PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC.

, plaintiffappellant,
vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF
BUTUAN

Direct appeal to this Court, from a decision of the Court of First Instance of Agusan,
dismissing plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with
offices and principal place of business in Quezon City. The defendants are the City of
Butuan, its City Mayor, the members of its municipal board and its City Treasurer. Plaintiff
seeks to recover the sums paid by it to the City of Butuan hereinafter referred to as
the City and collected by the latter, pursuant to its Municipal Ordinance No. 110, as
amended by Municipal Ordinance No. 122, both series of 1960, which plaintiff assails as
null and void, and to prevent the enforcement thereof. Both parties submitted the case
for decision in the lower court upon a stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage for its
products the "Pepsi-Cola" soft drinks for sale to customers in the City of Butuan
and all the municipalities in the Province of Agusan. These "Pepsi-Cola Cola" soft
drinks are bottled in Cebu City and shipped to the Butuan City warehouse of
plaintiff for distribution and sale in the City of Butuan and all municipalities of
Agusan. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which
was subsequently amended by Ordinance No. 122 and effective November 28,
1960. A copy of Ordinance No. 110, Series of 1960 and Ordinance No. 122 are
incorporated herein as Exhibits "A" and "B", respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person, association,
etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under
protest the amount of P4,926.63 from August 16 to December 31, 1960 and the
amount of P9,250.40 from January 1 to July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the total
amount of P14,177.03 paid under protest and those that if may later on pay until
the termination of this case on the ground that Ordinance No. 110 as amended of
the City of Butuan is illegal, that the tax imposed is excessive and that it is
unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan
City, has prepared a form to be accomplished by the plaintiff for the computation
of the tax. A copy of the form is enclosed herewith as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from January 1,
1961 to July 30, 1961 of its warehouse in Butuan City is incorporated herein as
Exhibits "D" to "D-1" to "D-5". In this Profit and Loss Statement, the defendants
claim that the plaintiff is not entitled to a depreciation of P3,052.63 but only
1

P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to
P3,104.52. The plaintiff differs only on the claim of depreciation which the
company claims to be P3,052.62. This is in accordance with the findings of the
representative of the undersigned City Attorney who verified the records of the
plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24
bottles was increased to P1.92 which price is uniform throughout the Philippines.
Said increase was made due to the increase in the production cost of its
manufacture.
8. That the parties reserve the right to submit arguments on the constitutionality
and illegality of Ordinance No. 110, as amended of the City of Butuan in their
respective memoranda.
xxx

xxx

x x x1wph1.t

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors",
within the purview thereof. Section 2 provides for the payment by "any agent and/or
consignee" of any dealer "engaged in selling liquors, imported or local, in the City," of
taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the
soft drinks and carbonated beverages therein named, and "all other soft drinks or
carbonated drinks." Section 3-A, defines the meaning of the term "consignee or agent"
for purposes of the ordinance. Section 4 provides that said taxes "shall be paid at the
end of every calendar month." Pursuant to Section 5, the taxes "shall be based and
computed from the cargo manifest or bill of lading or any other record showing the
number of cases of soft drinks, liquors or all other soft drinks or carbonated drinks
received within the month." Sections 6, 7 and 8 specify the surcharge to be added for
failure to pay the taxes within the period prescribed and the penalties imposable for
"deliberate and willful refusal to pay the tax mentioned in Sections 2 and 3" or for failure
"to furnish the office of the City Treasurer a copy of the bill of lading or cargo manifest or
record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes
the ordinance applicable to soft drinks, liquors or carbonated drinks "received outside"
but "sold within" the City. Section 10 of the ordinance provides that the revenue derived
therefrom "shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the
General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of
the nature of an import tax; (2) it amounts to double taxation; (3) it is excessive,
oppressive and confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2
of Republic Act No. 2264, upon the authority of which it was enacted, is an
unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed independently
of whether or not the tax in question, when considered in relation to the sales tax
prescribed by Acts of Congress, amounts to double taxation, on which we need not and
do not express any opinion - double taxation, in general, is not forbidden by our
fundamental law. We have not adopted, as part thereof, the injunction against double
taxation found in the Constitution of the United States and of some States of the
Union.1 Then, again, the general principle against delegation of legislative powers, in
consequence of the theory of separation of powers 2 is subject to one well-established

exception, namely: legislative powers may be delegated to local governments to

which said theory does not apply3 in respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of
soft drinks or carbonated drinks in the production and sale of which plaintiff is
engaged or less than P0.0042 per bottle, is manifestly too small to be excessive,
oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this
connection, it is noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as
originally approved, was imposed upon dealers "engaged in selling" soft drinks or
carbonated drinks. Thus, it would seem that the intent was then to levy a tax upon the
sale of said merchandise. As amended by Ordinance No. 122, the tax is, however,
imposed only upon "any agent and/or consignee of any person, association, partnership,
company or corporation engaged in selling ... soft drinks or carbonated drinks." And,
pursuant to section 3-A, which was inserted by said Ordinance No. 122:
... Definition of the Term Consignee or Agent. For purposes of this Ordinance,
a consignee of agent shall mean any person, association, partnership, company or
corporation who acts in the place of another by authority from him or one
entrusted with the business of another or to whom is consigned or shipped no less
than 1,000 cases of hard liquors or soft drinks every month for resale, either retail
or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are
not subject to the tax,unless they are agents and/or consignees of another dealer, who,
in the very nature of things, must be one engaged in business outside the City. Besides,
the tax would not be applicable to such agent and/or consignee, if less than 1,000 cases
of soft drinks are consigned or shipped to him every month. When we consider, also, that
the tax "shall be based and computed from the cargo manifest or bill of lading ...
showing the number of cases" not sold but "received" by the taxpayer, the
intention to limit the application of the ordinance to soft drinks and carbonated drinks
brought into the City from outside thereof becomes apparent. Viewed from this angle,
the tax partakes of the nature of an import duty, which is beyond defendant's authority
to impose by express provision of law.4
Even however, if the burden in question were regarded as a tax on the sale of said
beverages, it would still be invalid, as discriminatory, and hence, violative of the
uniformity required by the Constitution and the law therefor, since only sales by "agents
or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not
acting for or on behalf of other merchants, regardless of the volume of their sales, and
even if the same exceeded those made by said agents or consignees of producers or
merchants established outside the City of Butuan, would be exempt from the disputed
tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does
not require identity or equality under all circumstances, or negate the authority to
classify the objects of taxation.5 The classification made in the exercise of this authority,
to be valid, must, however, be reasonable 6 and this requirement is not deemed satisfied
unless: (1) it is based upon substantial distinctions which make real differences; (2) these
are germane to the purpose of the legislation or ordinance; (3) the classification applies,
not only to present conditions, but, also, to future conditions substantially identical to
3

those of the present; and (4) the classification applies equally all those who belong to the
same class.7
These conditions are not fully met by the ordinance in question. 8 Indeed, if its purpose
were merely to levy a burden upon the sale of soft drinks or carbonated beverages, there
is no reason why sales thereof by sealers other than agents or consignees of producers
or merchants established outside the City of Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall be
entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing
the City of Butuan to refund to plaintiff herein the amounts collected from and paid
under protest by the latter, with interest thereon at the legal rate from the date of the
promulgation of this decision, in addition to the costs, and defendants herein are,
accordingly, restrained and prohibited permanently from enforcing said Ordinance, as
amended. It is so ordered.

PETRON CORPORATION, G.R. No. 158881

Petitioner,
Present:
- versus - QUISUMBING, J.,
Chairperson,
CARPIO MORALES,
TINGA,
MAYOR TOBIAS M. TIANGCO, VELASCO, JR, and
and MUNICIPAL TREASURER BRION, JJ.
MANUEL T. ENRIQUEZ of the
MUNICIPALITY OF NAVOTAS,
METRO MANILA,
Respondents.
Promulgated:
April 16, 2008
The novel but important issue before us is whether a local government unit is
empowered under the Local Government Code (the LGC) to impose business taxes on
persons or entities engaged in the sale of petroleum products.

I.
The present Petition for Review on Certiorari under Rule 45 filed by petitioner Petron
Corporation (Petron) directly assails the Decision of the Regional Trial Court (RTC) of
Malabon, Branch 74, which dismissed petitioners complaint for cancellation of
4

assessment made by the then municipality (now City) of Navotas (Navotas) for
deficiency taxes, and ordering the payment of P10,204,916.17 pesos in business taxes to
Navotas. As the issues raised are pure questions of law, we need not dwell on the facts
at length.
Petron maintains a depot or bulk plant at the Navotas Fishport Complex in Navotas.
Through that depot, it has engaged in the selling of diesel fuels to vessels used in
commercial fishing in and around Manila Bay.[1] On 1 March 2002, Petron received a letter
from the office of Navotas Mayor, respondent Toby Tiangco, wherein the corporation was
assessed taxes relative to the figures covering sale of diesel declared by your Navotas
Terminal from 1997 to 2001. [2] The stated total amount due was P6,259,087.62, a figure
derived from the gross sales of the depot during the years in question. The computation
sheets[3] that were attached to the letter made reference to Ordinance 92-03, or the New
Navotas Revenue Code (Navotas Revenue Code), though such enactment was not cited
in the letter itself.

