to file a return was not due to willful neglect.(
... ) No costs.
The above judgment is now before us on appeal, petitioner assigning
two (2) errors allegedly committed by the Tax Court, all of which
converge on the singular issue of whether or not petitioner should be
liable for the assessed donee's gift tax on the P10,000.00 donated for
the construction of the Victorias Parish Church.
Section 22 (3), Art. VI of the Constitution of the Philippines, exempts
from taxation cemeteries, churches and parsonages or convents,
appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious purposes. The exemption is only from the
payment of taxes assessed on such properties enumerated, as
property taxes, as contra distinguished from excise taxes. In the
present case, what the Collector assessed was a donee's gift tax; the
assessment was not on the properties themselves. It did not rest upon
general ownership; it was an excise upon the use made of the
properties, upon the exercise of the privilege of receiving the
properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift
tax is not within the exempting provisions of the section just
mentioned. A gift tax is not a property tax, but an excise tax imposed
on the transfer of property by way of gift inter vivos, the imposition of
which on property used exclusively for religious purposes, does not
constitute an impairment of the Constitution. As well observed by the

learned respondent Court, the phrase "exempt from taxation," as

employed in the Constitution (supra) should not be interpreted to
mean exemption from all kinds of taxes. And there being no clear,
positive or express grant of such privilege by law, in favor of
petitioner, the exemption herein must be denied.
The next issue which readily presents itself, in view of petitioner's
thesis, and Our finding that a tax liability exists, is, who should be
called upon to pay the gift tax? Petitioner postulates that he should not
be liable, because at the time of the donation he was not the priest of
Victorias. We note the merit of the above claim, and in order to put
things in their proper light, this Court, in its Resolution of March 15,
1965, ordered the parties to show cause why the Head of the Diocese
to which the parish of Victorias pertains, should not be substituted in
lieu of petitioner Rev. Fr. Casimiro Lladoc it appearing that the Head of
such Diocese is the real party in interest. The Solicitor General, in
representation of the Commissioner of Internal Revenue, interposed no
objection to such a substitution. Counsel for the petitioner did not also
offer objection thereto.
On April 30, 1965, in a resolution, We ordered the Head of the Diocese
to present whatever legal issues and/or defenses he might wish to
raise, to which resolution counsel for petitioner, who also appeared as
counsel for the Head of the Diocese, the Roman Catholic Bishop of
Bacolod, manifested that it was submitting itself to the jurisdiction and
orders of this Court and that it was presenting, by reference, the brief
of petitioner Rev. Fr. Casimiro Lladoc as its own and for all purposes.
In view here of and considering that as heretofore stated, the
assessment at bar had been properly made and the imposition of the
tax is not a violation of the constitutional provision exempting
churches, parsonages or convents, etc. (Art VI, sec. 22 [3],
Constitution), the Head of the Diocese, to which the parish Victorias
Pertains, is liable for the payment thereof.
The decision appealed from should be, as it is hereby affirmed insofar
as tax liability is concerned; it is modified, in the sense that petitioner
herein is not personally liable for the said gift tax, and that the Head of
the Diocese, herein substitute petitioner, should pay, as he is presently
ordered to pay, the said gift tax, without special, pronouncement as to
costs.

Facts: Sometime in 1957, M.B. Estate Inc., of Bacolod City, donated

10,000.00 pesos in cash to Fr. Crispin Ruiz, the parish priest
of Victorias, Negros Occidental, and predecessor of Fr. Lladoc, for the
construction of a new Catholic church in the locality. The donated
amount
was
spent
for
such
purpose.
On March 3, 1958, the donor M.B. Estate filed the donor's gift tax
return. Under date of April 29, 1960. Commissioner of Internal
Revenue issued an assessment for the donee's gift tax against the
Catholic Parish of Victorias of which petitioner was the parish priest.

Issue: Whether or not the imposition of gift tax despite the fact the
Fr. Lladoc was not the Parish priest at the time of donation, Catholic
Parish priest of Victorias did not have juridical personality as the
constitutionalexemption
for
religious
purpose
is
valid.

Held: Yes, imposition of the gift tax was valid, under Section 22(3)
Article VI of the Constitution contemplates exemption only from

payment of taxes assessed on such properties as Property taxes contra

distinguished from Excise taxes The imposition of the gift tax on the
property used for religious purpose is not a violation of the
Constitution. A gift tax is not a property by way of gift inter vivos.
The head of the Diocese and not the parish priest is the real party in
interest in the imposition of the donee's tax on the property donated to
the church for religious purpose.

Philex Mining vs. Commissioner of Internal Revenue, G.R. No.

125704, August 28, 1998
Petitioner Philex Mining Corp. assails the decision of the Court of
Appeals promulgated on April 8, 1996 in CA-G.R. SP No.
36975[1] affirming the Court of Tax Appeals decision in CTA Case No.
4872 dated March 16, 1995[2] ordering it to pay the amount
of P110,677,668.52 as excise tax liability for the period from the
2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual
interest from August 6, 1994 until fully paid pursuant to Sections 248
and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to
Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th
quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total
amount of P123,821,982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL
EXCISE

2nd
1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91

Qtr.,

3rd
1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

Qtr.,

4th
1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

Qtr.,

------------------- ----------------- ----------------- ---------------------

In reply, the BIR, in a letter dated September 7, 1992,[6] found

no merit in Philexs position. Since these pending claims have not yet
been established or determined with certainty, it follows that no legal
compensation can take place. Hence, he BIR reiterated its demand
that Philex settle the amount plus interest within 30 days from the
receipt of the letter.
In view of the BIRs denial of the offsetting of Philexs claim for
VAT input credit/refund against its exercise tax obligation, Philex raised
the issue to the Court of Tax Appeals on November 6, 1992.[7] In the
course of the proceedings, the BIR issued a Tax Credit Certificate SN
001795 in the amount of P13,144,313.88 which, applied to the total
tax liabilities of Philex ofP123,821,982.52; effectively lowered the
latters tax obligation of P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered
Philex to pay the remaining balance of P110,677,688.52 plus interest,
elucidating its reason, to wit:
Thus, 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 (PARAS, Civil Code of the
T
Philippines, Annotated,
A Vol. IV, Ninth Edition, p. 259). In the instant
case, the claims ofX the Petitioner for VAT refund is still pending
litigation, and still has to be determined by this Court (C.T.A. Case No.
4707). A fortiori, the
D liquidated debt of the Petitioner to the
government cannot,U therefore, be set-off against the unliquidated
claim which Petitioner
E conceived to exist in its favor (see Compaia
General de Tabacos vs. French and Unson, No. 14027, November 8,
1918, 39 Phil. 34).[8]
Moreover, the Court of Tax Appeals ruled that taxes cannot be
subject to set-off on compensation since claim for taxes is not a debt
or contract.[9] The dispositive portion of the CTA decision[10] provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack
of merit and Petitioner is hereby ORDERED to PAY the Respondent the
amount of P110,677,668.52 representing excise tax liability for the
period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus
20% annual interest from August 6, 1994 until fully paid pursuant to
Section 248 and 249 of the Tax Code, as amended.

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

1st
1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25

Qtr.,

Aggrieved with the decision, Philex appealed the case before the
Court of Appeals docketed as CA-G.R. CV No. 36975.[11] Nonetheless,
on April 8, 1996, the Court of Appeals affirmed the Court of Tax
Appeals observation. The pertinent portion of which reads:[12]

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13

WHEREFORE, the appeal by way of petition for review is hereby

DISMISSED and the decision dated March 16, 1995 is AFFIRMED.

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52

Philex filed a motion for reconsideration which

nevertheless, denied in a Resolution dated July 11, 1996.[13]

========== ========== =========== ===========

However, a few days after the denial of its motion for

reconsideration, 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,
computed as follows:[14]

[3]

In a letter dated August 20, 1992,[4] Philex protested the

demand for payment of the tax liabilities stating that it has pending
claims for VAT input credit/refund for the taxes it paid for the years
1989 to 1991 in the amount of P119,977,037.02 plus
interest. Therefore, these claims for tax credit/refund should be
applied against the tax liabilities, citing our ruling in Commissioner of
Internal Revenue v. Itogon-Suyoc Mines, Inc.[5]

Period Covered By Tax Credit Certificate Date Of Issue Amount

Claims For Vat Number
refund/credit
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01

was,

1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61

1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now
contends that the same should, ipso jure, off-set its excise tax
liabilities[15] since both had already become due and demandable, as
well as fully liquidated;[16] hence, legal compensation can properly take
place.
We see no merit in this contention.
In several instances prior to the instant case, we have already
made the pronouncement that taxes cannot be subject to
compensation for the simple reason that the government and the
taxpayer are not creditors and debtors of each other.[17] 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.[18] We find no cogent reason to
deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate
Appellate Court,[19] we categorically held that taxes cannot be subject
to set-off or compensation, thus:
We have consistently ruled that there can be no off-setting of
taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that
the government owes him an amount equal to or greater than the tax
being collected. The collection of tax cannot await the results of a
lawsuit against the government.
The ruling in Francia has been applied to the subsequent case
of Caltex Philippines, Inc. v. Commission on Audit,[20] which reiterated
that:
x x x 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.
Further, Philexs reliance on our holding in Commissioner of
Internal Revenue v. Itogon-Suyoc Mines, Inc., wherein we ruled that a
pending refund may be set off against an existing tax liability even
though the refund has not yet been approved by the
Commissioner,[21] is no longer without any support in statutory law.
It is important to note that the premise of our ruling in the
aforementioned case was anchored on Section 51(d) of the National
Revenue Code of 1939. However, when the National Internal Revenue
Code of 1977 was enacted, the same provision upon which the ItogonSuyoc pronouncement was based was omitted.[22] Accordingly, the
doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philexs position,
it asserts that the imposition of surcharge and interest for the nonpayment of the excise taxes within the time prescribed was
unjustified. Philex posits the theory that it had no obligation to pay the

excise liabilities within the prescribed period since, after all, it still has
pending claims for VAT input credit/refund with BIR.[23]
We fail to see 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.[24] Evidently, to countenance Philexs whimsical reason
would render ineffective our tax collection system. Too simplistic, it
finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its
tax liabilities on the ground that it has a pending tax claim for refund
or credit against the government which has not yet been granted. It
must be noted that a distinguishing feature of a tax is that it is
compulsory rather than a matter of bargain.[25] Hence, a tax does not
depend upon the consent of the taxpayer.[26] If any payer 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 government
revenue system. A taxpayer cannot refuse to pay his taxes when they
fall due simply because he has a claim against the government or that
the collection of the tax is contingent on the result of the lawsuit it
filed against the government.[27] Moreover, Philex's theory that would
automatically apply its VAT input credit/refund against its tax liabilities
can easily give rise to confusion and abuse, depriving the government
of authority over the manner by which taxpayers credit and offset their
tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input
claim/refund with the government is immaterial for the imposition of
charges and penalties prescribed under Section 248 and 249 of the
Tax Code of 1977. The payment of the surcharge is mandatory and
the BIR is not vested with any authority to waive the collection
thereof.[28] The same cannot be condoned for flimsy reasons,[29] similar
to the one advanced by Philex in justifying its non-payment of its tax
liabilities.
Finally, Philex asserts that the BIR violated Section 106(e)[30] of
the National Internal Revenue Code of 1977, which requires the refund
of input taxes within 60 days,[31] when it took five years for the latter
to grant its tax claim for VAT input credit/refund.[32]
In this regard, we agree with Philex. While there is no dispute
that a claimant has the burden of proof to establish the factual basis of
his or her claim for tax credit or refund,[33] however, once the claimant
has submitted all the required documents, it is the function of the BIR
to assess these documents with purposeful dispatch. After all, since
taxpayers owe honesty to government it is but just that government
render fair service to the taxpayers.[34]
In the instant case, the VAT input taxes were paid between 1989
to 1991 but the refund of these erroneously paid taxes was only
granted in 1996. Obviously, had the BIR been more diligent and
judicious with their duty, it could have granted the refund earlier. We
need not remind the BIR that simple justice requires the speedy refund
of wrongly-held taxes.[35] Fair dealing and nothing less, is expected by
the taxpayer from the BIR in the latter's discharge of its function. As
aptly held in Roxas v. Court of Tax Appeals:[36]
"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 collectot kill the 'hen that lays the golden
egg.' And, in the order to maintain the general public's trust and
confidence in the Government this power must be used justly and not
treacherously."

Despite our concern with the lethargic manner by which the BIR
handled Philex's tax claim, it is a settled rule that in the performance
of governmental function, the State is not bound by the neglect of its
agents and officers. Nowhere is this more true than in the field of
taxation.[37] Again, while we understand Philex's predicament, it must
be stressed that the same is not valid reason for the non- payment of
its tax liabilities.
To be sure, this is not state that the taxpayer is devoid of
remedy against public servants or employees especially BIR examiners
who, in investigating tax claims are seen to drag their feet needlessly.
First, if the BIR takes time in acting upon the taxpayer's claims for
refund, the latter can seek judicial remedy before the Court of Tax
Appeals in the manner prescribed by law.[38] Second, if the inaction can
be characterized as willful neglect of duty, then recourse under the
Civil Code and the Tax Code can also be availed of.
Article 27 of the Civil Code provides:
"Art. 27. Any person suffering material or moral loss because a public
servant or employee refuses or neglects, without just cause, to
perform his official duty may file an action for damages and other
relief against the latter, without prejudice to any disciplinary action
that may be taken."
More importantly, Section 269 (c) of the National Internal
Revenue Act of 1997 states:
"xxx xxx xxx
(c) wilfully neglecting to give receipts, as by law required for any sum
collected in the performance of duty or wilfully neglecting to perform,
any other duties enjoined by law."
Simply put, both provisions abhor official inaction, willful neglect and
unreasonable delay in the performance of official duties.[39] In no
uncertain terms must we stress that every public employee or servant
must strive to render service to the people with utmost diligence and
efficiency. Insolence and delay have no place in government service.
The BIR, being the government collecting arm, must and should do no
less. It simply cannot be apathetic and laggard in rendering service to
the taxpayer if it wishes to remain true to its mission of hastening the
country's development. We take judicial notice of the taxpayer's
generally negative perception towards the BIR; hence, it is up to the
latter to prove its detractors wrong.
In sum, while we can never condone the BIR's apparent
callousness in performing its duties, still, the same cannot justify
Philex's non-payment of its tax liabilities. The adage "no one should
take the law into his own hands" should have guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is
hereby DISMISSED. The assailed decision of the Court of Appeals
dated April 8, 1996 is hereby AFFIRMED.
SO ORDERED.