Petron duly filed with Navotas a letter-protest to the notice of assessment pursuant to
Section 195 of the Code. It argued that it was exempt from local business taxes in view
of Art. 232(h) of the Implementing Rules (IRR) of the Code, as well as a ruling of the
Bureau of Local Government Finance of the Department of Finance dated 31 July 1995,
the latter stating that sales of petroleum fuels are not subject to local taxation. The
letter-protest was denied by the Navotas Municipal Treasurer, respondent Manuel T.
Enriquez, in a letter dated 8 May 2002.[4] This was followed by a letter from the Mayor
dated 15 May 2002, captioned Final Demand to Pay, requiring that Petron pay the
assessed amount within five (5) days from receipt thereof, with a threat of closure of
Petrons operations within Navotas should there be no payment. [5] Petron, through
counsel, replied to the Mayor by another letter posing objections to the threat of
closure. The Mayor did not respond to this last letter.[6]
Thus, on 20 May 2002, Petron filed with the Malabon RTC a Complaint for
Cancellation of Assessment for Deficiency Taxes with Prayer for the Issuance of a
Temporary Restraining Order (TRO) and/or Preliminary Injunction. The quested TRO was
not issued by the Malabon RTC upon manifestation of respondents that they would not
proceed with the closure of Petrons Navotas bulk plant until after the RTC shall have
decided the case on the merits.[7] However, while the case was pending decision,
respondents refused to issue a business permit to Petron, thus prompting Petron to file a
Supplemental Complaint with Prayer for Preliminary Mandatory Injunction against
respondents.[8]
On 5 May 2003, the Malabon RTC rendered its Decision dismissing Petrons
complaint and ordering the payment of the assessed amount. [9] Eleven days later, Petron
received a Closure Order from the Mayor, directing Petron to cease and desist from
operating the bulk plant. Petron sought a TRO from the Malabon RTC, but this was
denied.[10] Petron also filed a motion for reconsideration of the order of denial, but this
was likewise denied.[11]
5

On 4 August 2003, this Court issued a TRO, enjoining the respondents from closing
Petrons Navotas bulk plant or otherwise interfering in its operations.[12]
II.
As earlier stated, Petron has opted to assail the RTC Decision directly before this
Court since the matter at hand involves pure questions of law, a characterization
conceded by the RTC Decision itself. Particularly, the controversy hinges on the correct
interpretation of Section 133(h) of the LGC, and the applicability of Article 232 (h) of the
IRR.
Section 133(h) of the LGC reads as follows:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. - Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and Barangays shall not
extend to the levy of the following:
xxx
(h) Excise taxes on articles enumerated under the National Internal
Revenue Code, as amended, and taxes, fees or charges on petroleum
products;
Evidently, Section 133 prescribes the limitations on the capacity of local
government units to exercise their taxing powers otherwise granted to them under the
LGC. Apparently, paragraph (h) of the Section mentions two kinds of taxes which cannot
be imposed by local government units, namely: excise taxes on articles enumerated
under the National Internal Revenue Code [(NIRC)], as amended; and taxes, fees or
charges on petroleum products.
The power of a municipality to impose business taxes is provided for in Section 143
of the LGC. Under the provision, a municipality is authorized to impose business taxes on
a whole host of business activities. Suffice it to say, unless there is another provision of
law which states otherwise, Section 143, broad in scope as it is, would undoubtedly cover
the business of selling diesel fuels, or any other petroleum product for that matter.

Nonetheless, Article 232 of the IRR defines with more particularity the capacity of a
municipality to impose taxes on businesses. The enumeration that follows is generally a
positive list of businesses which may be subjected to business taxes, and paragraph (h)
of Article 232 does allow the imposition of local business taxes [o]n any business not
otherwise specified in the preceding paragraphs which the sanggunian concerned may
deem proper to tax, but subject to this important qualification, thus:

xxx provided further, that in line with existing national policy, any
business engaged in the production, manufacture, refining, distribution or
sale of oil, gasoline and other petroleum products shall not be subject to any
local tax imposed on this article.

Notably, the Malabon RTC declared Art. 232(h) of the IRR void because the Code
purportedly does not contain a provision prohibiting the imposition of business taxes on
petroleum products.[13] This submission warrants close examination as well.
With all the relevant provisions of law laid out, we address the core issues submitted by
Petron, namely: first, is the challenged tax on sale of the diesel fuels an excise tax on an
article enumerated under the NIRC, thusly prohibited under Section 133(h) of the Code?;
second, is the challenged tax prohibited by Section 133(h) under the proviso, taxes, fees
or charges on petroleum products? and; third, does Art. 232(h) of the IRR similarly
prohibit the imposition of the challenged tax?
III
As earlier observed, Section 133(h) provides two kinds of taxes which cannot be
imposed by local government units: excise taxes on articles enumerated under the NIRC,
as amended; and taxes, fees or charges on petroleum products. There is no doubt that
among the excise taxes on articles enumerated under the NIRC are those levied on
petroleum products, per Section 148 of the NIRC.
We first consider Petrons argument that the business taxes on its sale of diesel
fuels partakes of an excise tax, which if true, could invalidate the challenged tax solely
on the basis of the phrase excise taxes on articles enumerated under the [NIRC]. To
support this argument, it cites Cordero v. Conda,[14] Allied Thread Co. Inc. v. City Mayor
of Manila,[15] and Iloilo Bottlers, Inc. v. City of Iloilo,[16] as having explained that an excise
tax is a tax upon the performance, carrying on, or the exercise of an activity.
[17]
Respondents, on the other hand, argue that what the provision prohibits is the
imposition of excise taxes on petroleum products, but not the imposition of business
taxes on the same. They citePhilippine Petroleum Corporation v. Municipality of Pililia,
[18]
where the Court had noted, [a] tax on business is distinct from a tax on the article
itself.[19]
Petrons argument is fraught with far-reaching implications, for if it were sustained,
it would mean that local government units are barred from imposing business taxes on
any of the articles subject to excise taxes under the NIRC. These would include alcohol
products,[20] tobacco products,[21] mineral products[22] automobiles,[23] and such nonessential goods as jewelry, goods made of precious metals, perfumes, and yachts and
other vessels intended for pleasure or sports.[24]
Admittedly, the proffered definition of an excise tax as a tax upon the performance,
carrying on, or exercise of some right, privilege, activity, calling or occupation derives
from the compendium American Jurisprudence, popularly referred to as Am Jur,,[25] and
7

has
been
cited
in
previous
decisions
of
this
those cited by Petron itself.Such a definition would not have been

Court,

including

inconsistent with previous incarnations of our Tax Code, such as the NIRC of 1939, [26] as
amended, or the NIRC of 1977 [27] because in those laws the term excise tax was not used
at all. In contrast, the nomenclature used in those prior laws in referring to taxes
imposed on specific articles was specific tax.[28] Yet beginning with the National Internal
Revenue Code of 1986, as amended, the term excise taxes was used and defined as
applicable to goods manufactured or produced in the Philippines and to things imported.
[29]
This definition was carried over into the present NIRC of 1997. [30] Further, these two
latest codes categorize two different kinds of excise taxes: specific tax which is imposed
and based on weight or volume capacity or any other physical unit of measurement;
and ad valorem tax which is imposed and based on the selling price or other specified
value of the goods. In other words, the meaning of excise tax has undergone a
transformation, morphing from the Am Jur definition to its current signification which is a
tax on certain specified goods or articles.

The change in perspective brought forth by the use of the term excise tax in a
different connotation was not lost on the departed author Jose Nolledo as he accorded
divergent treatments in his 1973 and 1994 commentaries on our tax laws. Writing in
1973, and essentially alluding to the Am Jur definition of excise tax, Nolledo observed:
Are specific taxes, taxes on property or excise taxes
In the case of Meralco v. Trinidad ([G.R.] 16738, 1925) it was held that
specific taxes are property taxes, a ruling which seems to be erroneous.
Specific taxes are truly excise taxes for the fact that the value of the property
taxed is taken into account will not change the nature of the tax. It is correct
to say that specific taxes are taxes on the privilege to import, manufacture
and remove from storage certain articles specified by law.[31]
In contrast, after the tax code was amended to classify specific taxes as a subset
of excise taxes, Nolledo, in his 1994 commentaries, wrote:
1. Excise taxes, as used in the Tax Code, refers to taxes applicable to
certain specified goods or articles manufactured or produced in the
Philippines for domestic sale or consumption or for any other disposition and
to things imported into the Philippines. They are either specific or ad
valorem.
2. Nature of excise taxes. They are imposed directly on certain
specified goods. (infra) They are, therefore, taxes on property.
(see Medina vs. City of Baguio, 91 Phil. 854.)

A tax is not excise where it does not subject directly the produce or
goods to tax but indirectly as an incident to, or in connection with, the
business to be taxed.[32]
In their 2004 commentaries, De Leon and De Leon restate the Am Jur definition of
excise tax, and observe that the term is synonymous with privilege tax and [both terms]
are often used interchangeably.[33] At the same time, they offer a caveat that [e]xcise tax,
as [defined by Am Jur], is not to be confused with excise tax imposed [by the NIRC] on
certain specified articles manufactured or produced in, or imported into, the Philippines,
for domestic sale or consumption or for any other disposition.[34]
It is evident that Am Jur aside, the current definition of an excise tax is that of a tax
levied on a specific article, rather than one upon the performance, carrying on, or the
exercise of an activity. This current definition was already in place when the Code was
enacted in 1991, and we can only presume that it was what the Congress had intended
as it specified that local government units could not impose excise taxes on articles
enumerated under the [NIRC]. This prohibition must pertain to the same kind of excise
taxes as imposed by the NIRC, and not those previously defined excise taxes which were
not integrated or denominated as such in our present tax law.
It is quite apparent, therefore, that our current body of taxation law does not
explicitly accommodate the traditional definition of excise tax offered by Petron. In fact,
absent any statutory adoption of the traditional definition, it may be said that starting in
1986 excise taxes in this jurisdiction refer exclusively to specific or ad valorem taxes
imposed under the NIRC. At the very least, it is this concept of excise tax which we can
reasonably assume that Congress had in mind and actually adopted when it crafted the
Code. The palpable absurdity that ensues should the alternative interpretation prevail all
but strengthens this position.
Thus, Petrons argument concerning excise taxes is founded not on what the NIRC
or the Code actually provides, but on a non-statutory definition sourced from a legal
paradigm that is no longer applicable in this jurisdiction. That such definition was
referred to again in our 1998 decision in Province of Bulacan v. Court of Appeals [35] is
ultimately of little consequence, and so is Petrons reliance on such ruling. The Court
therein had correctly nullified, on the basis of Section 133(h) of the Code, a provinceimposed tax of 10% of the fair market value in the locality per cubic meter of ordinary
stones, sand, gravel, earth and other quarry resources xxx extracted from public lands,
because it noted that under Section 151 of the NIRC, all nonmetallic minerals and quarry
resources were assessed with excise taxes of two percent (2%) based on the actual
market value of the gross output thereof at the time of removal, in case of those locally
extracted or produced.[36] Additionally, the Court also observed that the case had
emanated from an attempt to impose the said tax on quarry resources from private
lands, despite the clear language of the tax ordinance limiting the tax to such resources
extracted from public lands.[37] On that score alone, the case could have been correctly
decided.
9

It is true that the Court had additionally reasoned in Province of Bulacan that [t]he
tax imposed by the Province of Bulacan is an excise tax, being a tax upon the
performance, carrying on, or exercise of an activity. As earlier noted, such definition of
excise tax however was not explicitly carried over into the NIRC and was even
superseded beginning with the 1986 amendments thereto. To insist on utilizing this
definition simply because it had been reiterated in Province of Bulacan, unnecessary as
such reiteration may have been to the resolution of that case, would have the
unfortunate effect of infusing life into a concept that is diametrically inconsistent with
the present state of the law.
We thus can assert with clear comfort that excise taxes, as imposed under the
NIRC, do not pertain to the performance, carrying on, or exercise of an activity, at least
not to the extent of equating excise with business taxes.

IV.
We next consider whether the clause taxes, fees or charges on petroleum products in
Section 133(h) precludes local government units from imposing business taxes based on
the sale of petroleum products.
The power of a municipality to impose business taxes derives from Section 143 of the
Code that specifically enumerates several types of business on which it may impose
taxes, including manufacturers, wholesalers, distributors, dealers of any article of
commerce of whatever nature;[38] those engaged in the export or commerce of essential
commodities;[39] retailers;[40] contractors and other independent contractors;[41] banks and
financial institutions;[42] and peddlers engaged in the sale of any merchandise or article
of commerce.[43] This obviously broad power is further supplemented by paragraph (h) of
Section 143 which authorizes the sanggunian to impose taxes on any other businesses
not otherwise specified under Section 143 which the sanggunian concerned may deem
proper to tax.[44]
This ability of local government units to impose business or other local taxes is ultimately
rooted in the 1987 Constitution. Section 5, Article X assures that [e]ach local government
unit shall have the power to create its own sources of revenues and to levy taxes, fees
and charges, though the power is subject to such guidelines and limitations as the
Congress may provide. There is no doubt that following the 1987 Constitution and the
Code, the fiscal autonomy of local government units has received greater affirmation
than ever. Previous decisions that have been skeptical of the viability, if not the wisdom
of reposing fiscal autonomy to local government units have fallen by the wayside.
Respondents cite our declaration in City Government of San Pablo v. Reyes[45] that
following the 1987 Constitution the rule thenceforth in interpreting statutory provisions
on municipal fiscal powers, doubts will have to be resolved in favor of municipal
10

corporations.[46] Such policy is also echoed in Section 5(a) of the Code, which states that
[a]ny provision on a power of a local government unit shall be liberally interpreted in its
favor, and in case of doubt, any question thereon shall be resolved in favor of devolution
of powers and of the lower local government unit. But somewhat conversely, Section
5(b) then proceeds to assert that [i]n case of doubt, any tax ordinance or revenue
measure shall be construed strictly against the local government unit enacting it, and
liberally in favor of the taxpayer. [47] And this latter qualification has to be respected as a
constitutionally authorized limitation which Congress has seen fit to provide. Evidently,
local fiscal autonomy should not necessarily translate into abject deference to the power
of local government units to impose taxes.
Congress has the constitutional authority to impose limitations on the power to tax of
local government units, and Section 133 of the Code is one such limitation. Indeed, the
provision is the explicit statutory impediment to the enjoyment of absolute taxing power
by local government units, not to mention the reality that such power is a delegated
power. To cite one example, under Section 133(g), local government units are disallowed
from levying business taxes on business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of six (6) and (4) four years,
respectively from the date of registration.
Section 133(h) states that local government units shall not extend to the levy of xxx
taxes, fees or charges on petroleum products. Respondents assert that the phrase taxes,
fees or charges on petroleum products pertains to the imposition of direct or excise taxes
on petroleum products, and not business taxes. If the phrase actually pertains to excise
taxes, then it would be an exercise in utter redundancy, since the preceding phrase
already prohibits the imposition of excise taxes on articles already subject to such taxes
under the NIRC, such as petroleum products. There would be no sense on the part of the
legislature to twice emphasize in the same sentence that excise taxes on petroleum
products are beyond the pale of local government taxation.
It appears that this argument of respondents was fashioned on the basis of the
pronouncement of the Court in Philippine Petroleum Corporation v. Municipality of Pililla,
thus:[48]
xxx [W]hile Section 2 of P.D. 436 prohibits the imposition of local taxes on
petroleum products, said decree did not amend Sections 19 and 19 (a) of P.D.
231 as amended by P.D. 426, wherein the municipality is granted the right to
levy taxes on business of manufacturers, importers, producers of any article
of commerce of whatever kind or nature. A tax on business is distinct
from a tax on the article itself. Thus, if the imposition of tax on business
of manufacturers, etc. in petroleum products contravenes a declared national
policy, it should have been expressly stated in P.D. No. 436.
The dicta that [a] tax on a business is distinct from a tax on the article itself might at first
blush somehow lend support to respondents position, yet that dicta has not since been
reprised by this Court. It is likewise worth observing that Pililla did involve a tax
ordinance that imposed business taxes on an enterprise engaged in the manufacture and
storage of petroleum products.
11

Significantly, the legal milieu governing Pililla is vastly different from that existing at bar,
to the extent that the earlier case could not be presently controlling.

At the time the taxes sought to be collected in Pililla were imposed, there was no
national law in place similar to Section 133(h) of the Code that barred local taxes, fees or
charges on petroleum products. There were circulars to that effect issued by the Finance
Department,
yet
the
Court
could
not
validate
such
issuances
since
under the tax laws thenin place no exemptions were given to
manufacturers, wholesalers, retailers, or dealers in petroleum products. [49] In fact, the
Court tellingly observed that if the imposition of tax on business of manufacturers, etc. in
petroleum products contravenes a declared national policy, it should have been
expressly stated in P.D. No. 436.[50] Such expression conspiciously missing in P.D. No. 436
is now found in Section 133(h).
In view of the difference in statutory paradigm between this case and Pililla, the latter
case is severely diminished as applicable precedent at bar. The Court then was correct in
observing that a mere administrative circular could not prohibit a local tax that is not
otherwise barred under a national statute, yet in this case that conflict is not present
since the Code explicitly prohibits the imposition of several classes of local taxes,
including those on petroleum products. The final and only straw Pililla provides that
respondents can still grasp at is the bare statement that [a] tax on a business is distinct
from a tax on the article itself,[51] a sentence which could have been omitted from that
decision without any effect.
We can concede that a tax on a business is distinct from a tax on the article itself, or for
that matter, that a business tax is distinct from an excise tax. However, such distinction
is immaterial insofar as the latter part of Section 133(h) is concerned, for the phrase
taxes, fees or charges on petroleum products does not qualify the kind of taxes, fees or
charges that could withstand the absolute prohibition imposed by the provision. It would
have been a different matter had Congress, in crafting Section 133(h), barred excise
taxes or direct taxes, or any category of taxes only, for then it would be understood that
only such specified taxes on petroleum products could not be imposed under the
prohibition. The absence of such a qualification leads to the conclusion that all sorts of
taxes on petroleum products, including business taxes, are prohibited by Section 133(h).
Where the law does not distinguish, we should not distinguish.
The language of Section 133(h) makes plain that the prohibition with respect to
petroleum products extends not only to excise taxes thereon, but all taxes, fees and
charges. The earlier reference in paragraph (h) to excise taxes comprehends a wider
range of subjects of taxation: all articles already covered by excise taxation under the
NIRC, such as alcohol products, tobacco products, mineral products, automobiles, and
such non-essential goods as jewelry, goods made of precious metals, perfumes, and
12