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

credit/refund for the taxes it paid for the years 1989 to 1991 in the
amount of P120 M plus interest. Therefore these claims for tax
credit/refund should be applied against the tax liabilities.
ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis
claims of tax refund of the petitioner?
HELD: No. Philex's claim is an outright disregard of the basic principle
in tax law that taxes are the lifeblood of the government and so should
be collected without unnecessary hindrance. Evidently, to countenance
Philex's whimsical reason would render ineffective our tax collection
system. Too simplistic, it finds no support in law or in jurisprudence.
To be sure, Philex cannot be allowed to refuse the payment of its tax
liabilities on the ground that it has a pending tax claim for refund or
credit against the government which has not yet been granted.Taxes
cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each
other. There is a material distinction between a tax and debt. Debts
are due to the Government in its corporate capacity, while taxes are
due to the Government in its sovereign capacity. xxx There can be no
off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot await the
results of a lawsuit against the government.

Commissioner of Internal Revenue vs. CA, 298 SCRA 83

DECISION
PANGANIBAN, J.:
Is the income derived from rentals of real property owned by the
Young Mens Christian Association of the Philippines, Inc. (YMCA)
established as a welfare, educational and charitable non-profit
corporation -- subject to income tax under the National Internal
Revenue Code (NIRC) and the Constitution?

The Case

This is the main question raised before us in this petition for

review on certiorari challenging two Resolutions issued by the Court of
Appeals[1] on September 28, 1995[2] and February 29, 1996[3] in CA-GR
SP No. 32007. Both Resolutions affirmed the Decision of the Court of
Tax Appeals (CTA) allowing the YMCA to claim tax exemption on the
latters income from the lease of its real property.

and parking charges including those from lodging and other charges
for the use of the recreational facilities constitute [the] bulk of its
income which [is] channeled to support its many activities and
attainment of its objectives. As pointed out earlier, the membership
dues are very insufficient to support its program. We find it reasonably
necessary therefore for [private respondent] to make [the] most out
[of] its existing facilities to earn some income. It would have been
different if under the circumstances, [private respondent] will purchase
a lot and convert it to a parking lot to cater to the needs of the general
public for a fee, or construct a building and lease it out to the highest
bidder or at the market rate for commercial purposes, or should it
invest its funds in the buy and sell of properties, real or
personal. Under these circumstances, we could conclude that the
activities are already profit oriented, not incidental and reasonably
necessary to the pursuit of the objectives of the association and
therefore, will fall under the last paragraph of section 27 of the Tax
Code and any income derived therefrom shall be taxable.
Considering our findings that [private respondent] was not engaged in
the business of operating or contracting [a] parking lot, we find no
legal basis also for the imposition of [a] deficiency fixed tax and [a]
contractors tax in the amount[s] of P353.15 and P3,129.73,
respectively.
xxxxxxxxx

The Facts

The Facts are undisputed.[4] Private Respondent YMCA is a nonstock, non-profit institution, which conducts various programs and
activities that are beneficial to the public, especially the young people,
pursuant to its religious, educational and charitable objectives.

WHEREFORE, in view of all the foregoing, the following assessments

are hereby dismissed for lack of merit:
1980 Deficiency Fixed Tax P353,15;
1980 Deficiency Contractors Tax P3,129.23;
1980 Deficiency Income Tax P372,578.20.

In 1980, private respondent earned, among others, an income

of P676,829.80 from leasing out a portion of its premises to small shop
owners, like restaurants and canteen operators, and P44,259.00 from
parking fees collected from non-members. On July 2, 1984, the
commissioner of internal revenue (CIR) issued an assessment to
private respondent, in the total amount of P415,615.01 including
surcharge and interest, for deficiency income tax, deficiency expanded
withholding taxes on rentals and professional fees and deficiency
withholding tax on wages. Private respondent formally protested the
assessment and, as a supplement to its basic protest, filed a letter
dated October 8, 1985. In reply, the CIR denied the claims of YMCA.

While the following assessments are hereby sustained:

1980 Deficiency Expanded Withholding
Tax P1,798.93;
1980
Deficiency
Withholding
Tax
on
Wages P33,058.82

Contesting the denial of its protest, the YMCA filed a petition for
review at the Court if Tax Appeals (CTA) on March 14, 1989. In due
course, the CTA issued this ruling in favor of the YMCA:

Dissatisfied with the CTA ruling, the CIR elevated the case to the
Court of Appeals (CA). In its Decision of February 16, 1994, the
CA[6] initially decided in favor of the CIR and disposed of the appeal in
the following manner:

xxx [T]he leasing of private respondents facilities to small shop

owners, to restaurant and canteen operators and the operation of the
parking lot are reasonably incidental to and reasonably necessary for
the accomplishment of the objectives of the [private respondents]. It
appears from the testimonies of the witnesses for the [private
respondent] particularly Mr. James C. Delote, former accountant of
YMCA, that these facilities were leased to members and that they have
to service the needs of its members and their guests. The Rentals
were minimal as for example, the barbershop was only charged P300
per month. He also testified that there was actually no lot devoted for
parking space but the parking was done at the sides of the
building. The parking was primarily for members with stickers on the
windshields of their cars and they charged P.50 for non-members. The
rentals and parking fees were just enough to cover the costs of
operation and maintenance only. The earning[s] from these rentals

plus 10% surcharge and 20% interest per annum from July 2, 1984
until fully paid but not to exceed three (3) years pursuant to Section
51 (e)(2) & (3) of the National Internal Revenue Code effective as of
1984.[5]

Following the ruling in the afore-cited cases of Province of Abra vs.

Hernando and Abra Valley College Inc. vs. Aquino, the ruling of the
respondent Court of Tax Appeals that the leasing of petitioners (herein
respondent) facilities to small shop owners, to restaurant and canteen
operators and the operation of the parking lot are reasonably
incidental to and reasonably necessary for the accomplishment of the
objectives of the petitioners,' and the income derived therefrom are
tax exempt, must be reversed.
WHEREFORE, the appealed decision is hereby REVERSED in so far as it
dismissed the assessment for:
1980 Deficiency Income Tax P 353.15

1980 Deficiency Contractors Tax P 3,129.23, &

1980 Deficiency Income Tax P372,578.20,
but the same is AFFIRMED in all other respect.[7]

II
In affirming the conclusion of Respondent Court of Tax Appeals
that the income of private respondent from rentals of small
shops and parking fees [is] exempt from taxation.[11]

Aggrieved, the YMCA asked for reconsideration based on the

following grounds:
This Courts Ruling

I
The findings of facts of the Public Respondent Court of Tax
Appeals being supported by substantial evidence [are] final and
conclusive.

The Petition is meritorious.

First Issue:

II

Factual Findings of the CTA

The conclusions of law of [p]ublic [r]espondent exempting
[p]rivate [r]espondent from the income on rentals of small
shops and parking fees [are] in accord with the applicable law
and jurisprudence.[8]

Finding merit in the Motion for Reconsideration filed by the

YMCA, the CA reversed itself and promulgated on September 28, 1995
its first assailed Resolution which, in part, reads:
The Court cannot depart from the CTAs findings of fact, as they are
supported by evidence beyond what is considered as substantial.
xxxxxxxxx
The second ground raised is that the respondent CTA did not err in
saying that the rental from small shops and parking fees do not result
in the loss of the exemption. Not even the petitioner would hazard the
suggestion that YMCA is designed for profit. Consequently, the little
income from small shops and parking fees help[s] to keep its head
above the water, so to speak, and allow it to continue with its laudable
work.
The Court, therefore, finds the second ground of the motion to be
meritorious and in accord with law and jurisprudence.
WHEREFORE, the motion for reconsideration is GRANTED; the
respondent CTAs decision is AFFIRMED in toto.[9]
The internal revenue commissioners own Motion for
Reconsideration was denied by Respondent Court in its second
assailed Resolution of February 29, 1996. Hence, this petition for
review under Rule 45 of the Rules of Court.[10]

The Issues

Before us, petitioner imputes to the Court of Appeals the

following errors:

Private respondent contends that the February 16, 1994 CA

Decision reversed the factual findings of the CTA. On the other hand,
petitioner argues that the CA merely reversed the ruling of the CTA
that the leasing of private respondents facilities to small shop owners,
to restaurant and canteen operators and the operation of parking lots
are reasonably incidental to and reasonably necessary for the
accomplishment of the objectives of the private respondent and that
the income derived therefrom are tax exempt.[12] Petitioner insists that
what the appellate court reversed was the legal conclusion, not the
factual finding, of the CTA.[13] The commissioner has a point.
Indeed, it is a basic rule in taxation that the factual findings of
the CTA, when supported by substantial evidence, will not be disturbed
on appeal unless it is shown that the said court committed gross error
in the appreciation of facts.[14] In the present case, this Court finds that
the February 16, 1994 Decision of the CA did not deviate from this
rule. The latter merely applied the law to the facts as found by the
CTA and ruled on the issue raised by the CIR: Whether or not the
collection or earnings of rental income from the lease of certain
premises and income earned from parking fees shall fall under the last
paragraph of Section 27 of the National Internal Revenue Code of
1977, as amended.[15]
Clearly, the CA did not alter any fact or evidence. It merely
resolved the aforementioned issue, as indeed it was expected to. That
it did so in a manner different from that of the CTA did not necessarily
imply a reversal of factual findings.
The distinction between a question of law and a question of fact
is clear-cut. It has been held that [t]here is a question of law in a
given case when the doubt or difference arises as to what the law is
on a certain state of facts; there is a question of fact when the doubt
or difference arises as to the truth or falsehood of alleged facts.[16] In
the present case, the CA did not doubt, much less change, the facts
narrated by the CTA. It merely applied the law to the facts. That its
interpretation or conclusion is different from that of the CTA is not
irregular or abnormal.

Second Issue:

Is the Rental Income of the YMCA Taxable?

I
In holding that it had departed from the findings of fact of
Respondent Court of Tax Appeals when it rendered its Decision
dated February 16, 1994; and

We now come to the crucial issue: Is the rental income of the

YMCA from its real estate subject to tax? At the outset, we set forth
the relevant provision of the NIRC:

SEC. 27. Exemptions from tax on corporations. -- The following

organizations shall not be taxed under this Title in respect to income
received by them as such -xxxxxxxxx
(g) Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare;
(h) Club organized and operated exclusively for pleasure, recreation,
and other non-profitable purposes, no part of the net income of which
inures to the benefit of any private stockholder or member;
xxxxxxxxx
Notwithstanding the provision in the preceding paragraphs, the income
of whatever kind and character of the foregoing organization from any
of their properties, real or personal, or from any of their activities
conducted for profit, regardless of the disposition made of such
income, shall be subject to the tax imposed under this Code. (as
amended by Pres. Decree No. 1457)
Petitioners argues that while the income received by the
organizations enumerated in Section 27 (now Section 26) of the NIRC
is, as a rule, exempted from the payment of tax in respect to income
received by them as such, the exemption does not apply to income
derived xxx from any if their properties, real or personal, or from any
of their activities conducted for profit, regardless, of the disposition
made of such income xxx.
Petitioner adds that rented income derived by a tax-exempt
organization from the lease of its properties, real or personal, [is] not,
therefore, exempt from income taxation, even if such income [is]
exclusively used for the accomplishment of its objectives.[17] We agree
with the commissioner.
Because taxes are the lifeblood of the nation, the Court has
always applied the doctrine of strict interpretation in construing tax
exemptions.[18] Furthermore, a claim of statutory exemption from
taxation should be manifest and unmistakable from the language of
the law on which it is based. Thus, the claimed exemption must
expressly be granted in a statute stated in a language too clear to be
mistaken.[19]
In the instant case, the exemption claimed by the YMCA is
expressly disallowed by the very wording of the last paragraph of then
Section 27 of the NIRC which mandates that the income of exempt
organizations (such as the YMCA) from any of their properties, real or
personal, be subject to the imposed by the same Code. Because the
last paragraph of said section unequivocally subjects to tax the rent
income f the YMCA from its rental property,[20] the Court is duty-bound
to abide strictly by its literal meaning and to refrain from resorting to
any convoluted attempt at construction.
It is axiomatic that where the language of the law is clear and
unambiguous, its express terms must be applied.[21] Parenthetically, a
consideration of the question of construction must not even begin,
particularly when such question is on whether to apply a strict
construction or a literal one on statutes that grant tax exemptions to
religious, charitable and educational propert[ies] or institutions.[22]
The last paragraph of Section 27, the YMCA argues, should be
subject to the qualification that the income from the properties must
arise from activities conducted for profit before it may be considered
taxable.[23] This argument is erroneous. As previously stated, a reading

of said paragraph ineludibly shows that the income from any property
of exempt organizations, as well as that arising from any activity it
conducts for profit, is taxable. The phrase any of their activities
conducted for profit does not qualify the word properties. This makes
income from the property of the organization taxable, regardless of
how that income is used -- whether for profit or for lofty non-profit
purposes.

Verba legis non est recedendum. Hence, Respondent Court of

Appeals committed reversible error when it allowed, on
reconsideration, the tax exemption claimed by YMCA on income it
derived from renting out its real property, on the solitary but
unconvincing ground that the said income is not collected for profit but
is merely incidental to its operation. The law does not make a
distinction. The rental income is taxable regardless of whence such
income is derived and how it used or disposed of. Where the law does
not distinguish, neither should we.