yachts and other vessels intended for pleasure or sports. In contrast, the later reference
to taxes, fees and charges pertains only to one class of articles of the many subjects of
excise taxes, specifically, petroleum products. While local government units are
authorized to burden all such other class of goods with taxes, fees and charges,
excepting excise taxes, a specific prohibition is imposed barring the levying of any other
type of taxes with respect to petroleum products.
V.
We no longer need to dwell on the arguments centering on Article 232 of the IRR.
As earlier stated, the provision explicitly stipulates that in line with existing national
policy, any business engaged in the production, manufacture, refining, distribution or
sale of oil, gasoline and other petroleum products shall not be subject to any local tax
imposed on this article [on business taxes]. The RTC went as far as to declare Article 232
as invalid on the premise that the prohibition was not similarly warranted under the
Code.
Assuming that the Code does not, in fact, prohibit the imposition of business taxes
on petroleum products, we would agree that the IRR could not impose such a prohibition.
With our ruling that Section 133(h) does indeed prohibit the imposition of local business
taxes on petroleum products, however, the RTC declaration that Article 232 was invalid
is, in turn, itself invalid. Even absent Article 232, local government units cannot impose
business taxes on petroleum products. If anything, Article 232 merely reiterates what the
Code itself already provides, with the additional explanation that such prohibition was in
line with existing national policy.

VI.
We have said all that need be said for the resolution of this case, but there is one more
line of argument raised by respondents that deserves a remark. Respondents argue,
assuming... that the Oversight Committee [that drafted the IRR] can legislate, that the
existing national policy referred to in Article 232 had been superseded by Republic Act
No. 8180, or the Oil Deregulation Law. Boiled down to its essence, the argument is that
since the oil industry is presently deregulated the basis for exempting petroleum
products from business taxes no longer exists.
Of course, the starting premise for this argument, that the IRR can establish a tax or an
exemption, is false and has been flatly rejected by this Court before. [52] The Code itself
does not connect its prohibition on taxation of petroleum products with any existing or
future national oil policy, so the change in such national policy with the regime of oil
deregulation is ultimately of no moment. Still, we can divine the reasoning behind
singling out petroleum products, among all other commodities, as beyond the power of
local government units to levy local taxes.
13

Why the special concern over petroleum products? The answer is quite evident to all
sentient persons. In this age where unfortunately dependence on petroleum as fuel has
yet no equally feasible alternative, the cost of petroleum products, though fully
controlled by private enterprise, remains an area of public concern. To be blunt about it,
there is an inevitable link between the fluctuation of oil prices and the prices of every
other commodity. The reality, indeed, is oil is a political commodity. Such fact has
received recognition from this Court. [O]il [is] a commodity whose supply and price affect
the ebb and flow of the lifeblood of the nation. Its shortage of supply or a slight, upward
spiral in its price shakes our economic foundation. Studies show that the areas most
impacted by the movement of oil are food manufacture, land transport, trade, electricity
and water.[53] [T]he upswing and downswing of our economy materially depend on the
oscillation of oil.[54] Fluctuations in the supply and price of oil products have a dramatic
effect on economic development and public welfare.[55]
It can be reasonably presumed that if municipalities, cities and provinces were
authorized to impose business taxes on manufacturers and retailers of petroleum
products, the resulting losses to these enterprises would be passed on to the consumers,
triggering the chain of increases that normally accompany the increase in oil prices. No
similarly massive trigger effect would ensue upon the imposition of business taxes on
other commodities, including those already subject to excise taxation under the NIRC.

It may very well be that the policy of deregulation, which was not yet in effect at
the time of the enactment of the Local Government Code, has changed the complexion
of the issue, for unlike before, oil companies are free at will to increase oil prices, thus
mitigating the similarly arbitrary consequences that could develop if petroleum products
were subject to local taxes. Still, it cannot be denied that subjecting petroleum products
to business taxes apart from the taxes already imposed by Congress in this age of
deregulation would lead to the same result had they been so taxed during the era of oil
regulation the increase of oil prices. We do not discount the authority of Congress to
enact measures that facilitate the increase in oil prices; witness the Oil Deregulation Law
and the most recent Expanded VAT Law. Yet these hard choices are presumably made by
Congress with the expectation that the negative effects of increased oil prices are offset
by the other economic benefits promised by those new laws (i.e., a more vibrant oil
industry; increased government revenue).
The Court defers to the other branches of government in the formulation of oil
policy, but when the choices are made through legislation, the Court expects that the
choices are deliberate, considering that the stakes are virtually all-in. Herein,
respondents may be bolstered by the constitutional and statutory policy favoring local
fiscal autonomy, but it would be utter indolence to reflexively affirm such policy when
the inevitable effect is an increase in oil prices. Any prudent adjudication should fully
ascertain the mandate of local government units to impose taxes on petroleum products,
and such mandate should be cast in so specific terms as to leave no dispute as to the
14

legislative intendment to extend such power in the name of local autonomy. What we
have found instead, from the plain letter of the law is an explicit disinclination on the
part of the legislature to impart that particular taxing power to local government units.
While Section 133(h) does not generally bar the imposition of business taxes on
articles burdened by excise taxes under the NIRC, it specifically prohibits local
government units from extending the levy of any kind of taxes, fees or charges on
petroleum products. Accordingly, the subject tax assessment is ultra vires and void.
WHEREFORE,
the
Petition
is
GRANTED.
The
Decision
of
the Regional Trial Court of Malabon City in Civil Case No. 3380-MN is REVERSED and SET
ASIDE and the subject assessment for
deficiency taxes on petitioner is ordered CANCELLED. The Temporary Restraining Order
dated 4 August 2003 is hereby made PERMANENT. No pronouncement as to costs.
SO ORDERED.

EUSEBIO
VILLANUEVA,
vs.
CITY OF ILOILO, defendants-appellants.

ET

Pelaez,
Jalandoni
and
Jamir
for
Assistant City Fiscal Vicente P. Gengos for defendant-appellant.

AL., plaintiff-appellee,

plaintiff-appellees.

CASTRO, J.:
Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of
Iloilo declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing
Municipal License Tax On Persons Engaged In The Business Of Operating Tenement
Houses," and ordering the City to refund to the plaintiffs-appellees the sums of collected
from them under the said ordinance.
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86,
imposing license tax fees as follows: (1) tenement house (casa de vecindad), P25.00
annually; (2) tenement house, partly or wholly engaged in or dedicated to business in
the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house,
partly or wholly engaged in business in any other streets, P12.00 per apartment. The
validity and constitutionality of this ordinance were challenged by the spouses Eusebio
Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34
apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio
Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not
appearing that the power to tax owners of tenement houses is one among those clearly
and expressly granted to the City of Iloilo by its Charter."
On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the
passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had
acquired the authority or power to enact an ordinance similar to that previously declared
by this Court as ultra vires, enacted Ordinance 11, series of 1960, hereunder quoted in
full:
15

AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE

BUSINESS OF OPERATING TENEMENT HOUSES
Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the
provisions of Republic Act No. 2264, otherwise known as the Autonomy Law of
Local Government, that:
Section 1. A municipal license tax is hereby imposed on tenement houses in
accordance with the schedule of payment herein provided.
Section 2. Tenement house as contemplated in this ordinance shall mean any
building or dwelling for renting space divided into separate apartments or
accessorias.
Section 3. The municipal license tax provided in Section 1 hereof shall be as
follows:

I. Tenement houses:

(a) Apartment house made of strong materials

P20.00 per door

p.a.

(b) Apartment house made of mixed materials

P10.00 per door

p.a.

II Rooming house of strong materials

P10.00 per door

p.a.

Rooming house of mixed materials

P5.00 per door

p.a.

III. Tenement house partly or wholly engaged in or

dedicated to business in the following streets: J.M.
Basa, Iznart, Aldeguer, Guanco and Ledesma from P30.00 per door
Plazoleto Gay to Valeria. St.
p.a.

IV. Tenement house partly or wholly engaged in or P12.00 per door

dedicated to business in any other street
p.a.

V. Tenement houses at the streets surrounding the

super market as soon as said place is declared P24.00 per door
commercial
p.a.

16

Section 4. All ordinances or parts thereof inconsistent herewith are hereby

amended.
Section 5. Any person found violating this ordinance shall be punished with a
fine note exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more
than six (6) months or both at the discretion of the Court.
Section
6

This
ordinance
ENACTED, January 15, 1960.

shall

take

effect

upon

approval.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of
five tenement houses, aggregately containing 43 apartments, while the other appellees
and the same Remedios S. Villanueva are owners of ten apartments. Each of the
appellees' apartments has a door leading to a street and is rented by either a Filipino or
Chinese merchant. The first floor is utilized as a store, while the second floor is used as a
dwelling of the owner of the store. Eusebio Villanueva owns, likewise, apartment
buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon City, which cities,
according to him, do not impose tenement or apartment taxes.
By virtue of the ordinance in question, the appellant City collected from spouses Eusebio
Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30,
and from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva,
for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been
paying real estate taxes on his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an
amended complaint, respectively, against the City of Iloilo, in the aforementioned court,
praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the
powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for
being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of
the equal protection clause of the Constitution," and that the City be ordered to refund
the amounts collected from them under the said ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal
on the grounds that (a) "Republic Act 2264 does not empower cities to impose apartment
taxes," (b) the same is "oppressive and unreasonable," for the reason that it penalizes
owners of tenement houses who fail to pay the tax, (c) it constitutes not only double
taxation, but treble at that and (d) it violates the rule of uniformity of taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes
double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement
taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries
a penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?
1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:
SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities,
municipalities and municipal districts shall have authority to impose municipal
license taxes or fees upon persons engaged in any occupation or business, or
exercising privileges in chartered cities, municipalities or municipal districts by
requiring them to secure licences at rates fixed by the municipal board or city
17

council of the city, the municipal council of the municipality, or the municipal
district council of the municipal district; to collect fees and charges for services
rendered by the city, municipality or municipal district; to regulate and impose
reasonable fees for services rendered in connection with any business, profession
or occupation being conducted within the city, municipality or municipal district
and otherwise to levy for public purposes, just and uniform taxes, licenses or
fees; Provided, That municipalities and municipal districts shall, in no case, impose
any percentage tax on sales or other taxes in any form based thereon nor impose
taxes on articles subject to specific tax, except gasoline, under the provisions of
the National Internal Revenue Code;Provided, however, That no city, municipality
or municipal district may levy or impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and publication of any
newspaper, magazine, review or bulletin appearing at regular intervals and having
fixed prices for for subscription and sale, and which is not published primarily for
the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public utilities
except electric light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis
causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance of all
kinds of licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned by the national
government, tonnage, and all other kinds of customs fees, charges and duties;
(j) Taxes of any kind on banks, insurance companies, and persons paying franchise
tax; and
(k) Taxes on premiums paid by owners of property who obtain insurance directly
with foreign insurance companies.
A tax ordinance shall go into effect on the fifteenth day after its passage, unless
the ordinance shall provide otherwise: Provided, however, That the Secretary of
Finance shall have authority to suspend the effectivity of any ordinance within one
hundred and twenty days after its passage, if, in his opinion, the tax or fee therein
levied or imposed is unjust, excessive, oppressive, or confiscatory, and when the
said Secretary exercises this authority the effectivity of such ordinance shall be
suspended.
In such event, the municipal board or city council in the case of cities and the
municipal council or municipal district council in the case of municipalities or
municipal districts may appeal the decision of the Secretary of Finance to the court
during the pendency of which case the tax levied shall be considered as paid under
protest.
It is now settled that the aforequoted provisions of Republic Act 2264 confer on local
governments broad taxing authority which extends to almost "everything, excepting
18

those which are mentioned therein," provided that the tax so levied is "for public
purposes, just and uniform," and does not transgress any constitutional provision or is
not repugnant to a controlling statute.2 Thus, when a tax, levied under the authority of a
city or municipal ordinance, is not within the exceptions and limitations aforementioned,
the same comes within the ambit of the general rule, pursuant to the rules of expressio
unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti.
Does the tax imposed by the ordinance in question fall within any of the exceptions
provided for in section 2 of the Local Autonomy Act? For this purpose, it is necessary to
determine the true nature of the tax. The appellees strongly maintain that it is a
"property tax" or "real estate tax," 3 and not a "tax on persons engaged in any occupation
or business or exercising privileges," or a license tax, or a privilege tax, or an excise
tax.4 Indeed, the title of the ordinance designates it as a "municipal license
tax on persons engaged in the business of operating tenement houses," while section 1
thereof states that a "municipal license tax is hereby imposed on tenement houses." It is
the phraseology of section 1 on which the appellees base their contention that the tax
involved is a real estate tax which, according to them, makes the ordinance ultra vires as
it imposes a levy "in excess of the one per centum real estate tax allowable under Sec.
38 of the Iloilo City Charter, Com. Act 158."5.
It is our view, contrary to the appellees' contention, that the tax in question is not a real
estate tax. Obviously, the appellees confuse the tax with the real estate tax within the
meaning of the Assessment Law,6 which, although not applicable to the City of Iloilo, has
counterpart provisions in the Iloilo City Charter.7 A real estate tax is a direct tax on the
ownership of lands and buildings or other improvements thereon, not specially
exempted,8 and is payable regardless of whether the property is used or not, although
the value may vary in accordance with such factor. 9 The tax is usually single or
indivisible, although the land and building or improvements erected thereon are
assessed separately, except when the land and building or improvements belong to
separate owners.10 It is a fixed proportion11 of the assessed value of the property taxed,
and requires, therefore, the intervention of assessors. 12 It is collected or payable at
appointed times,13 and it constitutes a superior lien on and is enforceable against the
property14 subject to such taxation, and not by imprisonment of the owner.
The tax imposed by the ordinance in question does not possess the aforestated
attributes. It is not a tax on the land on which the tenement houses are erected,
although both land and tenement houses may belong to the same owner. The tax is not
a fixed proportion of the assessed value of the tenement houses, and does not require
the intervention of assessors or appraisers. It is not payable at a designated time or
date, and is not enforceable against the tenement houses either by sale or distraint.
Clearly, therefore, the tax in question is not a real estate tax.
"The spirit, rather than the letter, or an ordinance determines the construction thereof,
and the court looks less to its words and more to the context, subject-matter,
consequence and effect. Accordingly, what is within the spirit is within the ordinance
although it is not within the letter thereof, while that which is in the letter, although not
within the spirit, is not within the ordinance." 15 It is within neither the letter nor the spirit
of the ordinance that an additional real estate tax is being imposed, otherwise the
subject-matter would have been not merely tenement houses. On the contrary, it is plain
from the context of the ordinance that the intention is to impose a license tax on the
operation of tenement houses, which is a form of business or calling. The ordinance, in
both its title and body, particularly sections 1 and 3 thereof, designates the tax imposed
as a "municipal license tax" which, by itself, means an "imposition or exaction on the
right to use or dispose of property, to pursue a business, occupation, or calling, or to
exercise a privilege."16.
"The character of a tax is not to be fixed by any isolated words that may
beemployed in the statute creating it, but such words must be taken in the
connection in which they are used and the true character is to be deduced from
19

the nature and essence of the subject." 17 The subject-matter of the ordinance is
tenement houses whose nature and essence are expressly set forth in section 2
which defines a tenement house as "any building or dwelling for renting
space divided into separate apartments or accessorias." The Supreme Court,
in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959,
adopted the definition of a tenement house 18 as "any house or building, or portion
thereof, which is rented, leased, or hired out to be occupied, or is occupied, as the
home or residence of three families or more living independently of each other and
doing their cooking in the premises or by more than two families upon any floor, so
living and cooking, but having a common right in the halls, stairways, yards, waterclosets, or privies, or some of them." Tenement houses, being necessarily offered
for rent or lease by their very nature and essence, therefore constitute a distinct
form of business or calling, similar to the hotel or motel business, or the operation
of lodging houses or boarding houses. This is precisely one of the reasons why this
Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva, et al., supra,
declared Ordinance 86 ultra vires, because, although the municipal board of Iloilo
City is empowered, under sec. 21, par. j of its Charter, "to tax, fix the license fee
for, and regulate hotels, restaurants, refreshment parlors, cafes, lodging houses,
boarding houses, livery garages, public warehouses, pawnshops, theaters,
cinematographs," tenement houses, which constitute a different business
enterprise,19 are not mentioned in the aforestated section of the City Charter of
Iloilo. Thus, in the aforesaid case, this Court explicitly said:.
"And it not appearing that the power to tax owners of tenement houses is one
among those clearly and expressly granted to the City of Iloilo by its Charter, the
exercise of such power cannot be assumed and hence the ordinance in question
is ultra vires insofar as it taxes a tenement house such as those belonging to
defendants." .
The lower court has interchangeably denominated the tax in question as a tenement tax
or an apartment tax. Called by either name, it is not among the exceptions listed in
section 2 of the Local Autonomy Act. On the other hand, the imposition by the ordinance
of a license tax on persons engaged in the business of operating tenement houses finds
authority in section 2 of the Local Autonomy Act which provides that chartered cities
have the authority to impose municipal license taxes or fees upon persons engaged in
any occupation or business, or exercising privileges within their respective territories,
and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not only double taxation but
treble at that," because "buildings pay real estate taxes and also income taxes as
provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides the
tenement tax under the said ordinance." Obviously, what the trial court refers to as
"income taxes" are the fixed taxes on business and occupation provided for in section
182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged
in "leasing or renting property, whether on their account as principals or as owners of
rental property or properties," are considered "real estate dealers" and are taxed
according to the amount of their annual income.20.
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of
the National Internal Revenue Code as real estate dealers, and still taxable under the
ordinance in question, the argument against double taxation may not be invoked. The
same tax may be imposed by the national government as well as by the local
government. There is nothing inherently obnoxious in the exaction of license fees or
taxes with respect to the same occupation, calling or activity by both the State and a
political subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly taxed because they are paying
the real estate taxes and the tenement tax imposed by the ordinance in question, is also
devoid of merit. It is a well-settled rule that a license tax may be levied upon a business
20