Constitutional Provisions
on Taxation

Invoking not only the NIRC but also the fundamental law,
private respondent submits that Article VI, Section 28 of par. 3 of the
1987 Constitution,[24] exempts charitable institutions from the payment
not only of property taxes but also of income tax from any
source.[25] In support of its novel theory, it compares the use of the
words charitable institutions, actually and directly in the 1973 and the
1987 Constitutions, on the hand; and in Article VI Section 22, par. 3 of
the 1935 Constitution, on the other hand.[26]
Private respondent enunciates three points. First, the present
provision is divisible into two categories: (1) [c]haritable institutions,
churches and parsonages or convents appurtenant thereto, mosques
and non-profit cemeteries, the incomes of which are, from whatever
source, all tax-exempt;[27] and (2) [a]ll lands, buildings and
improvements actually and directly used for religious, charitable or
educational purposes, which are exempt only from property
taxes.[28] Second, Lladoc
v.
Commissioner
of
Internal
Revenue,[29] which limited the exemption only to the payment of
property taxes, referred to the provision of the 1935 Constitution and
not to its counterparts in the 1973 and the 1987
Constitutions.[30] Third, the phrase actually, directly and exclusively
used for religious, charitable or educational purposes refers not only to
all lands, buildings and improvements, but also to the above-quoted
first category which includes charitable institutions like the private
respondent.[31]
The Court is not persuaded. The debates, interpellations and
expressions of opinion of the framers of the Constitution reveal their
intent which, in turn, may have guided the people in ratifying the
Charter.[32] Such intent must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional
commissioner, who is now a member of this Court, stressed during the
Concom debates that xxx what is exempted is not the institution itself
xxx; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious,
charitable or educational purposes.[33] Father Joaquin G. Bernas, an
eminent authority on the Constitution and also a member of the
Concom, adhered to the same view that the exemption created by said
provision pertained only to property taxes.[34]
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs,
stating
that
[t]he
tax
exemption
covers property taxes

only."[35] Indeed, the income tax exemption claimed by private

respondent finds no basis in Article VI, Section 28, par. 3 of the
Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3 of
the Charter,[36] claiming that the YMCA is a non-stock, non-profit
educational institution whose revenues and assets are used actually,
directly and exclusively for educational purposes so it is exempt from
taxes on its properties and income.[37] We reiterate that private
respondent is exempt from the payment of property tax, but not
income tax on the rentals from its property. The bare allegation alone
that it is a non-stock, non-profit educational institution is insufficient to
justify its exemption from the payment of income tax.
As previously discussed, laws allowing tax exemption are
construed strictissimi juris. Hence, for the YMCA to be granted the
exemption it claims under the aforecited provision, it must prove with
substantial evidence that (1) it falls under the classification non-stock,
non-profit educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and exclusively for
educational purposes. However, the Court notes that not a scintilla of
evidence was submitted by private respondent to prove that it met the
said requisites.
Is the YMCA an educational institution within the purview of
Article XIV, Section 4, par.3 of the Constitution? We rule that it is
not. The term educational institution or institution of learning has
acquired a well-known technical meaning, of which the members of
the Constitutional Commission are deemed cognizant.[38] Under the
Education Act of 1982, such term refers to schools.[39] The school
system is synonymous with formal education,[40] which refers to the
hierarchically structured and chronological graded learnings organized
and provided by the formal school system and for which certification is
required in order for the learner to progress through the grades or
move to the higher levels.[41] The Court has examined the Amended
Articles of Incorporation[42] and By-Laws[43] of the YMCA, but found
nothing in them that even hints that it is a school or an educational
institution.[44]
Furthermore, under the Education Act of 1982, even non-formal
education is understood to be school-based and private auspices such
as foundations and civic-spirited organizations are ruled out.[45] It is
settled that the term educational institution, when used in laws
granting tax exemptions, refers to a xxx school seminary, college or
educational establishment xxx.[46] Therefore, the private respondent
cannot be deemed one of the educational institutions covered by the
constitutional provision under consideration.
xxx Words used in the Constitution are to be taken in their ordinary
acceptation. While in its broadest and best sense education embraces
all forms and phrases of instruction, improvement and development of
mind and body, and as well of religious and moral sentiments, yet in
the common understanding and application it means a place where
systematic instruction in any or all of the useful branches of learning is
given by methods common to schools and institutions of learning. That
we conceive to be the true intent and scope of the term [educational
institutions,] as used in the Constitution.[47]
Moreover, without conceding that Private Respondent YMCA is
an educational institution, the Court also notes that the former did not
submit proof of the proportionate amount of the subject income that
was actually, directly and exclusively used for educational
purposes. Article XIII, Section 5 of the YMCA by-laws, which formed
part of the evidence submitted, is patently insufficient, since the same
merely signified that [t]he net income derived from the rentals of the

commercial buildings shall be apportioned to the Federation and

Member Associations as the National Board may decide.[48] In sum, we
find no basis for granting the YMCA exemption from income tax under
the constitutional provision invoked

Cases Cited by Private

Respondent Inapplicable

The cases[49] relied on by private respondent do not support its

cause. YMCA of Manila v. Collector of Internal Revenue[50] and Abra
Valley College, Inc. v. Aquino[51] are not applicable, because the
controversy in both cases involved exemption from the payment of
property tax, not income tax. Hospital de San Juan de Dios, Inc. v.
Pasay City[52] is not in point either, because it involves a claim for
exemption from the payment of regulatory fees, specifically electrical
inspection fees, imposed by an ordinance of Pasay City -- an issue not
at all related to that involved in a claimed exemption from the payment
if income taxes imposed on property leases. In Jesus Sacred Heart
College v. Com. Of Internal Revenue,[53] the party therein, which
claimed an exemption from the payment of income tax, was an
educational institution which submitted substantial evidence that the
income subject of the controversy had been devoted or used solely for
educational purposes. On the other hand, the private respondent in
the present case had not given any proof that it is an educational
institution, or that of its rent income is actually, directly and exclusively
used for educational purposes.

Epilogue

In deliberating on this petition, the Court expresses its sympathy

with private respondent. It appreciates the nobility its cause. However,
the Courts power and function are limited merely to applying the law
fairly and objectively. It cannot change the law or bend it to suit its
sympathies and appreciations. Otherwise, it would be overspilling its
role and invading the realm of legislation.
We concede that private respondent deserves the help and the
encouragement of the government. It needs laws that can facilitate,
and not frustrate, its humanitarian tasks. But the Court regrets that,
given its limited constitutional authority, it cannot rule on the wisdom
or propriety of legislation. That prerogative belongs to the political
departments of government. Indeed, some of the member of the Court
may even believe in the wisdom and prudence of granting more tax
exemptions to private respondent. But such belief, however wellmeaning and sincere, cannot bestow upon the Court the power to
change or amend the law.
WHEREFORE, the petition is GRANTED. The Resolutions of
the Court of Appeals dated September 28, 1995 and February 29,
1996 are hereby dated February 16, 1995 is REVERSED and SET
ASIDE. The Decision of the Court of Appeals dated February 16, 1995
is REINSTATED, insofar as it ruled that the income tax. No
pronouncement as to costs.
SO ORDERED.

Commissioner of Internal Revenue vs. S.C. Johnson & Sons,

309 SCRA 87

October 634,405 158,601 63,441 95,161

November 620,885 155,221 62,089 93,133

This is a petition for review on certiorari under Rule 45 of the

Rules of Court seeking to set aside the decision of the Court of Appeals
dated November 7, 1996 in CA-GR SP No. 40802 affirming the decision
of the Court of Tax Appeals in CTA Case No. 5136.
The antecedent facts as found by the Court of Tax Appeals are
not disputed, to wit:
[Respondent], a domestic corporation organized and operating under
the Philippine laws, entered into a license agreement with SC Johnson
and Son, United States of America (USA), a non-resident foreign
corporation based in the U.S.A. pursuant to which the [respondent]
was granted the right to use the trademark, patents and technology
owned by the latter including the right to manufacture, package and
distribute the products covered by the Agreement and secure
assistance in management, marketing and production from SC Johnson
and Son, U. S. A.
The said License Agreement was duly registered with the Technology
Transfer Board of the Bureau of Patents, Trade Marks and Technology
Transfer under Certificate of Registration No. 8064 (Exh. A).
For the use of the trademark or technology, [respondent] was obliged
to pay SC Johnson and Son, USA royalties based on a percentage of
net sales and subjected the same to 25% withholding tax on royalty
payments which [respondent] paid for the period covering July 1992 to
May 1993 in the total amount of P1,603,443.00 (Exhs. B to L and
submarkings).
On October 29, 1993, [respondent] filed with the International Tax
Affairs Division (ITAD) of the BIR a claim for refund of overpaid
withholding tax on royalties arguing that, the antecedent facts
attending [respondents] case fall squarely within the same
circumstances under which said MacGeorge and Gillete rulings were
issued. Since the agreement was approved by the Technology Transfer
Board, the preferential tax rate of 10% should apply to the
[respondent]. We therefore submit that royalties paid by the
[respondent] to SC Johnson and Son, USA is only subject to 10%
withholding tax pursuant to the most-favored nation clause of the RPUS Tax Treaty [Article 13 Paragraph 2 (b) (iii)] in relation to the RPWest Germany Tax Treaty [Article 12 (2) (b)] (Petition for Review
[filed with the Court of Appeals], par. 12). [Respondents] claim for the
refund of P963,266.00 was computed as follows:
Gross 25% 10%
Month/ Royalty Withholding Withholding
Year Fee Tax Paid Tax Balance
______ _______ __________ __________ ______
July 1992 559,878 139,970 55,988 83,982
August 567,935 141,984 56,794 85,190
September 595,956 148,989 59,596 89,393

December 383,276 95,819 36,328 57,491

Jan 1993 602,451 170,630 68,245 102,368
February 565,845 141,461 56,585 84,877
March 547,253 136,813 54,725 82,088
April 660,810 165,203 66,081 99,122
May 603,076 150,769 60,308 90,461
P6,421,770 P1,605,443 P642,177 P963,266[1]
======== ======== ======= =======
The Commissioner did not act on said claim for refund. Private
respondent S.C. Johnson & Son, Inc. (S.C. Johnson) then filed a
petition for review before the Court of Tax Appeals (CTA) where the
case was docketed as CTA Case No. 5136, to claim a refund of the
overpaid withholding tax on royalty payments from July 1992 to May
1993.
On May 7, 1996, the Court of Tax Appeals rendered its decision
in favor of S.C. Johnson and ordered the Commissioner of Internal
Revenue to issue a tax credit certificate in the amount of P963,266.00
representing overpaid withholding tax on royalty payments beginning
July, 1992 to May, 1993.[2]
The Commissioner of Internal Revenue thus filed a petition for
review with the Court of Appeals which rendered the decision subject
of this appeal on November 7, 1996 finding no merit in the petition
and affirming in toto the CTA ruling.[3]
This petition for review was filed by the Commissioner of
Internal Revenue raising the following issue:
THE COURT OF APPEALS ERRED IN RULING THAT SC JOHNSON AND
SON, USA IS ENTITLED TO THE MOST FAVORED NATION TAX RATE
OF 10% ON ROYALTIES AS PROVIDED IN THE RP-US TAX TREATY IN
RELATION TO THE RP-WEST GERMANY TAX TREATY.
Petitioner contends that under Article 13(2) (b) (iii) of the RP-US
Tax Treaty, which is known as the most favored nation clause, the
lowest rate of the Philippine tax at 10% may be imposed on royalties
derived by a resident of the United States from sources within the
Philippines only if the circumstances of the resident of the United
States are similar to those of the resident of West Germany. Since the
RP-US Tax Treaty contains no matching credit provision as that
provided under Article 24 of the RP-West Germany Tax Treaty, the tax
on royalties under the RP-US Tax Treaty is not paid under similar
circumstances as those obtaining in the RP-West Germany Tax
Treaty. Even assuming that the phrase paid under similar
circumstances refers to the payment of royalties, and not taxes, as
held by the Court of Appeals, still, the most favored nation clause
cannot be invoked for the reason that when a tax treaty contemplates
circumstances attendant to the payment of a tax, or royalty
remittances for that matter, these must necessarily refer to

circumstances that are tax-related. Finally, petitioner argues that since

S.C. Johnsons invocation of the most favored nation clause is in the
nature of a claim for exemption from the application of the regular tax
rate of 25% for royalties, the provisions of the treaty must be
construed strictly against it.
In its Comment, private respondent S.C. Johnson avers that the
instant petition should be denied (1) because it contains a defective
certification against forum shopping as required under SC Circular No.
28-91, that is, the certification was not executed by the petitioner
herself but by her counsel; and (2) that the most favored nation clause
under the RP-US Tax Treaty refers to royalties paid under similar
circumstances as those royalties subject to tax in other treaties; that
the phrase paid under similar circumstances does not refer to payment
of the tax but to the subject matter of the tax, that is, royalties,
because the most favored nation clause is intended to allow the
taxpayer in one state to avail of more liberal provisions contained in
another tax treaty wherein the country of residence of such taxpayer is
also a party thereto, subject to the basic condition that the subject
matter of taxation in that other tax treaty is the same as that in the
original tax treaty under which the taxpayer is liable; thus, the RP-US
Tax Treaty speaks of royalties of the same kind paid under similar
circumstances. S.C. Johnson also contends that the Commissioner is
estopped from insisting on her interpretation that the phrase paid
under similar circumstances refers to the manner in which the tax is
paid, for the reason that said interpretation is embodied in Revenue
Memorandum Circular (RMC) 39-92 which was already abandoned by
the Commissioners predecessor in 1993; and was expressly revoked in
BIR Ruling No. 052-95 which stated that royalties paid to an American
licensor are subject only to 10% withholding tax pursuant to Art
13(2)(b)(iii) of the RP-US Tax Treaty in relation to the RP-West
Germany Tax Treaty. Said ruling should be given retroactive effect
except if such is prejudicial to the taxpayer pursuant to Section 246 of
the National Internal Revenue Code.

Court, the Court of Appeals or other tribunals or agencies, with the

result that said courts, tribunals or agencies have to resolve the same
issues.
(1) To avoid the foregoing, in every petition filed with the Supreme
Court or the Court of Appeals, the petitioner aside from complying with
pertinent provisions of the Rules of Court and existing circulars, must
certify under oath to all of the following facts or undertakings: (a) he
has not theretofore commenced any other action or proceeding
involving the same issues in the Supreme Court, the Court of Appeals,
or any tribunal or agency; xxx
(2) Any violation of this revised Circular will entail the following
sanctions: (a) it shall be a cause for the summary dismissal of the
multiple petitions or complaints; xxx
The circular expressly requires that a certificate of non-forum
shopping should be attached to petitions filed before this Court and
the Court of Appeals. Petitioners allegation that Circular No. 28-91
applies only to original actions and not to appeals as in the instant
case is not supported by the text nor by the obvious intent of the
Circular which is to prevent multiple petitions that will result in the
same issue being resolved by different courts.
Anent the requirement that the party, not counsel, must certify
under oath that he has not commenced any other action involving the
same issues in this Court or the Court of Appeals or any other tribunal
or agency, we are inclined to accept petitioners submission that since
the OSG is the only lawyer for the petitioner, which is a government
agency mandated under Section 35, Chapter 12, title III, Book IV of
the 1987 Administrative Code[4] to be represented only by the Solicitor
General, the certification executed by the OSG in this case constitutes
substantial compliance with Circular No. 28-91.

Petitioner filed Reply alleging that the fact that the certification
against forum shopping was signed by petitioners counsel is not a fatal
defect as to warrant the dismissal of this petition since Circular No. 2891 applies only to original actions and not to appeals, as in the instant
case. Moreover, the requirement that the certification should be signed
by petitioner and not by counsel does not apply to petitioner who has
only the Office of the Solicitor General as statutory counsel. Petitioner
reiterates that even if the phrase paid under similar circumstances
embodied in the most favored nation clause of the RP-US Tax Treaty
refers to the payment of royalties and not taxes, still the presence or
absence of a matching credit provision in the said RP-US Tax Treaty
would constitute a material circumstance to such payment and would
be determinative of the said clauses application.

With respect to the merits of this petition, the main point of

contention in this appeal is the interpretation of Article 13 (2) (b) (iii)
of the RP-US Tax Treaty regarding the rate of tax to be imposed by
the Philippines upon royalties received by a non-resident foreign
corporation. The provision states insofar as pertinent that-

We address first the objection raised by private respondent that

the certification against forum shopping was not executed by the
petitioner herself but by her counsel, the Office of the Solicitor General
(O.S.G.) through one of its Solicitors, Atty. Tomas M. Navarro.

a) In the case of the United States, 15 percent of the gross amount of

the royalties, and

SC Circular No. 28-91 provides:

SUBJECT: ADDITIONAL REQUISITES FOR PETITIONS FILED WITH
THE SUPREME COURT AND THE COURT OF APPEALS TO PREVENT
FORUM SHOPPING OR MULTIPLE FILING OF PETITIONS AND
COMPLAINTS
TO : xxx xxx xxx
The attention of the Court has been called to the filing of multiple
petitions and complaints involving the same issues in the Supreme

1) Royalties derived by a resident of one of the

Contracting States from sources within the other
Contracting State may be taxed by both Contracting
States.
2) However, the tax imposed by that Contracting State
shall not exceed.

b) In the case of the Philippines, the least of:

(i) 25 percent of the gross amount of the royalties;
(ii) 15 percent of the gross amount of the royalties, where the royalties
are paid by a corporation registered with the Philippine Board of
Investments and engaged in preferred areas of activities; and
(iii) the lowest rate of Philippine tax that may be imposed on royalties

of the same kind paid under similar circumstances to a resident of a

third State.
xxx xxx xxx

(italics supplied)
Respondent S. C. Johnson and Son, Inc. claims that on the basis
of the quoted provision, it is entitled to the concessional tax rate of 10
percent on royalties based on Article 12 (2) (b) of the RP-Germany Tax
Treaty which provides:
(2) However, such royalties may also be taxed in the
Contracting State in which they arise, and according to
the law of that State, but the tax so charged shall not
exceed:
xxx
b) 10 percent of the gross amount of royalties arising from
the use of, or the right to use, any patent, trademark,
design or model, plan, secret formula or process, or
from the use of or the right to use, industrial,
commercial, or scientific equipment, or for information
concerning industrial, commercial or scientific
experience.
For as long as the transfer of technology, under Philippine law, is
subject to approval, the limitation of the tax rate mentioned under b)
shall, in the case of royalties arising in the Republic of the Philippines,
only apply if the contract giving rise to such royalties has been
approved by the Philippine competent authorities.
Unlike the RP-US Tax Treaty, the RP-Germany Tax Treaty allows
a tax credit of 20 percent of the gross amount of such royalties against
German income and corporation tax for the taxes payable in the
Philippines on such royalties where the tax rate is reduced to 10 or 15
percent under such treaty. Article 24 of the RP-Germany Tax Treaty
states1) Tax shall be determined in the case of a resident of the
Federal Republic of Germany as follows:
xxxxxxxxx
b) Subject to the provisions of German tax law regarding credit for
foreign tax, there shall be allowed as a credit against German income
and corporation tax payable in respect of the following items of income
arising in the Republic of the Philippines, the tax paid under the laws
of the Philippines in accordance with this Agreement on:
xxxxxxxxx
dd) royalties, as defined in paragraph 3 of Article 12;
xxxxxxxxx
c) For the purpose of the credit referred in subparagraph b) the
Philippine tax shall be deemed to be
xxxxxxxxx
cc) in the case of royalties for which the tax is reduced to 10 or 15 per
cent according to paragraph 2 of Article 12, 20 percent of the gross
amount of such royalties.
xxxxxxxxx

According to petitioner, the taxes upon royalties under the RPUS Tax Treaty are not paid under circumstances similar to those in the
RP-West Germany Tax Treaty since there is no provision for a 20
percent matching credit in the former convention and private
respondent cannot invoke the concessional tax rate on the strength of
the most favored nation clause in the RP-US Tax Treaty. Petitioners
position is explained thus:
Under the foregoing provision of the RP-West Germany Tax Treaty, the
Philippine tax paid on income from sources within the Philippines is
allowed as a credit against German income and corporation tax on the
same income. In the case of royalties for which the tax is reduced to
10 or 15 percent according to paragraph 2 of Article 12 of the RP-West
Germany Tax Treaty, the credit shall be 20% of the gross amount of
such royalty. To illustrate, the royalty income of a German resident
from sources within the Philippines arising from the use of, or the right
to use, any patent, trade mark, design or model, plan, secret formula
or process, is taxed at 10% of the gross amount of said royalty under
certain conditions. The rate of 10% is imposed if credit against the
German income and corporation tax on said royalty is allowed in favor
of the German resident. That means the rate of 10% is granted to the
German taxpayer if he is similarly granted a credit against the income
and corporation tax of West Germany. The clear intent of the matching
credit is to soften the impact of double taxation by different
jurisdictions.
The RP-US Tax Treaty contains no similar matching credit as that
provided under the RP-West Germany Tax Treaty. Hence, the tax on
royalties under the RP-US Tax Treaty is not paid under similar
circumstances as those obtaining in the RP-West Germany Tax
Treaty. Therefore, the most favored nation clause in the RP-West
Germany Tax Treaty cannot be availed of in interpreting the provisions
of the RP-US Tax Treaty.[5]
The petition is meritorious.
We are unable to sustain the position of the Court of Tax
Appeals, which was upheld by the Court of Appeals, that the phrase
paid under similar circumstances in Article 13 (2) (b), (iii) of the RP-US
Tax Treaty should be interpreted to refer to payment of royalty, and
not to the payment of the tax, for the reason that the phrase paid
under similar circumstances is followed by the phrase to a resident of a
third state. The respondent court held that Words are to be
understood in the context in which they are used, and since what is
paid to a resident of a third state is not a tax but a royalty logic
instructs that the treaty provision in question should refer to royalties
of the same kind paid under similar circumstances.
The above construction is based principally on syntax or
sentence structure but fails to take into account the purpose animating
the treaty provisions in point. To begin with, we are not aware of any
law or rule pertinent to the payment of royalties, and none has been
brought to our attention, which provides for the payment of royalties
under dissimilar circumstances. The tax rates on royalties and the
circumstances of payment thereof are the same for all the recipients of
such royalties and there is no disparity based on nationality in the
circumstances of such payment.[6] On the other hand, a cursory
reading of the various tax treaties will show that there is no similarity
in the provisions on relief from or avoidance of double taxation[7] as
this is a matter of negotiation between the contracting parties.[8] As
will be shown later, this dissimilarity is true particularly in the treaties
between the Philippines and the United States and between the
Philippines and West Germany.

The RP-US Tax Treaty is just one of a number of bilateral

treaties which the Philippines has entered into for the avoidance of
double taxation.[9] The purpose of these international agreements is to
reconcile the national fiscal legislations of the contracting parties in
order to help the taxpayer avoid simultaneous taxation in two different
jurisdictions.[10] More precisely, the tax conventions are drafted with a
view towards the elimination of international juridical double
taxation, which is defined as the imposition of comparable taxes in
two or more states on the same taxpayer in respect of the same
subject matter and for identical periods.[11], citing the Committee on
Fiscal Affairs of the Organization for Economic Co-operation and
Development (OECD).11 The apparent rationale for doing away with
double taxation is to encourage the free flow of goods and services
and the movement of capital, technology and persons between
countries, conditions deemed vital in creating robust and dynamic
economies.[12] Foreign investments will only thrive in a fairly
predictable and reasonable international investment climate and the
protection against double taxation is crucial in creating such a
climate.[13]
Double taxation usually takes place when a person is resident of
a contracting state and derives income from, or owns capital in, the
other contracting state and both states impose tax on that income or
capital. In order to eliminate double taxation, a tax treaty resorts to
several methods. First, it sets out the respective rights to tax of the
state of source or situs and of the state of residence with regard to
certain classes of income or capital. In some cases, an exclusive right
to tax is conferred on one of the contracting states; however, for other
items of income or capital, both states are given the right to tax,
although the amount of tax that may be imposed by the state of
source is limited.[14]
The second method for the elimination of double taxation applies
whenever the state of source is given a full or limited right to tax
together with the state of residence. In this case, the treaties make it
incumbent upon the state of residence to allow relief in order to avoid
double taxation. There are two methods of relief- the exemption
method and the credit method. In the exemption method, the income
or capital which is taxable in the state of source or situs is exempted in
the state of residence, although in some instances it may be taken into
account in determining the rate of tax applicable to the taxpayers
remaining income or capital. On the other hand, in the credit method,
although the income or capital which is taxed in the state of source is
still taxable in the state of residence, the tax paid in the former is
credited against the tax levied in the latter. The basic difference
between the two methods is that in the exemption method, the focus
is on the income or capital itself, whereas the credit method focuses
upon the tax.[15]
In negotiating tax treaties, the underlying rationale for reducing
the tax rate is that the Philippines will give up a part of the tax in the
expectation that the tax given up for this particular investment is not
taxed by the other country.[16] Thus the petitioner correctly opined that
the phrase royalties paid under similar circumstances in the most
favored nation clause of the US-RP Tax Treaty necessarily
contemplated circumstances that are tax-related.
In the case at bar, the state of source is the Philippines because
the royalties are paid for the right to use property or rights, i.e.
trademarks, patents and technology, located within the
Philippines.[17] The United States is the state of residence since the
taxpayer, S. C. Johnson and Son, U. S. A., is based there. Under the
RP-US Tax Treaty, the state of residence and the state of source are
both permitted to tax the royalties, with a restraint on the tax that may
be collected by the state of source.[18] Furthermore, the method
employed to give relief from double taxation is the allowance of a tax

credit to citizens or residents of the United States (in an appropriate

amount based upon the taxes paid or accrued to the Philippines)
against the United States tax, but such amount shall not exceed the
limitations provided by United States law for the taxable year.[19] Under
Article 13 thereof, the Philippines may impose one of three rates- 25
percent of the gross amount of the royalties; 15 percent when the
royalties are paid by a corporation registered with the Philippine Board
of Investments and engaged in preferred areas of activities; or the
lowest rate of Philippine tax that may be imposed on royalties of the
same kind paid under similar circumstances to a resident of a third
state.
Given the purpose underlying tax treaties and the rationale for
the most favored nation clause, the concessional tax rate of 10 percent
provided for in the RP-Germany Tax Treaty should apply only if the
taxes imposed upon royalties in the RP-US Tax Treaty and in the RPGermany Tax Treaty are paid under similar circumstances. This would
mean that private respondent must prove that the RP-US Tax Treaty
grants similar tax reliefs to residents of the United States in respect of
the taxes imposable upon royalties earned from sources within the
Philippines as those allowed to their German counterparts under the
RP-Germany Tax Treaty.
The RP-US and the RP-West Germany Tax Treaties do not
contain similar provisions on tax crediting. Article 24 of the RPGermany Tax Treaty, supra, expressly allows crediting against German
income and corporation tax of 20% of the gross amount of royalties
paid under the law of the Philippines. On the other hand, Article 23 of
the RP-US Tax Treaty, which is the counterpart provision with respect
to relief for double taxation, does not provide for similar crediting of
20% of the gross amount of royalties paid. Said Article 23 reads:
Article 23
Relief from double taxation
Double taxation of income shall be avoided in the following manner:
1) In accordance with the provisions and subject to the
limitations of the law of the United States (as it may
be amended from time to time without changing the
general principle thereof), the United States shall allow
to a citizen or resident of the United States as a credit
against the United States tax the appropriate amount
of taxes paid or accrued to the Philippines and, in the
case of a United States corporation owning at least 10
percent of the voting stock of a Philippine corporation
from which it receives dividends in any taxable year,
shall allow credit for the appropriate amount of taxes
paid or accrued to the Philippines by the Philippine
corporation paying such dividends with respect to the
profits out of which such dividends are paid. Such
appropriate amount shall be based upon the amount
of tax paid or accrued to the Philippines, but the credit
shall not exceed the limitations (for the purpose of
limiting the credit to the United States tax on income
from sources within the Philippines or on income from
sources outside the United States) provided by United
States law for the taxable year. xxx.
The reason for construing the phrase paid under similar
circumstances as used in Article 13 (2) (b) (iii) of the RP-US Tax Treaty
as referring to taxes is anchored upon a logical reading of the text in
the light of the fundamental purpose of such treaty which is to grant