or occupation although the land or property used in connection therewith is subject to

property tax. The State may collect an ad valorem tax on property used in a calling, and
at the same time impose a license tax on that calling, the imposition of the latter kind of
tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or prohibited sense the
same property must be taxed twice when it should be taxed but once; both taxes
must be imposed on the same property or subject-matter, for the same purpose,
by the same State, Government, or taxing authority, within the same jurisdiction or
taxing district, during the same taxing period, and they must be the same kind or
character of tax."23 It has been shown that a real estate tax and the tenement tax
imposed by the ordinance, although imposed by the sametaxing authority, are not
of the same kind or character.
At all events, there is no constitutional prohibition against double taxation in the
Philippines.24 It is something not favored, but is permissible, provided some other
constitutional requirement is not thereby violated, such as the requirement that taxes
must be uniform."25.
3. The appellant City takes exception to the conclusion of the lower court that the
ordinance is not only oppressive because it "carries a penal clause of a fine of P200.00 or
imprisonment of 6 months or both, if the owner or owners of the tenement buildings
divided into apartments do not pay the tenement or apartment tax fixed in said
ordinance," but also unconstitutional as it subjects the owners of tenement houses to
criminal prosecution for non-payment of an obligation which is purely sum of money."
The lower court apparently had in mind, when it made the above ruling, the provision of
the Constitution that "no person shall be imprisoned for a debt or non-payment of a poll
tax."26 It is elementary, however, that "a tax is not a debt in the sense of an obligation
incurred by contract, express or implied, and therefore is not within the meaning of
constitutional or statutory provisions abolishing or prohibiting imprisonment for debt, and
a statute or ordinance which punishes the non-payment thereof by fine or imprisonment
is not, in conflict with that prohibition." 27 Nor is the tax in question a poll tax, for the
latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class,
resident within a specified territory, without regard to their property or the occupations
in which they may be engaged.28 Therefore, the tax in question is not oppressive in the
manner the lower court puts it. On the other hand, the charter of Iloilo City 29 empowers
its municipal board to "fix penalties for violations of ordinances, which shall not exceed a
fine of two hundred pesos or six months' imprisonment, or both such fine and
imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this
Court overruled the pronouncement of the lower court declaring illegal and void an
ordinance imposing an occupation tax on persons exercising various professions in the
City of Manilabecause it imposed a penalty of fine and imprisonment for its violation.30.
4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.
"... because while the owners of the other buildings only pay real estate tax and
income taxes the ordinance imposes aside from these two taxes an apartment or
tenement tax. It should be noted that in the assessment of real estate tax all parts
of the building or buildings are included so that the corresponding real estate tax
could be properly imposed. If aside from the real estate tax the owner or owners of
the tenement buildings should pay apartment taxes as required in the ordinance
then it will violate the rule of uniformity of taxation.".
Complementing the above ruling of the lower court, the appellees argue that there is
"lack of uniformity" and "relative inequality," because "only the taxpayers of the City of
Iloilo are singled out to pay taxes on their tenement houses, while citizens of other cities,
where their councils do not enact a similar tax ordinance, are permitted to escape such
imposition." .
21

It is our view that both assertions are undeserving of extended attention. This Court has
already ruled that tenement houses constitute a distinct class of property. It has likewise
ruled that "taxes are uniform and equal when imposed upon all property of the same
class or character within the taxing authority."31 The fact, therefore, that the owners of
other classes of buildings in the City of Iloilo do not pay the taxes imposed by the
ordinance in question is no argument at all against uniformity and equality of the tax
imposition. Neither is the rule of equality and uniformity violated by the fact that
tenement taxesare not imposed in other cities, for the same rule does not require that
taxes for the same purpose should be imposed in different territorial subdivisions at the
same time.32So long as the burden of the tax falls equally and impartially on all owners
or operators of tenement houses similarly classified or situated, equality and uniformity
of taxation is accomplished.33 The plaintiffs-appellees, as owners of tenement houses in
the City of Iloilo, have not shown that the tax burden is not equally or uniformly
distributed among them, to overthrow the presumption that tax statutes are intended to
operate uniformly and equally.34.
5. The last important issue posed by the appellees is that since the ordinance in the case
at bar is a mere reproduction of Ordinance 86 of the City of Iloilo which was declared by
this Court in L-12695, supra, as ultra vires, the decision in that case should be accorded
the effect of res judicata in the present case or should constitute estoppel by judgment.
To dispose of this contention, it suffices to say that there is no identity of subject-matter
in that case andthis case because the subject-matter in L-12695 was an ordinance which
dealt not only with tenement houses but also warehouses, and the said ordinance was
enacted pursuant to the provisions of the City charter, while the ordinance in the case at
bar was enacted pursuant to the provisions of the Local Autonomy Act. There is likewise
no identity of cause of action in the two cases because the main issue in L-12695 was
whether the City of Iloilo had the power under its charter to impose the tax levied by
Ordinance 11, series of 1960, under the Local Autonomy Act which took effect on June
19, 1959, and therefore was not available for consideration in the decision in L-12695
which was promulgated on March 23, 1959. Moreover, under the provisions of section 2
of the Local Autonomy Act, local governments may now tax any taxable subject-matter
or object not included in the enumeration of matters removed from the taxing power of
local governments.Prior to the enactment of the Local Autonomy Act the taxes that could
be legally levied by local governments were only those specifically authorized by law,
and their power to tax was construed in strictissimi juris. 35.
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing
valid, the complaint is hereby dismissed. No pronouncement as to costs..

PROGRESSIVE
DEVELOPMENT
vs.
QUEZON CITY, respondent.

CORPORATION, petitioner

Jalandoni, Herrera, Del Castillo & Associates for petitioner.

FELICIANO, J.:
On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance
No. 7997, Series of 1969, otherwise known as the Market Code of Quezon City, Section 3
of which provided:

22

Sec. 3. Supervision Fee.- Privately owned and operated public markets shall
submit monthly to the Treasurer's Office, a certified list of stallholders
showing the amount of stall fees or rentals paid daily by each stallholder, ...
and shall pay 10% of the gross receipts from stall rentals to the City, ... , as
supervision fee. Failure to submit said list and to pay the corresponding
amount within the period herein prescribed shall subject the operator to the
penalties provided in this Code ... includingrevocation of permit to
operate. ... .1
The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23
March 1972, which reads:
SECTION 1. There is hereby imposed a five percent (5 %) tax on gross
receipts on rentals or lease of space in privately-owned public markets in
Quezon City.
xxx xxx xxx
SECTION 3. For the effective implementation of this Ordinance, owners of
privately owned public markets shall submit ... a monthly certified list of
stallholders of lessees of space in their markets showing ... :
a. name of stallholder or lessee;
b. amount of rental;
c. period of lease, indicating therein whether the same is on a daily, monthly
or yearly basis.
xxx xxx xxx
SECTION 4. ... In case of consistent failure to pay the percentage tax for the
(3) consecutive months, the City shall revoke the permit of the privatelyowned market to operate and/or take any other appropriate action or remedy
allowed by law for the collection of the overdue percentage tax and
surcharge.
xxx xxx xxx 2
On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of
a public market known as the "Farmers Market & Shopping Center" filed a Petition for
Prohibition with Preliminary Injunction against respondent before the then Court of First
Instance of Rizal on the ground that the supervision fee or license tax imposed by the
above-mentioned ordinances is in reality a tax on income which respondent may not
impose, the same being expressly prohibited by Republic Act No. 2264, as amended.
In its Answer, respondent, through the City Fiscal, contended that it had authority to
enact the questioned ordinances, maintaining that the tax on gross receipts imposed
therein is not a tax on income. The Solicitor General also filed an Answer arguing that
petitioner, not having paid the ten percent (10%) supervision fee prescribed by
Ordinance No. 7997, had no personality to question, and was estopped from questioning,
its validity; that the tax on gross receipts was not a tax on income but one imposed for
23

the enjoyment of the privilege to engage in a particular trade or business which was
within the power of respondent to impose.
In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under
protest the five percent (5%) tax under Ordinance No. 9236 for the months of June to
September 1972. Two (2) days later, on 25 September 1972, petitioner moved for
judgment on the pleadings, alleging that the material facts had been admitted by the
parties.
On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned
imposition is not a tax on income, but rather a privilege tax or license fee which local
governments, like respondent, are empowered to impose and collect.
Having failed to obtain reconsideration of said decision, petitioner came to us on the
present Petition for Review.
The only issue to be resolved here is whether the tax imposed by respondent on gross
receipts of stall rentals is properly characterized as partaking of the nature of an income
tax or, alternatively, of a license fee.
We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise
known as the Revised Charter of Quezon City, authorizes the City Council:
xxx xxx xxx
(b) To provide for the levy and collection of taxes and other city revenues and
apply the same to the payment of city expenses in accordance with
appropriations.
(c) To tax, fix the license fee, and regulate the business of the following:
... preparation and sale of meat, poultry, fish, game, butter, cheese, lard
vegetables, bread and other provisions. 4
The scope of legislative authority conferred upon the Quezon City Council in respect of
businesses like that of the petitioner, is comprehensive: the grant of authority is not
only" [to] regulate" and "fix the license fee," but also " to tax" 5
Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local
Autonomy Act, provides that:
Any provision of law to the contrary notwithstanding, all chartered
cities, municipalities and municipal districts shall have authority to impose
municipal license taxes or fees upon persons engaged in any occupation or
business, or exercising privileges in chartered cities, municipalities or
municipal districts by requiring them to secure licenses at rates fixed by the
municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to
collect fees and charges for service rendered by the city, municipality or
municipal district; to regulate and impose reasonable fees for services
rendered in connection with any business, profession or occupation being
conducted within the city, municipality or municipal district and otherwise to
levy for public purposes just and uniform taxes licenses or fees: ... 6
24