an incentive to the foreign investor by lowering the tax and at the

same time crediting against the domestic tax abroad a figure higher
than what was collected in the Philippines.
In one case, the Supreme Court pointed out that laws are not
just mere compositions, but have ends to be achieved and that the
general purpose is a more important aid to the meaning of a law than
any rule which grammar may lay down.[20] It is the duty of the courts
to look to the object to be accomplished, the evils to be remedied, or
the purpose to be subserved, and should give the law a reasonable or
liberal construction which will best effectuate its purpose.[21] The
Vienna Convention on the Law of Treaties states that a treaty shall be
interpreted in good faith in accordance with the ordinary meaning to
be given to the terms of the treaty in their context and in the light of
its object and purpose.[22]
As stated earlier, the ultimate reason for avoiding double
taxation is to encourage foreign investors to invest in the Philippines a crucial economic goal for developing countries.[23] The goal of double
taxation conventions would be thwarted if such treaties did not provide
for effective measures to minimize, if not completely eliminate, the tax
burden laid upon the income or capital of the investor. Thus, if the
rates of tax are lowered by the state of source, in this case, by the
Philippines, there should be a concomitant commitment on the part of
the state of residence to grant some form of tax relief, whether this be
in the form of a tax credit or exemption.[24] Otherwise, the tax which
could have been collected by the Philippine government will simply be
collected by another state, defeating the object of the tax treaty since
the tax burden imposed upon the investor would remain unrelieved. If
the state of residence does not grant some form of tax relief to the
investor, no benefit would redound to the Philippines, i.e., increased
investment resulting from a favorable tax regime, should it impose a
lower tax rate on the royalty earnings of the investor, and it would be
better to impose the regular rate rather than lose much-needed
revenues to another country.
At the same time, the intention behind the adoption of the
provision on relief from double taxation in the two tax treaties in
question should be considered in light of the purpose behind the most
favored nation clause.
The purpose of a most favored nation clause is to grant to the
contracting party treatment not less favorable than that which has
been or may be granted to the most favored among other
countries.[25] The most favored nation clause is intended to establish
the principle of equality of international treatment by providing that
the citizens or subjects of the contracting nations may enjoy the
privileges accorded by either party to those of the most favored
nation.[26] The essence of the principle is to allow the taxpayer in one
state to avail of more liberal provisions granted in another tax treaty to
which the country of residence of such taxpayer is also a party
provided that the subject matter of taxation, in this case royalty
income, is the same as that in the tax treaty under which the taxpayer
is liable. Both Article 13 of the RP-US Tax Treaty and Article 12 (2) (b)
of the RP-West Germany Tax Treaty, above-quoted, speaks of tax on
royalties for the use of trademark, patent, and technology. The
entitlement of the 10% rate by U.S. firms despite the absence of a
matching credit (20% for royalties) would derogate from the design
behind the most favored nation clause to grant equality of
international treatment since the tax burden laid upon the income of
the investor is not the same in the two countries. The similarity in the
circumstances of payment of taxes is a condition for the enjoyment of
most favored nation treatment precisely to underscore the need for
equality of treatment.

We accordingly agree with petitioner that since the RP-US Tax

Treaty does not give a matching tax credit of 20 percent for the taxes
paid to the Philippines on royalties as allowed under the RP-West
Germany Tax Treaty, private respondent cannot be deemed entitled to
the 10 percent rate granted under the latter treaty for the reason that
there is no payment of taxes on royalties under similar circumstances.
It bears stress that tax refunds are in the nature of tax
exemptions. As such they are regarded as in derogation of sovereign
authority and to be construed strictissimi juris against the person or
entity claiming the exemption.[27] The burden of proof is upon him who
claims the exemption in his favor and he must be able to justify his
claim by the clearest grant of organic or statute law.[28] Private
respondent is claiming for a refund of the alleged overpayment of tax
on royalties; however, there is nothing on record to support a claim
that the tax on royalties under the RP-US Tax Treaty is paid under
similar circumstances as the tax on royalties under the RP-West
Germany Tax Treaty.
WHEREFORE, for all the foregoing, the instant petition is
GRANTED. The decision dated May 7, 1996 of the Court of Tax
Appeals and the decision dated November 7, 1996 of the Court of
Appeals are hereby SET ASIDE.

Pascual vs. Secretary of Public Works, 110 Phil. 331

Appeal, by petitioner Wenceslao Pascual, from a decision of the Court

of First Instance of Rizal, dismissing the above entitled case and
dissolving the writ of preliminary injunction therein issued, without
costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial
Governor of Rizal, instituted this action for declaratory relief, with
injunction, upon the ground that Republic Act No. 920, entitled "An Act
Appropriating Funds for Public Works", approved on June 20, 1953,
contained, in 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 (Gen. Roxas Gen.
Araneta Gen. Lucban Gen. Capinpin Gen. Segundo Gen.
Delgado Gen. Malvar Gen. Lim)"; that, at the time of the passage
and approval of said Act, the aforementioned feeder roads were
"nothing but projected and planned subdivision roads, not yet
constructed, . . . within the Antonio Subdivision . . . situated at . . .
Pasig, Rizal" (according to the tracings attached to the petition as
Annexes A and B, near Shaw Boulevard, not far away from the
intersection between the latter and Highway 54), which projected
feeder roads "do not connect any government property or any
important premises to the main highway"; that the aforementioned
Antonio Subdivision (as well as the lands on which said feeder roads
were to be construed) were private properties of respondent Jose C.
Zulueta, who, at the time of the passage and approval of said Act, was
a member of the Senate of the Philippines; that on May, 1953,
respondent Zulueta, addressed a letter to the Municipal Council of
Pasig, Rizal, offering to donate said projected feeder roads to the
municipality of Pasig, Rizal; that, on June 13, 1953, the offer was
accepted by the council, subject to the condition "that the donor would
submit a plan of the said roads and agree to change the names of two
of them"; that no deed of donation in favor of the municipality of Pasig
was, however, executed; that on July 10, 1953, respondent Zulueta
wrote another letter to said council, calling attention to the approval of
Republic Act. No. 920, and the sum of P85,000.00 appropriated therein
for the construction of the projected feeder roads in question; that the
municipal council of Pasig endorsed said letter of respondent Zulueta
to the District Engineer of Rizal, who, up to the present "has not made
any endorsement thereon" that inasmuch as the projected feeder
roads in question were private property at the time of the passage and
approval of Republic Act No. 920, the appropriation of P85,000.00
therein made, for the construction, reconstruction, repair, extension
and improvement of said projected feeder roads, was illegal and,
therefore, void ab initio"; that said appropriation of P85,000.00 was
made by Congress because its members were made to believe that the
projected feeder roads in question were "public roads and not private
streets of a private subdivision"'; that, "in order to give a semblance of
legality, when there is absolutely none, to the aforementioned
appropriation", respondents Zulueta executed on December 12, 1953,
while he was a member of the Senate of the Philippines, an alleged
deed of donation copy of which is annexed to the petition of the
four (4) parcels of land constituting said projected feeder roads, in
favor of the Government of the Republic of the Philippines; that said
alleged deed of donation was, on the same date, accepted by the then
Executive Secretary; that being subject to an onerous condition, said
donation partook of the nature of a contract; that, such, said donation
violated the provision of our fundamental law prohibiting members of
Congress from being directly or indirectly financially interested in any
contract with the Government, and, hence, is unconstitutional, as well
as null and void ab initio, for the construction of the projected feeder
roads in question with public funds would greatly enhance or increase

the value of the aforementioned subdivision of respondent Zulueta,

"aside from relieving him from the burden of constructing his
subdivision streets or roads at his own expense"; that the construction
of said projected feeder roads was then being undertaken by the
Bureau of Public Highways; and that, unless restrained by the court,
the respondents would continue to execute, comply with, follow and
implement the aforementioned illegal provision of law, "to the
irreparable damage, detriment and prejudice not only to the petitioner
but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act
No. 920 be declared null and void; that the alleged deed of donation of
the feeder roads in question be "declared unconstitutional and,
therefor, illegal"; that a writ of injunction be issued enjoining the
Secretary of Public Works and Communications, the Director of the
Bureau of Public Works and Highways and Jose C. Zulueta from
ordering or allowing the continuance of the above-mentioned feeder
roads project, and from making and securing any new and further
releases on the aforementioned item of Republic Act No. 920, and the
disbursing officers of the Department of Public Works and Highways
from making any further payments out of said funds provided for in
Republic Act No. 920; and that pending final hearing on the merits, a
writ of preliminary injunction be issued enjoining the aforementioned
parties respondent from making and securing any new and further
releases on the aforesaid item of Republic Act No. 920 and from
making any further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that
petitioner had "no legal capacity to sue", and that the petition did "not
state a cause of action". In support to this motion, respondent Zulueta
alleged that the Provincial Fiscal of Rizal, not its provincial governor,
should represent the Province of Rizal, pursuant to section 1683 of the
Revised Administrative Code; that said respondent is " not aware of
any law which makes illegal the appropriation of public funds for the
improvements of . . . private property"; and that, the constitutional
provision invoked by petitioner is inapplicable to the donation in
question, the same being a pure act of liberality, not a contract. The
other respondents, in turn, maintained that petitioner could not assail
the appropriation in question because "there is no actual bona
fide case . . . in which the validity of Republic Act No. 920 is
necessarily involved" and petitioner "has not shown that he has a
personal and substantial interest" in said Act "and that its enforcement
has caused or will cause him a direct injury."
Acting upon said motions to dismiss, the lower court rendered the
aforementioned decision, dated October 29, 1953, holding that, since
public interest is involved in this case, the Provincial Governor of Rizal
and the provincial fiscal thereof who represents him therein, "have the
requisite personalities" to question the constitutionality of the disputed
item of Republic Act No. 920; that "the legislature is without power
appropriate public revenues for anything but a public purpose", that
the instructions and improvement of the feeder roads in question, if
such roads where private property, would not be a public purpose;
that, being subject to the following condition:
The within donation is hereby made upon the condition that

the Government of the Republic of the Philippines will use

the parcels of land hereby donated for street purposes only
and for no other purposes whatsoever; it being expressly
understood that should the Government of the Republic of
the Philippines violate the condition hereby imposed upon it,
the title to the land hereby donated shall, upon such

violation, ipso facto revert to the DONOR, JOSE C. ZULUETA.

(Emphasis supplied.)
which is onerous, the donation in question is a contract; that said
donation or contract is "absolutely forbidden by the Constitution" and
consequently "illegal", for Article 1409 of the Civil Code of the
Philippines, declares in existence and void from the very beginning
contracts "whose cause, objector purpose is contrary to law, morals . .
. or public policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his "interest are not
directly affected" thereby; and that, accordingly, the appropriation in
question "should be upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision
granting the aforementioned motions to dismiss, which as much, are
deemed to have admitted hypothetically the allegations of fact made in
the petition of appellant herein. According to said petition, respondent
Zulueta is the owner of several parcels of residential land situated in
Pasig, Rizal, and known as the Antonio Subdivision, certain portions of
which had been reserved for the projected feeder roads
aforementioned, which, admittedly, were private property of said
respondent when Republic Act No. 920, appropriating P85,000.00 for
the "construction, reconstruction, repair, extension and improvement"
of said roads, was passed by Congress, as well as when it was
approved by the President on June 20, 1953. The petition further
alleges that the construction of said roads, to be undertaken with the
aforementioned appropriation of P85,000.00, would have the effect of
relieving respondent Zulueta of the burden of constructing his
subdivision streets or roads at his own expenses, 1and would "greatly
enhance or increase the value of the subdivision" of said respondent.
The lower court held that under these circumstances, the appropriation
in question was "clearly for a private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is selfevident. 2However, respondent Zulueta contended, in his motion to
dismiss that:
A law passed by Congress and approved by the President
can never be illegal because Congress is the source of all
laws . . . Aside from the fact that movant is not aware of any
law which makes illegal the appropriation of public funds for
the improvement of what we, in the meantime, may assume
as private property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being
inconsistent with the nature of the Government established under the
Constitution of the Republic of the Philippines and the system of
checks and balances underlying our political structure. Moreover, it is
refuted by the decisions of this Court invalidating legislative
enactments deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a public
purpose, the principle according to Ruling Case Law, is this:
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; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following
language:
In accordance with the rule that the taxing power must be
exercised for public purposes only, discussed suprasec. 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; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum
states:
Generally, under the express or implied provisions of the
constitution, public funds may be used only 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.
xxx

xxx

xxx

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; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views
which, apart from being patently sound, are a necessary corollary to
our democratic system of government, which, as such, exists primarily
for the promotion of the general welfare. Besides, reflecting as they
do, the established jurisprudence in the United States, after whose
constitutional system ours has been patterned, said views and
jurisprudence are, likewise, part and parcel of our own constitutional
law.lawphil.net
This notwithstanding, the lower court felt constrained to uphold the
appropriation in question, upon the ground that petitioner may not
contest the legality of the donation above referred to because the
same does not affect him directly. This conclusion is, presumably,
based upon the following premises, namely: (1) that, if valid, said
donation cured the constitutional infirmity of the aforementioned
appropriation; (2) that the latter may not be annulled without a
previous declaration of unconstitutionality of the said donation; and (3)
that the rule set forth in Article 1421 of the Civil Code is absolute, and
admits of no exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the
time of its passage or approval, not upon events occurring, or acts
performed, subsequently thereto, unless the latter consists of an
amendment of the organic law, removing, with retrospective
operation, the constitutional limitation infringed by said statute.
Referring to the P85,000.00 appropriation for the projected feeder
roads in question, the legality thereof depended upon whether said
roads were public or private property when the bill, which, latter on,

became Republic Act 920, was passed by Congress, or, when said bill
was approved by the President and the disbursement of said sum
became effective, or on June 20, 1953 (see section 13 of said Act).
Inasmuch as the land on which the projected feeder roads were to be
constructed belonged then to respondent Zulueta, the result is that
said appropriation sought a private purpose, and hence, was null and
void. 4 The donation to the Government, over five (5) months after
the approval and effectivity of said Act, made, according to the
petition, for the purpose of giving a "semblance of legality", or
legalizing, the appropriation in question, did not cure its
aforementioned basic defect. Consequently, a judicial nullification of
said donation need not precede the declaration of unconstitutionality
of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory
enactments, is subject to exceptions. For instance, the creditors of a
party to an illegal contract may, under the conditions set forth in
Article 1177 of said Code, exercise the rights and actions of the latter,
except only those which are inherent in his person, including therefore,
his right to the annulment of said contract, even though such creditors
are not affected by the same, except indirectly, in the manner
indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be contested
only by one who will sustain a direct injury 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. 6Although there
are some decisions to the contrary, 7the prevailing view in the United
States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to
give the requisite standing to attack the constitutionality of a
statute, the general rule is that not only persons individually
affected, but also taxpayers, 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. (11 Am.
Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the U.S.
in Frothingham vs. Mellon (262 U.S. 447), insofar as federal laws are
concerned, upon the ground that the relationship of a taxpayer of the
U.S. to its Federal Government is different from that of a taxpayer of a
municipal corporation to its government. Indeed, under
the composite system of government existing in the U.S., the states of
the Union
are integral part of the Federation from
an international viewpoint, but, each state enjoys internally a
substantial measure of sovereignty, subject to the limitations imposed
by the Federal Constitution. In fact, the same was made by
representatives of each state of the Union, not of the people of the
U.S., except insofar as the former represented the people of the
respective States, and the people of each State has, independently of
that of the others, ratified said Constitution. In other words, the
Federal Constitution and the Federal statutes have become binding
upon the people of the U.S. in consequence of an act of, and, in this
sense, through the respective states of the Union of which they are
citizens. The peculiar nature of the relation between said people and
the Federal Government of the U.S. is reflected in the election of its
President, who is chosen directly, not by the people of the U.S., but by

electors chosen by each State, in such manner as the legislature

thereof may direct (Article II, section 2, of the Federal
Constitution).lawphi1.net
The relation between the people of the Philippines and its taxpayers,
on the other hand, and the Republic of the Philippines, on the other, is
not identical to that obtaining between the people and taxpayers of
the U.S. and its Federal Government. It is closer, from a domestic
viewpoint, to that existing between the people and taxpayers of each
state and the government thereof, except that the authority of the
Republic of the Philippines over the people of the Philippines is more
fully direct than that of the states of the Union, insofar as
the simple and unitary type of our national government is not subject
to limitations analogous to those imposed by the Federal Constitution
upon the states of the Union, and those imposed upon the Federal
Government in the interest of the Union. For this reason, the rule
recognizing the right of taxpayers to assail the constitutionality of a
legislation appropriating local or state public funds which has been
upheld by the Federal Supreme Court (Crampton vs. Zabriskie, 101
U.S. 601) has greater application in the Philippines than that
adopted with respect to acts of Congress of the United States
appropriating federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving
the expropriation of a land by the Province of Tayabas, two (2)
taxpayers thereof were allowed to intervene for the purpose of
contesting the price being paid to the owner thereof, as unduly
exorbitant. It is true that in Custodio vs. President of the Senate (42
Off. Gaz., 1243), a taxpayer and employee of the Government was not
permitted to question the constitutionality of an appropriation for
backpay of members of Congress. However, in Rodriguez vs. Treasurer
of the Philippines and Barredo vs.Commission on Elections (84 Phil.,
368; 45 Off. Gaz., 4411), we entertained the action of taxpayers
impugning the validity of certain appropriations of public funds, and
invalidated the same. Moreover, the reason that impelled this Court to
take such position in said two (2) cases the importance of the issues
therein raised is present in the case at bar. Again, like the
petitioners in the Rodriguez and Barredo cases, 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.
Hence, it is our considered opinion that the circumstances surrounding
this case sufficiently justify petitioners action in contesting the
appropriation and donation in question; that this action should not
have been dismissed by the lower court; and that the writ of
preliminary injunction should have been maintained.
Wherefore, the decision appealed from is hereby reversed, and the
records are remanded to the lower court for further proceedings not
inconsistent with this decision, with the costs of this instance against
respondent Jose C. Zulueta. It is so ordered.

FACTS:A law was enacted in 1953 containing a provision for

theconstruction,reconstruction, repair, extension and improvement of
Pasigfeeder road terminalswithin Antonio Subdivision owned by
Senator Jose C. Zulueta. Zuluetadonated saidparcels of land to the
Government 5 months after the enactment of the law, onthecondition
that if the Government violates such condition the lands would
reverttoZulueta. The provincial governor of Rizal, Wenceslao Pascual,

questioned the validity of thedonation and the Constitutionality of the

particular provision, it beinganappropriation not for a public purpose.
ISSUE: Is the appropriation valid?
Held: No. The appropriation of amount for the construction on a land
owned byprivateindividual is invalid imposition since it results in the
promotion of privateenterprise,it benefits the property of a particular
individual. The provision that theland thereafter be donatedto the
government does not cure this defect. The rule isthat if the public
advantage or benefitis merely incidental in the promotion of aparticular
enterprise, such defect shall render thelaw invalid. On the other hand,
if what is incidental is the promotion of a privateenterprise, the tax law
shall bedeemed for public purpose.Government is Tax-exempt,
However it can tax itsel

Punzalan vs. Municipal Board of Manila, 95 Phil. 46

This suit was commenced in the Court of First Instance of Manila by

two lawyers, a medical practitioner, a public accountant, a dental
surgeon and a pharmacist, purportedly "in their own behalf and in
behalf of other professionals practising in the City of Manila who may
desire to join it." Object of the suit is the annulment of Ordinance No.
3398 of the City of Manila together with the provision of the Manila
charter authorizing it and the refund of taxes collected under the
ordinance but paid under protest.
The ordinance in question, which was approved by the municipal board
of the City of Manila on July 25, 1950, imposes a municipal occupation
tax on persons exercising various professions in the city and penalizes
non-payment of the tax "by a fine of not more than two hundred pesos
or by imprisonment of not more than six months, or by both such fine
and imprisonment in the discretion of the court." Among the
professions taxed were those to which plaintiffs belong. The ordinance
was enacted pursuant to paragraph (1) of section 18 of the Revised
Charter of the City of Manila (as amended by Republic Act No. 409),
which empowers the Municipal Board of said city to impose a municipal
occupation tax, not to exceed P50 per annum, on persons engaged in
the various professions above referred to.
Having already paid their occupation tax under section 201 of the
National Internal Revenue Code, plaintiffs, upon being required to pay
the additional tax prescribed in the ordinance, paid the same under
protest and then brought the present suit for the purpose already
stated. The lower court upheld the validity of the provision of law
authorizing the enactment of the ordinance but declared the ordinance
itself illegal and void on the ground that the penalty there in provided
for non-payment of the tax was not legally authorized. From this
decision both parties appealed to this Court, and the only question
they have presented for our determination is whether this ruling is
correct or not, for though the decision is silent on the refund of taxes
paid plaintiffs make no assignment of error on this point.
To begin with defendants' appeal, we find that the lower court was in
error in saying that the imposition of the penalty provided for in the
ordinance was without the authority of law. The last paragraph ( kk) of
the very section that authorizes the enactment of this tax ordinance
(section 18 of the Manila Charter) in express terms also empowers the
Municipal Board "to fix penalties for the violation of ordinances which

shall not exceed to(sic) two hundred pesos fine or six months"
imprisonment, or both such fine and imprisonment, for a single
offense." Hence, the pronouncement below that the ordinance in
question is illegal and void because it imposes a penalty not authorized
by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this
ordinance and the law authorizing it constitute class legislation, are
unjust and oppressive, and authorize what amounts to double
taxation.
In raising the hue and cry of "class legislation", the burden of plaintiffs'
complaint is not that the professions to which they respectively belong
have been singled out for the imposition of this municipal occupation
tax; and in any event, the Legislature may, in its discretion, select
what occupations shall be taxed, and in the exercise of that discretion
it may tax all, or it may select for taxation certain classes and leave the
others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp. 3393-3395.)
Plaintiffs' complaint is that while the law has authorized the City of

Manila to impose the said tax, it has withheld that authority from other
chartered cities, not to mention municipalities. We do not think it is for
the courts to judge what particular cities or municipalities should be
empowered to impose occupation taxes in addition to those imposed
by the National Government. That matter is peculiarly within the
domain of the political departments and the courts would do well not
to encroach upon it. Moreover, as the seat of the National Government
and with a population and volume of trade many times that of any
other Philippine city or municipality, Manila, no doubt, offers a more
lucrative field for the practice of the professions, so that it is but fair
that the professionals in Manila be made to pay a higher occupation
tax than their brethren in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because they say
that it creates discrimination within a class in that while professionals
with offices in Manila have to pay the tax, outsiders who have no
offices in the city but practice their profession therein are not subject
to the tax. Plaintiffs make a distinction that is not found in the
ordinance. The ordinance imposes the tax upon every person
"exercising" or "pursuing" in the City of Manila naturally any one
of the occupations named, but does not say that such person must
have his office in Manila. What constitutes exercise or pursuit of a
profession in the city is a matter of judicial determination. The
argument against double taxation may not be invoked where one tax
is imposed by the state and the other is imposed by the city (1 Cooley
on Taxation, 4th ed., p. 492), it being widely recognized that there is
nothing inherently obnoxious in the requirement that license fees or
taxes be exacted with respect to the same occupation, calling or
activity by both the state and the political subdivisions thereof. (51
Am. Jur., 341.)
In view of the foregoing, the judgment appealed from is reversed in so
far as it declares Ordinance No. 3398 of the City of Manila illegal and
void and affirmed in so far as it holds the validity of the provision of
the Manila charter authorizing it. With costs against plaintiffsappellants.
Facts: Petitioners, who are professionals in the city, assail Ordinance
No. 3398 together with the law authorizing it (Section 18 of the
Revised Charter of the City of Manila). The ordinance imposes a
municipal occupation tax on persons exercising various professions in
the city and penalizes non-payment of the same. The law authorizing
said ordinance empowers the Municipal Board of the city to impose a
municipal occupation tax on persons engaged in various professions.
Petitioners, having already paid their occupation tax under section 201
of the National Internal Revenue Code, paid the tax under protest as
imposed by Ordinance No. 3398. The lower court declared the
ordinance invalid and affirmed the validity of the law authorizing it.

Issue: Whether or Not the ordinance and law authorizing it constitute

class legislation, and authorize what amounts to double taxation.

Held: The Legislature may, in its discretion, select what occupations

shall be taxed, and in its discretion may tax all, or select classes of
occupation for taxation, and leave others untaxed. It is not for the
courts to judge which cities or municipalities should be empowered to
impose occupation taxes aside from that imposed by the National
Government. That matter is within the domain of political departments.
The argument against double taxation may not be invoked if one tax is
imposed by the state and the other is imposed by the city. It is widely
recognized that there is nothing inherently terrible in the requirement

that taxes be exacted with respect to the same occupation by both the
state and the political subdivisions thereof. Judgment of the lower
court is reversed with regards to the ordinance and affirmed as to the
law authorizing it.

Simon, Jr. vs. Commission on Human Rights, G.R. No. 100150,

January 5, 1994

The extent of the authority and power of the Commission on Human

Rights ("CHR") is again placed into focus in this petition for prohibition,
with prayer for a restraining order and preliminary injunction. The
petitioners ask us to prohibit public respondent CHR from further
hearing and investigating CHR Case No. 90-1580, entitled "Fermo, et
al. vs. Quimpo, et al."
The case all started when a "Demolition Notice," dated 9 July 1990,
signed by Carlos Quimpo (one of the petitioners) in his capacity as an
Executive Officer of the Quezon City Integrated Hawkers Management
Council under the Office of the City Mayor, was sent to, and received
by, the private respondents (being the officers and members of the
North EDSA Vendors Association, Incorporated). In said notice, the
respondents were given a grace-period of three (3) days (up to 12 July
1990) within which to vacate the questioned premises of North
EDSA.1 Prior to their receipt of the demolition notice, the private
respondents were informed by petitioner Quimpo that their stalls
should be removed to give way to the "People's Park". 2 On 12 July
1990, the group, led by their President Roque Fermo, filed a lettercomplaint (Pinag-samang Sinumpaang Salaysay) with the CHR against
the petitioners, asking the late CHR Chairman Mary Concepcion
Bautista for a letter to be addressed to then Mayor Brigido Simon, Jr.,
of Quezon City to stop the demolition of the private respondents'
stalls, sari-sari stores, and carinderia along North EDSA. The complaint
was docketed as CHR Case No. 90-1580. 3 On 23 July 1990, the CHR
issued an Order, directing the petitioners "to desist from demolishing
the stalls and shanties at North EDSA pending resolution of the
vendors/squatters' complaint before the Commission" and ordering
said petitioners to appear before the CHR. 4
On the basis of the sworn statements submitted by the private
respondents on 31 July 1990, as well as CHR's own ocular inspection,
and convinced that on 28 July 1990 the petitioners carried out the
demolition
of
private
respondents'
stalls, sari-sari stores
and carinderia, 5 the CHR, in its resolution of 1 August 1990, ordered
the disbursement of financial assistance of not more than P200,000.00
in favor of the private respondents to purchase light housing materials
and food under the Commission's supervision and again directed the
petitioners to "desist from further demolition, with the warning that
violation of said order would lead to a citation for contempt and
arrest." 6
A motion to dismiss, 7 dated 10 September 1990, questioned CHR's
jurisdiction. The motion also averred, among other things, that:
1. this case came about due to the alleged
violation by the (petitioners) of the Inter-Agency
Memorandum of Agreement whereby MetroManila Mayors agreed on a moratorium in the
demolition of the dwellings of poor dwellers in
Metro-Manila;
xxx xxx xxx
3. . . . , a perusal of the said Agreement
(revealed) that the moratorium referred to therein
refers to moratorium in the demolition of the
structures of poor dwellers;