It is now settled that Republic Act No. 2264 confers upon local governments broad taxing
authority extending to almost "everything, excepting those which are mentioned
therein," provided that the tax levied is "for public purposes, just and uniform," does not
transgress any constitutional provision and is not repugnant to a controlling
statute. 7 Both the Local Autonomy Act and the Charter of respondent clearly show that
respondent is authorized to fix the license fee collectible from and regulate the business
of petitioner as operator of a privately-owned public market.
Petitioner, however, insist that the "supervision fee" collected from rentals, being a
return from capital invested in the construction of the Farmers Market, practically
operates as a tax on income, one of those expressly excepted from respondent's taxing
authority, and thus beyond the latter's competence. Petitioner cites the same Section 2
of the Local Autonomy Act which goes on to state: 8
... Provided, however, That no city, municipality or municipal district may
levy or impose any of the following:
xxx xxx xxx
(g) Taxes on income of any kind whatsoever;
The term "tax" frequently applies to all kinds of exactions of monies which become
public funds. It is often loosely used to include levies for revenue as well as levies for
regulatory purposes such that license fees are frequently called taxes although license
fee is a legal concept distinguishable from tax: the former is imposed in the exercise of
police power primarily for purposes of regulation, while the latter is imposed under the
taxing power primarily for purposes of raising revenues. 9 Thus, if the generating of
revenue is the primary purpose and regulation is merely incidental, the imposition is a
tax; but if regulation is the primary purpose, the fact that incidentally revenue is also
obtained does not make the imposition a tax. 10
To be considered a license fee, the imposition questioned must relate to an occupation or
activity that so engages the public interest in health, morals, safety and development as
to require regulation for the protection and promotion of such public interest; the
imposition must also bear a reasonable relation to the probable expenses of regulation,
taking into account not only the costs of direct regulation but also its incidental
consequences as well.11 When an activity, occupation or profession is of such a
character that inspection or supervision by public officials is reasonably necessary for the
safeguarding and furtherance of public health, morals and safety, or the general welfare,
the legislature may provide that such inspection or supervision or other form of
regulation shall be carried out at the expense of the persons engaged in such occupation
or performing such activity, and that no one shall engage in the occupation or carry out
the activity until a fee or charge sufficient to cover the cost of the inspection or
supervision has been paid. 12Accordingly, a charge of a fixed sum which bears no
relation at all to the cost of inspection and regulation may be held to be a tax rather than
an exercise of the police power. 13
In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of
Resolution No. 7350 passed on 30 January 1967 by respondents's local legislative body
authorizing petitioner to establish and operate a market with a permit to sell fresh meat,
fish, poultry and other foodstuffs. 14 The same resolution imposed upon petitioner, as a
condition for continuous operation, the obligation to "abide by and comply with the
25

ordinances, rules and regulations prescribed for the establishment, operation and
maintenance of markets in Quezon City." 15
The "Farmers' Market and Shopping Center" being a public market in the' sense of a
market open to and inviting the patronage of the general public, even though privately
owned, petitioner's operation thereof required a license issued by the respondent City,
the issuance of which, applying the standards set forth above, was done principally in
the exercise of the respondent's police power. 16 The operation of a privately owned
market is, as correctly noted by the Solicitor General, equivalent to or quite the same as
the operation of a government-owned market; both are established for the rendition of
service to the general public, which warrants close supervision and control by the
respondent City, 17 for the protection of the health of the public by insuring, e.g., the
maintenance of sanitary and hygienic conditions in the market, compliance of all food
stuffs sold therein with applicable food and drug and related standards, for the
prevention of fraud and imposition upon the buying public, and so forth.
We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax (as distinguished from
the national income tax imposed by the National Internal Revenue Code) within the
meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for
the regulation of the business in which the petitioner is engaged. While it is true that the
amount imposed by the questioned ordinances may be considered in determining
whether the exaction is really one for revenue or prohibition, instead of one of regulation
under the police power, 18 it nevertheless will be presumed to be reasonable. Local'
governments are allowed wide discretion in determining the rates of imposable license
fees even in cases of purely police power measures, in the absence of proof as to
particular municipal conditions and the nature of the business being taxed as well as
other detailed factors relevant to the issue of arbitrariness or unreasonableness of the
questioned rates. 19 Thus:
[A]n ordinance carries with it the presumption of validity. The question of
reasonableness though is open to judicial inquiry. Much should be left thus to
the discretion of municipal authorities. Courts will go slow in writing off an
ordinance as unreasonable unless the amount is so excessive as to be
prohibitory, arbitrary, unreasonable, oppressive, or confiscatory. A rule which
has gained acceptance is that factors relevant to such an inquiry are the
municipal conditions as a whole and the nature of the business made subject
to imposition. 20
Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large
and excessive and so grossly disproportionate to the costs of the regulatory service
being performed by the respondent as to compel the Court to characterize the imposition
as a revenue measure exclusively. The lower court correctly held that the gross receipts
from stall rentals have been used only as a basis for computing the fees or taxes due
respondent to cover the latter's administrative expenses, i.e., for regulation and
supervision of the sale of foodstuffs to the public. The use of the gross amount of stall
rentals as basis for determining the collectible amount of license tax, does not by itself,
upon the one hand, convert or render the license tax into a prohibited city tax on
income. Upon the other hand, it has not been suggested that such basis has no
reasonable relationship to the probable costs of regulation and supervision of the
petitioner's kind of business. For, ordinarily, the higher the amount of stall rentals, the
higher the aggregate volume of foodstuffs and related items sold in petitioner's privately
26

owned market; and the higher the volume of goods sold in such private market, the
greater the extent and frequency of inspection and supervision that may be reasonably
required in the interest of the buying public. Moreover, what we started with should be
recalled here: the authority conferred upon the respondent's City Council is not merely
"to regulate" but also embraces the power "to tax" the petitioner's business.
Finally, petitioner argues that respondent is without power to impose a gross receipts tax
for revenue purposes absent an express grant from the national government. As a
general rule, there must be a statutory grant for a local government unit to impose
lawfully a gross receipts tax, that unit not having the inherent power of taxation.21 The
rule, however, finds no application in the instant case where what is involved is an
exercise of, principally, the regulatory power of the respondent City and where that
regulatory power is expressly accompanied by the taxing power.
ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City,
Branch 18, is hereby AFFIRMED and the Court Resolved to DENY the Petition for lack of
merit.
SO ORDERED.

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner, vs. CITY OF

BACOLOD, FLORENTINO T. GUANCO, in his capacity as the City Treasurer
of Bacolod City, and ANTONIO G. LACZI, in his capacity as the City Legal
Officer of Bacolod City, respondents.
DECISION
GARCIA, J.:
In this appeal by way of a petition for review on certiorari under Rule 45 of the Rules
of Court, petitioner Philippine Long Distance Telephone Company (PLDT), seeks the
reversal and setting aside of the July 23, 2001 decision[1] of the Regional Trial Court at
Bacolod City, Branch 42, dismissing its petition in Civil Case No. 99-10786, an action
to declare petitioner as exempt from the payment of franchise and business taxes sought
to be imposed and collected by the respondent City of Bacolod.
The material facts are not at all disputed:
PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to render
local and international telecommunications services. On August 24, 1991, the terms and
conditions of its franchise were consolidated under Republic Act No. 7082, [2] Section 12 of
which embodies the so-called in-lieu-of-all-taxes clause, whereunder PLDT shall pay a
franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise
tax shall be in lieu of all taxes. More specifically, the provision pertinently reads:
SEC. 12. xxx In addition thereto, the grantee, its successors or assigns shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or
other telecommunications businesses transacted under this franchise by the grantee, its
27

successors or assigns, and the said percentage shall be in lieu of all taxes on this
franchise or earnings thereof. xxx (Italics ours).
Meanwhile, or on January 1, 1992, Republic Act No. 7160, otherwise known as
the Local Government Code, took effect. Section 137 of the Code, in relation to Section
151 thereof, grants cities and other local government units the power to impose local
franchise tax on businesses enjoying a franchise, thus:
SEC. 137. Franchise Tax. Notwithstanding any exemption granted by any law or other
special law, the province may impose a tax on businesses enjoying a franchise, at a rate
not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for
the preceding calendar year based on the incoming receipt, or realized, within its
territorial jurisdiction.
xxx xxx xxx
SEC. 151. Scope of Taxing Powers. Except as otherwise provided in this Code, the city,
may levy the taxes, fees, and charges which the province or municipality may
impose: Provided, however, That the taxes, fees, and charges levied and collected by
highly urbanized and independent component cities shall accrue to them and distributed
in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of
professional and amusement taxes.
By Section 193 of the same Code, all tax exemption privileges then enjoyed by all
persons, whether natural or juridical, save those expressly mentioned therein, were
withdrawn, necessarily including those taxes from which PLDT is exempted under the inlieu-of-all-taxes clause in its charter. We quote Section 193:
SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.
Aiming to level the playing field among telecommunication companies, Congress
enacted Republic Act No. 7925, otherwise known as the Public Telecommunications
Policy Act of the Philippines, which took effect on March 16, 1995. To achieve the
legislative intent, Section 23 thereof, also known as the most-favored- treatment clause,
provides for an equality of treatment in the telecommunications industry, thus:
SEC. 23. Equality of Treatment in the Telecommunications Industry Any advantage, favor,
privilege, exemption, or immunity granted under existing franchises, or may hereafter be
granted shall ipso factobecome part of previously granted telecommunications
franchises and shall be accorded immediately and unconditionally to the grantees of
such franchises: Provided, however, That the foregoing shall neither apply to nor affect
provisions of telecommunications franchises concerning territory covered by the
franchise, the life span of the franchise, or the type of the service authorized by the
franchise.
28