4. that the complainants in this case (were) not

poor
dwellers
but
independent
business
entrepreneurs even this Honorable Office admitted
in its resolution of 1 August 1990 that the
complainants are indeed, vendors;
5. that the complainants (were) occupying
government land, particularly the sidewalk of
EDSA corner North Avenue, Quezon City; . . . and
6. that the City Mayor of Quezon City (had) the
sole and exclusive discretion and authority
whether or not a certain business establishment
(should) be allowed to operate within the
jurisdiction of Quezon City, to revoke or cancel a
permit, if already issued, upon grounds clearly
specified by law and ordinance. 8
During the 12 September 1990 hearing, the petitioners moved for
postponement, arguing that the motion to dismiss set for 21
September 1990 had yet to be resolved. The petitioners likewise
manifested that they would bring the case to the courts.
On 18 September 1990 a supplemental motion to dismiss was filed by
the petitioners, stating that the Commission's authority should be
understood as being confined only to the investigation of violations of
civil and political rights, and that "the rights allegedly violated in this
case (were) not civil and political rights, (but) their privilege to engage
in business." 9
On 21 September 1990, the motion to dismiss was heard and
submitted for resolution, along with the contempt charge that had
meantime been filed by the private respondents, albeit vigorously
objected to by petitioners (on the ground that the motion to dismiss
was still then unresolved). 10
In an Order, 11 dated 25 September 1990, the CHR cited the
petitioners in contempt for carrying out the demolition of the
stalls, sari-sari stores and carinderia despite the "order to desist", and
it imposed a fine of P500.00 on each of them.
On 1 March 1991, 12 the CHR issued an Order, denying petitioners'
motion to dismiss and supplemental motion to dismiss, in this wise:
Clearly, the Commission on Human Rights under
its constitutional mandate had jurisdiction over the
complaint filed by the squatters-vendors who
complained of the gross violations of their human
and constitutional rights. The motion to dismiss
should be and is hereby DENIED for lack of
merit. 13
The CHR opined that "it was not the intention of the (Constitutional)
Commission to create only a paper tiger limited only to investigating
civil and political rights, but it (should) be (considered) a quasi-judicial
body with the power to provide appropriate legal measures for the
protection of human rights of all persons within the Philippines . . . ."
It added:
The right to earn a living is a right essential to
one's right to development, to life and to dignity.
All these brazenly and violently ignored and

trampled upon by respondents with little regard at

the same time for the basic rights of women and
children, and their health, safety and welfare.
Their actions have psychologically scarred and
traumatized the children, who were witness and
exposed to such a violent demonstration of Man's
inhumanity to man.
In an Order, 14 dated 25
reconsideration was denied.

April

1991,

petitioners'

motion

for

abroad, and provide for preventive measures and

legal aid services to the underprivileged whose
human rights have been violated or need
protection;
(4) Exercise visitorial powers over jails, prisons, or
detention facilities;
(5) Establish a continuing program of research,
education, and information to enhance respect for
the primacy of human rights;

Hence, this recourse.

The petition was initially dismissed in our resolution 15 of 25 June
1991; it was subsequently reinstated, however, in our resolution 16 of
18 June 1991, in which we also issued a temporary restraining order,
directing the CHR to "CEASE and DESIST from further hearing CHR No.
90-1580." 17
The petitioners pose the following:
Whether or not the public respondent has jurisdiction:
a) to investigate the alleged violations of the "business rights" of the
private respondents whose stalls were demolished by the petitioners at
the instance and authority given by the Mayor of Quezon City;
b) to impose the fine of P500.00 each on the petitioners; and
c) to disburse the amount of P200,000.00 as financial aid to the
vendors affected by the demolition.
In the Court's resolution of 10 October 1991, the Solicitor-General was
excused from filing his comment for public respondent CHR. The latter
thus filed its own comment, 18 through Hon. Samuel Soriano, one of its
Commissioners. The Court also resolved to dispense with the comment
of private respondent Roque Fermo, who had since failed to comply
with the resolution, dated 18 July 1991, requiring such comment.
The petition has merit.
The Commission on Human Rights was created by the 1987
Constitution. 19 It was formally constituted by then President Corazon
Aquino via Executive Order No. 163, 20 issued on 5 May 1987, in the
exercise of her legislative power at the time. It succeeded, but so
superseded as well, the Presidential Committee on Human Rights. 21
The powers and functions 22 of the Commission are defined by the
1987 Constitution, thus: to
(1) Investigate, on its own or on complaint by any
party, all forms of human rights violations
involving civil and political rights;
(2) Adopt its operational guidelines and rules of
procedure, and cite for contempt for violations
thereof in accordance with the Rules of Court;
(3) Provide appropriate legal measures for the
protection of human rights of all persons within
the Philippines, as well as Filipinos residing

(6) Recommend to the Congress effective

measures to promote human rights and to provide
for compensation to victims of violations of human
rights, or their families;
(7)
Monitor
the
Philippine
Government's
compliance with international treaty obligations on
human rights;
(8) Grant immunity from prosecution to any
person whose testimony or whose possession of
documents or other evidence is necessary or
convenient to determine the truth in any
investigation conducted by it or under its
authority;
(9) Request the assistance of any department,
bureau, office, or agency in the performance of its
functions;
(10) Appoint its officers and employees in
accordance with law; and
(11) Perform such other duties and functions as
may be provided by law.
In its Order of 1 March 1991, denying petitioners' motion to dismiss,
the CHR theorizes that the intention of the members of the
Constitutional Commission is to make CHR a quasi-judicial body. 23 This
view, however, has not heretofore been shared by this Court. In
Cario v. Commission on Human Rights, 24 the Court, through then
Associate Justice, now Chief Justice Andres Narvasa, has observed that
it is "only the first of the enumerated powers and functions that bears
any resemblance to adjudication or adjudgment," but that resemblance
can in no way be synonymous to the adjudicatory power itself. The
Court explained:
. . . (T)he Commission on Human Rights . . . was
not meant by the fundamental law to be another
court or quasi-judicial agency in this country, or
duplicate much less take over the functions of the
latter.
The most that may be conceded to the
Commission in the way of adjudicative power is
that it may investigate, i.e., receive evidence and
make findings of fact as regards claimed human
rights violations involving civil and political rights.
But fact finding is not adjudication, and cannot be
likened to the judicial function of a court of justice,

or even a quasi-judicial agency or official. The

function of receiving evidence and ascertaining
therefrom the facts of a controversy is not a
judicial function, properly speaking. To be
considered such, the faculty of receiving evidence
and making factual conclusions in a controversy
must be accompanied by the authority of applying
the law to those factual conclusions to the end
that the controversy may be decided or
determined authoritatively, finally and definitively,
subject to such appeals or modes of review as
may be provided by law. This function, to repeat,
the Commission does not have.
After thus laying down at the outset the above rule, we now proceed
to the other kernel of this controversy and, its is, to determine the
extent of CHR's investigative power.
It can hardly be disputed that the phrase "human rights" is so generic
a term that any attempt to define it, albeit not a few have tried, could
at best be described as inconclusive. Let us observe. In a symposium
on human rights in the Philippines, sponsored by the University of the
Philippines in 1977, one of the questions that has been propounded is
"(w)hat do you understand by "human rights?" The participants,
representing different sectors of the society, have given the following
varied answers:

Human rights are the basic rights which inhere in

man by virtue of his humanity. They are the same
in all parts of the world, whether the Philippines or
England, Kenya or the Soviet Union, the United
States or Japan, Kenya or Indonesia . . . .

Human rights include civil rights, such as the right

to life, liberty, and property; freedom of speech, of
the press, of religion, academic freedom, and the
rights of the accused to due process of law;
political rights, such as the right to elect public
officials, to be elected to public office, and to form
political associations and engage in politics; and
social rights, such as the right to an education,
employment, and social services. 25

Human rights are the entitlement that inhere in

the individual person from the sheer fact of his
humanity. . . . Because they are inherent, human
rights are not granted by the State but can only
be recognized and protected by it. 26
(Human rights include all) the civil, political,
economic, social, and cultural rights defined in the
Universal Declaration of Human Rights. 27

Human rights are rights that pertain to man simply

because he is human. They are part of his natural
birth, right, innate and inalienable. 28
The Universal Declaration of Human Rights, as well as, or more
specifically, the International Covenant on Economic, Social and
Cultural Rights and International Covenant on Civil and Political Rights,
suggests that the scope of human rights can be understood to include
those that relate to an individual's social, economic, cultural, political

and civil relations. It thus seems to closely identify the term to the
universally accepted traits and attributes of an individual, along with
what is generally considered to be his inherent and inalienable rights,
encompassing almost all aspects of life.
Have these broad concepts been equally contemplated by the framers
of our 1986 Constitutional Commission in adopting the specific
provisions on human rights and in creating an independent commission
to safeguard these rights? It may of value to look back at the country's
experience under the martial law regime which may have, in fact,
impelled the inclusions of those provisions in our fundamental law.
Many voices have been heard. Among those voices, aptly represented
perhaps of the sentiments expressed by others, comes from Mr.
Justice J.B.L. Reyes, a respected jurist and an advocate of civil
liberties, who, in his paper, entitled "Present State of Human Rights in
the Philippines," 29 observes:
But while the Constitution of 1935 and that of
1973 enshrined in their Bill of Rights most of the
human rights expressed in the International
Covenant, these rights became unavailable upon
the proclamation of Martial Law on 21 September
1972. Arbitrary action then became the rule.
Individuals by the thousands became subject to
arrest upon suspicion, and were detained and held
for indefinite periods, sometimes for years,
without charges, until ordered released by the
Commander-in-Chief or this representative. The
right to petition for the redress of grievances
became useless, since group actions were
forbidden. So were strikes. Press and other mass
media were subjected to censorship and short
term licensing. Martial law brought with it the
suspension of the writ of habeas corpus, and
judges lost independence and security of tenure,
except members of the Supreme Court. They were
required to submit letters of resignation and were
dismissed upon the acceptance thereof. Torture to
extort confessions were practiced as declared by
international bodies like Amnesty International and
the International Commission of Jurists.
Converging our attention to the records of the Constitutional
Commission, we can see the following discussions during its 26 August
1986 deliberations:
MR. GARCIA . . . , the primacy of its (CHR) task
must be made clear in view of the importance of
human rights and also because civil and political
rights have been determined by many
international covenants and human rights
legislations in the Philippines, as well as the
Constitution, specifically the Bill of Rights and
subsequent legislation. Otherwise, if we cover

such a wide territory in area, we might diffuse its

impact and the precise nature of its task, hence,
its effectivity would also be curtailed.
So, it is important to delienate the parameters of
its tasks so that the commission can be most
effective.

MR. BENGZON. That is precisely my difficulty

because civil and political rights are very broad.
The Article on the Bill of Rights covers civil and
political rights. Every single right of an individual
involves his civil right or his political right. So,
where do we draw the line?

human rights. Those are the rights that we

envision here?

MR. GARCIA. Actually, these civil and political

rights have been made clear in the language of
human rights advocates, as well as in the
Universal Declaration of Human Rights which
addresses a number of articles on the right to life,
the right against torture, the right to fair and
public hearing, and so on. These are very specific
rights that are considered enshrined in many
international documents and legal instruments as
constituting civil and political rights, and these are
precisely what we want to defend here.

MR.

MR. BENGZON. So, would the commissioner say

civil and political rights as defined in the Universal
Declaration of Human Rights?
MR. GARCIA. Yes, and as I have mentioned, the
International Covenant of Civil and Political Rights
distinguished this right against torture.
MR. BENGZON. So as to distinguish this from the
other rights that we have?
MR. GARCIA. Yes, because the other rights will
encompass social and economic rights, and there
are other violations of rights of citizens which can
be addressed to the proper courts and authorities.
xxx xxx xxx
MR. BENGZON. So, we will authorize the
commission to define its functions, and, therefore,
in doing that the commission will be authorized to
take under its wings cases which perhaps
heretofore or at this moment are under the
jurisdiction of the ordinary investigative and
prosecutorial agencies of the government. Am I
correct?
MR. GARCIA. No. We have already mentioned
earlier that we would like to define the specific
parameters which cover civil and political rights as
covered by the international standards governing
the behavior of governments regarding the
particular political and civil rights of citizens,
especially of political detainees or prisoners. This
particular aspect we have experienced during
martial law which we would now like to safeguard.
MR. BENGZON. Then, I go back to that question
that I had. Therefore, what we are really trying to
say is, perhaps, at the proper time we could
specify all those rights stated in the Universal
Declaration of Human Rights and defined as

MR. GARCIA. Yes. In fact, they are also enshrined

in the Bill of Rights of our Constitution. They are
integral parts of that.
BENGZON. Therefore, is the Gentleman
saying that all the rights under the Bill of Rights
covered by human rights?
MR. GARCIA. No, only those that pertain to civil
and political rights.
xxx xxx xxx
MR. RAMA. In connection with the discussion on

the scope of human rights, I would like to state

that in the past regime, everytime we invoke the
violation of human rights, the Marcos regime came
out with the defense that, as a matter of fact, they
had defended the rights of people to decent living,
food, decent housing and a life consistent with
human dignity.
So, I think we should really limit the definition of
human rights to political rights. Is that the sense
of the committee, so as not to confuse the issue?
MR. SARMIENTO. Yes, Madam President.
MR. GARCIA. I would like to continue and respond
also to repeated points raised by the previous
speaker.

There are actually six areas where this

Commission on Human Rights could act
effectively: 1) protection of rights of political
detainees; 2) treatment of prisoners and the
prevention of tortures; 3) fair and public trials; 4)
cases of disappearances; 5) salvagings and
hamletting; and 6) other crimes committed against
the religious.
xxx xxx xxx
The PRESIDENT.
recognized.

Commissioner

Guingona

is

MR. GUINGONA. Thank You Madam President.

I would like to start by saying that I agree with
Commissioner Garcia that we should, in order to

make the proposed Commission more effective,

delimit as much as possible, without prejudice to
future expansion. The coverage of the concept
and jurisdictional area of the term "human rights".
I was actually disturbed this morning when the
reference was made without qualification to the
rights embodied in the universal Declaration of
Human Rights, although later on, this was

qualified to refer to civil and political rights

contained therein.
If I remember correctly, Madam President,
Commissioner Garcia, after mentioning the
Universal Declaration of Human Rights of 1948,
mentioned or linked the concept of human right
with other human rights specified in other
convention which I do not remember. Am I
correct?
MR. GARCIA. Is Commissioner Guingona referring
to the Declaration of Torture of 1985?
MR. GUINGONA. I do not know, but
commissioner mentioned another.

the

concept or the concept of the Committee on

Human Rights with the so-called civil or political
rights as contained in the Universal Declaration of
Human Rights.
MR. GARCIA. When I mentioned earlier the
Universal Declaration of Human Rights, I was
referring to an international instrument.
MR. GUINGONA. I know.
MR. GARCIA. But it does not mean that we will
refer to each and every specific article therein, but
only to those that pertain to the civil and politically
related, as we understand it in this Commission on
Human Rights.

MR. GARCIA. Madam President, the other one is

the International Convention on Civil and Political
Rights of which we are signatory.

MR. GUINGONA. Madam President, I am not even

clear as to the distinction between civil and social
rights.

MR. GUINGONA. I see. The only problem is that,

although I have a copy of the Universal
Declaration of Human Rights here, I do not have a
copy of the other covenant mentioned. It is quite
possible that there are rights specified in that
other convention which may not be specified here.
I was wondering whether it would be wise to link
our concept of human rights to general terms like
"convention," rather than specify the rights
contained in the convention.

MR. GARCIA. There are two international

covenants: the International Covenant and Civil
and Political Rights and the International Covenant
on Economic, Social and Cultural Rights. The
second covenant contains all the different rightsthe rights of labor to organize, the right to
education, housing, shelter, et cetera.

As far as the Universal Declaration of Human

Rights is concerned, the Committee, before the
period of amendments, could specify to us which
of these articles in the Declaration will fall within
the concept of civil and political rights, not for the
purpose of including these in the proposed
constitutional article, but to give the sense of the
Commission as to what human rights would be
included, without prejudice to expansion later on,
if the need arises. For example, there was no
definite reply to the question of Commissioner
Regalado as to whether the right to marry would
be considered a civil or a social right. It is not a
civil right?
MR. GARCIA. Madam President, I have to repeat

the various specific civil and political rights that we

felt must be envisioned initially by this provision
freedom from political detention and arrest
prevention of torture, right to fair and public trials,
as well as crimes involving disappearance,
salvagings,
hamlettings
and
collective
violations. So, it is limited to politically related
crimes precisely to protect the civil and political
rights of a specific group of individuals, and
therefore, we are not opening it up to all of the
definite areas.
MR. GUINGONA. Correct. Therefore, just for the
record, the Gentlemen is no longer linking his

MR. GUINGONA. So we are just limiting at the

moment the sense of the committee to those that
the Gentlemen has specified.
MR. GARCIA. Yes, to civil and political rights.
MR. GUINGONA. Thank you.
xxx xxx xxx
SR. TAN. Madam President, from the standpoint of
the victims of human rights, I cannot stress more
on how much we need a Commission on Human
Rights. . . .
. . . human rights victims are usually penniless.
They cannot pay and very few lawyers will accept
clients who do not pay. And so, they are the ones
more abused and oppressed. Another reason is,

the cases involved are very delicate torture,

salvaging, picking up without any warrant of
arrest, massacre and the persons who are
allegedly guilty are people in power like politicians,
men in the military and big shots. Therefore, this
Human Rights Commission must be independent.
I would like very much to emphasize how much
we need this commission, especially for the little
Filipino, the little individual who needs this kind of
help and cannot get it. And I think we should

concentrate only on civil and political violations

because if we open this to land, housing and

health, we will have no place to go again and we

will not receive any response. . . . 30 (emphasis
supplied)
The final outcome, now written as Section 18, Article XIII, of the 1987
Constitution, is a provision empowering the Commission on Human
Rights to "investigate, on its own or on complaint by any party, all
forms of human rights violations involving civil and political rights"
(Sec. 1).
The term "civil rights," 31 has been defined as referring
(t)o those (rights) that belong to every citizen of
the state or country, or, in wider sense, to all its
inhabitants, and are not connected with the
organization or administration of the government.
They include the rights of property, marriage,
equal protection of the laws, freedom of contract,
etc. Or, as otherwise defined civil rights are rights
appertaining to a person by virtue of his
citizenship in a state or community. Such term
may also refer, in its general sense, to rights
capable of being enforced or redressed in a civil
action.
Also quite often mentioned are the guarantees against involuntary
servitude, religious persecution, unreasonable searches and seizures,
and imprisonment for debt. 32
Political rights, 33 on the other hand, are said to refer to the right to
participate, directly or indirectly, in the establishment or administration
of government, the right of suffrage, the right to hold public office, the
right of petition and, in general, the rights appurtenant to
citizenship vis-a-vis the management of government. 34
Recalling the deliberations of the Constitutional Commission,
aforequoted, it is readily apparent that the delegates envisioned a
Commission on Human Rights that would focus its attention to the
more severe cases of human rights violations. Delegate Garcia, for
instance, mentioned such areas as the "(1) protection of rights of
political detainees, (2) treatment of prisoners and the prevention of
tortures, (3) fair and public trials, (4) cases of disappearances, (5)
salvagings and hamletting, and (6) other crimes committed against the
religious." While the enumeration has not likely been meant to have
any preclusive effect, more than just expressing a statement of
priority, it is, nonetheless, significant for the tone it has set. In any
event, the delegates did not apparently take comfort in peremptorily
making a conclusive delineation of the CHR's scope of investigatorial
jurisdiction. They have thus seen it fit to resolve, instead, that
"Congress may provide for other cases of violations of human rights
that should fall within the authority of the Commission, taking into
account its recommendation." 35
In the particular case at hand, there is no cavil that what are sought to
be demolished are the stalls, sari-sari stores and carinderia, as well as
temporary shanties, erected by private respondents on a land which is
planned to be developed into a "People's Park". More than that, the
land adjoins the North EDSA of Quezon City which, this Court can take
judicial notice of, is a busy national highway. The consequent danger
to life and limb is not thus to be likewise simply ignored. It is indeed
paradoxical that a right which is claimed to have been violated is one
that cannot, in the first place, even be invoked, if it is, in fact, extant.
Be that as it may, looking at the standards hereinabove discoursed vis-

a-vis the circumstances obtaining in this instance, we are not prepared

to conclude that the order for the demolition of the stalls, sarisari stores and carinderia of the private respondents can fall within the
compartment of "human rights violations involving civil and political
rights" intended by the Constitution.
On its contempt powers, the CHR is constitutionally authorized to
"adopt its operational guidelines and rules of procedure, and cite for
contempt for violations thereof in accordance with the Rules of Court."
Accordingly, the CHR acted within its authority in providing in its
revised rules, its power "to cite or hold any person in direct or indirect
contempt, and to impose the appropriate penalties in accordance with
the procedure and sanctions provided for in the Rules of Court." That
power to cite for contempt, however, should be understood to apply
only to violations of its adopted operational guidelines and rules of
procedure essential to carry out its investigatorial powers. To
exemplify, the power to cite for contempt could be exercised against
persons who refuse to cooperate with the said body, or who unduly
withhold relevant information, or who decline to honor summons, and
the like, in pursuing its investigative work. The "order to desist" (a
semantic interplay for a restraining order) in the instance before us,
however, is not investigatorial in character but prescinds from an
adjudicative power that it does not possess. In Export Processing Zone
Authority vs. Commission on Human Rights, 36 the Court, speaking
through Madame Justice Carolina Grio-Aquino, explained:
The constitutional provision directing the CHR to
"provide for preventive measures and legal aid
services to the underprivileged whose human
rights have been violated or need protection" may
not be construed to confer jurisdiction on the
Commission to issue a restraining order or writ of
injunction for, it that were the intention, the
Constitution would have expressly said so.
"Jurisdiction is conferred only by the Constitution
or by law". It is never derived by implication.
Evidently, the "preventive measures and legal aid
services" mentioned in the Constitution refer to
extrajudicial and judicial remedies (including a writ
of preliminary injunction) which the CHR may seek
from proper courts on behalf of the victims of
human rights violations. Not being a court of
justice, the CHR itself has no jurisdiction to issue
the writ, for a writ of preliminary injunction may
only be issued "by the judge of any court in which
the action is pending [within his district], or by a
Justice of the Court of Appeals, or of the Supreme
Court. . . . A writ of preliminary injunction is an
ancillary remedy. It is available only in a pending
principal action, for the preservation or protection
of the rights and interests of a party thereto, and
for no other purpose." (footnotes omitted).
The Commission does have legal standing to indorse, for appropriate
action, its findings and recommendations to any appropriate agency of
government. 37
The challenge on the CHR's disbursement of the amount of
P200,000.00 by way of financial aid to the vendors affected by the
demolition is not an appropriate issue in the instant petition. Not only
is there lack of locus standi on the part of the petitioners to question

the disbursement but, more importantly, the matter lies with the
appropriate administrative agencies concerned to initially consider.
The public respondent explains that this petition for prohibition filed by
the petitioners has become moot and academic since the case before it
(CHR Case No. 90-1580) has already been fully heard, and that the
matter is merely awaiting final resolution. It is true that prohibition is a
preventive remedy to restrain the doing of an act about to be done,
and not intended to provide a remedy for an act already
accomplished. 38 Here, however, said Commission admittedly has yet
to promulgate its resolution in CHR Case No. 90-1580. The instant
petition has been intended, among other things, to also prevent CHR
from precisely doing that. 39
WHEREFORE, the writ prayed for in this petition is GRANTED. The
Commission on Human Rights is hereby prohibited from further
proceeding with CHR Case No. 90-1580 and from implementing the
P500.00 fine for contempt. The temporary restraining order heretofore
issued by this Court is made permanent. No costs.
SO ORDERED.
FACTS:
On July 23, 1990, the Commission on Human Rights (CHR) issued and
order, directing the petitioners "to desist from demolishing the stalls
and shanties at North EDSA pending the resolution of the
vendors/squatters complaint before the Commission" and ordering said
petitioners to appear before the CHR.
On September 10, 1990, petitioner filed a motion to dismiss
questioning CHR's jurisdiction and supplemental motion to dismiss was
filed on September 18, 1990 stating that Commissioners' authority
should be understood as being confined only to the investigation of
violations of civil and political rights, and that "the rights allegedly
violated in this case were not civil and political rights, but their
privilege to engage in business".
On March 1, 1991, the CHR issued and Order denying petitioners'
motion and supplemental motion to dismiss. And petitioners' motion
for reconsideration was denied also in an Order, dated April 25, 1991.
The Petitioner filed a a petition for prohibition, praying for a restraining
order and preliminary injunction. Petitioner also prayed to prohibit CHR
from further hearing and investigating CHR Case No. 90-1580, entitled
"Ferno, et.al vs. Quimpo, et.al".
ISSUE:
Is the issuance of an "order to desist" within the extent of the
authority and power of the CRH?
HELD:
No, the issuance of an "order to desist" is not within the extent of
authority and power of the CHR. Article XIII, Section 18(1), provides
the power and functions of the CHR to "investigate, on its own or on
complaint by any part, all forms of human rights violation, involving
civil and political rights".
The "order to desist" however is not investigatory in character but an
adjudicative power that the it does not possess. The Constitutional
provision directing the CHR to provide for preventive measures and
legal aid services to the underprivileged whose human rights have
been violated or need protection may not be construed to confer
jurisdiction on the Commission to issue an restraining order or writ of
injunction, for it were the intention, the Constitution would have
expressly said so. Not being a court of justice, the CHR itself has no
jurisdiction to issue the writ, for a writ of preliminary injunction may

only be issued by the Judge in any court in which the action is pending
or by a Justice of the CA or of the SC.
The writ prayed for the petition is granted. The CHR is hereby
prohibited from further proceeding with CHR Case No. 90-1580.
Facts :
Petitioner Mayor Simon asks to prohibit CHR from further hearing and
investigating "demolition case" on vendors of North EDSA.
Constitutional Issue :
Whether the CHR is authorized to hear and decide on the "demolition
case" and to impose a fine for contempt.
Ruling :
Section 18, Article XIII, of the 1987 Constitution empowered the CHR
to investigate all forms of human rights violations involving civil and
political rights. The demolition of stalls, sari-sari stores and carenderia
cannot fall within the compartment of "human rights violations
involving civil and political rights".
Human rights are the basic rights which inhere in man by virtue of his
humanity and are the same in all parts of the world.
Human rights include civil rights (right to life, liberty and property;
freedom of speech, of the press, of religion, academic freedom; rights
of the accused to due process of law), political rights (right to elect
public officials, to be elected to public office, and to form political
associations and engage in politics), social rights (right to education,
employment and social services.
Human rights are entitlements that inhere in the individual person
from the sheer fact of his humanity...Because they are inherent,
human rights are not granted by the State but can only be recognized
and protected by it.
Human rights includes all the civil, political, economic, social and
cultural rights defined in the Universal Declaration of Human Rights.
Human rights are rights that pertain to man simply because he is
human. They are part of his natural birth, right, innate and inalienable.
CIVIL RIGHTS - are those that belong to every citizen and are not
connected with the organization or administration of the government.
POLITICAL RIGHTS - are rights to participate, directly or indirectly, in
the establishment or administration of the government.