In August 1995, the City of Bacolod, invoking its authority under Section 137, in
relation to Section 151 and Section 193, supra, of the Local Government Code, made an
assessment on PLDT for the payment of franchise tax due the City.
Complying therewith, PLDT began paying the City franchise tax from the year 1994
until the third quarter of 1998, at which time the total franchise tax it had paid the City
already amounted to P2,770,696.37.
On June 2, 1998, the Department of Finance through its Bureau of Local Government
Finance (BLGF), issued a ruling to the effect that as of March 16, 1995, the effectivity
date of thePublic Telecommunications Policy Act of the Philippines (Rep. Act. No. 7925),
PLDT, among other telecommunication companies, became exempt from local franchise
tax. Pertinently, the BLGF ruling reads:
It appears that RA 7082 further amending ACT No. 3436 which granted to PLDT a
franchise to install, operate and maintain a telephone system throughout the Philippine
Islands was approved on August 3, 1991. Section 12 of said franchise, likewise, contains
the in lieu of all taxes proviso.
In this connection, Section 23 of RA 7925, quoted hereunder, which was approved on
March 1, 1995 provides for the equality of treatment in the telecommunications industry:
xxx xxx xxx
On the basis of the aforequoted Section 23 of RA 7925, PLDT as a telecommunications
franchise holder becomes automatically covered by the tax exemption provisions of RA
7925, which took effect on March 16, 1995.
Accordingly, PLDT shall be exempt from the payment of franchise and business taxes
imposable by LGUs under Sections 137 and 143, respectively, of the LGC [Local
Government Code], upon the effectivity of RA 7925 on March 16, 1995. However, PLDT
shall be liable to pay the franchise and business taxes on its gross receipts realized from
January 1, 1992 up to March 15, 1995, during which period PLDT was not enjoying the
most favored clause proviso of RA 7025 [sic].[3]
Invoking the aforequoted ruling, PLDT then stopped paying local franchise and
business taxes to Bacolod City starting the fourth quarter of 1998.
The controversy came to a head-on when, sometime in 1999, PLDT applied for the
issuance of a Mayors Permit but the City of Bacolod withheld issuance thereof pending
PLDTs payment of its franchise tax liability in the following amounts: (1) P358,258.30 for
the fourth quarter of 1998; and (b) P1,424,578.10 for the year 1999, all in the aggregate
amount ofP1,782,836.40, excluding surcharges and interest, about which PLDT was duly
informed by the City Treasurer via a 5th Indorsement dated March 16, 1999 for PLDTs
appropriate action.[4]
In time, PLDT filed a protest[5] with the Office of the City Legal Officer, questioning the
assessment and at the same time asking for a refund of the local franchise taxes it paid
in 1997 until the third quarter of 1998.
In a reply-letter dated March 26, 1999, [6] City Legal Officer Antonio G. Laczi denied
the protest and ordered PLDT to pay the questioned assessment.
29

Hence, on May 14, 1999, in the Regional Trial Court at Bacolod City, PLDT filed its
petition[7] in Civil Case No. 99-10786, therein praying for a judgment declaring it as
exempt from the payment of local franchise and business taxes; ordering the respondent
City to henceforth cease and desist from assessing and collecting said taxes; directing
the City to issue the Mayors Permit for the year 1999; and requiring it to refund the
amount of P2,770,606.37, allegedly representing overpaid franchise taxes for the years
1997 and 1998 with interest until fully paid.
In time, the respondent City filed its Answer/Comment to the petition, [8] basically
maintaining that Section 137 of the Local Government Code remains as the operative
law despite the enactment of the Public Telecommunications Policy Act of the
Philippines (Rep. Act No. 7925), and accordingly prayed for the dismissal of the petition.
In the ensuing pre-trial conference, the parties manifested that they would not
present any testimonial evidence, and merely requested for time to file their respective
memoranda, to which the trial court acceded.
Eventually, in the herein assailed decision dated July 23, 2001,[9] the trial court
dismissed PLDTs petition, thus:
WHEREFORE, premises considered, the petition should be, as it is hereby DISMISSED. No
costs.
SO ORDERED.
Therefrom, PLDT came to this Court via the present recourse, imputing the following
errors on the part of the trial court:
5.01.a. THE LOWER COURT ERRED IN SUSTAINING RESPONDENTS POSITION THAT
SECTION 137 OF THE LOCAL GOVERNMENT CODE, WHICH, IN RELATION TO SECTION 151
THEREOF, ALLOWS RESPONDENT CITY TO IMPOSE THE FRANCHISE TAX, IS APPLICABLE IN
THIS CASE.
5.01.b. THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONERS
FRANCHISE (REPUBLIC ACT NO. 7082), AS AMENDED AND EXPANDED BY SECTION 23 OF
REPUBLIC ACT NO. 7925 (PUBLIC TELECOMMUNICATIONS POLICY ACT), TAKING INTO
ACCOUNT THE FRANCHISES OF GLOBE TELECOM, INC., (GLOBE) (REPUBLIC ACT NO.
7229) AND SMART COMMUNICATIONS, INC. (SMART) (REPUBLIC ACT NO. 7294), WHICH
WERE ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO FRANCHISE
TAXES MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.
5.01.c. THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE RULING OF THE
DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL GOVERNMENT FINANCE,
THAT PETITIONER IS EXEMPT FROM THE PAYMENT OF FRANCHISE AND BUSINESS TAXES
IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.
5.01.d. THE LOWER COURT ERRED IN DISMISSING THE PETITION BELOW.
As we see it, the only question which commends itself for our resolution is, whether
or not Section 23 of Rep. Act No. 7925, also called the most-favored-treatment clause,
operates to exempt petitioner PLDT from the payment of franchise tax imposed by the
respondent City of Bacolod.
30

Contrary to petitioners claim, the issue thus posed is not one of first impression
insofar as this Court is concerned. For sure, this is not the first time for petitioner PLDT to
invoke the jurisdiction of this Court on the same question, albeit involving another city.
In PLDT vs. City of Davao,[10] this Court has had the occasion to interpret Section 23 of
Rep. Act No. 7925. There, we ruled that Section 23 does not operate to exempt PLDT
from the payment of franchise tax imposed upon it by the City of Davao:
In sum, it does not appear that, in approving 23 of R.A. No. 7925, Congress intended it to
operate as a blanket tax exemption to all telecommunications entities. Applying the rule
of strict construction of laws granting tax exemptions and the rule that doubts should be
resolved in favor of municipal corporations in interpreting statutory provisions on
municipal taxing powers, we hold that 23 of R.A. No. 7925 cannot be considered as
having amended petitioner's franchise so as to entitle it to exemption from the
imposition of local franchise taxes. Consequently, we hold that petitioner is liable to pay
local franchise taxes in the amount of P3,681,985.72 for the period covering the first to
the fourth quarter of 1999 and that it is not entitled to a refund of taxes paid by it for the
period covering the first to the third quarter of 1998.[11]
Explains this Court in the same case:
To begin with, tax exemptions are highly disfavored. The reason for this was explained by
this Court in Asiatic Petroleum Co. v. Llanes, in which it was held:
. . . Exemptions from taxation are highly disfavored, so much so that they may almost be
said to be odious to the law. He who claims an exemption must be able to point to some
positive provision of law creating the right. . . As was said by the Supreme Court of
Tennessee in Memphis vs. U. & P. Bank (91 Tenn., 546, 550), The right of taxation is
inherent in the State. It is a prerogative essential to the perpetuity of the government;
and he who claims an exemption from the common burden must justify his claim by the
clearest grant of organic or statute law. Other utterances equally or more emphatic come
readily to hand from the highest authority. In Ohio Life Ins. and Trust Co. vs. Debolt (16
Howard, 416), it was said by Chief Justice Taney, that the right of taxation will not be held
to have been surrendered, unless the intention to surrender is manifested by words too
plain to be mistaken. In the case of the Delaware Railroad Tax (18 Wallace, 206, 226),
the Supreme Court of the United States said that the surrender, when claimed, must be
shown by clear, unambiguous language, which will admit of no reasonable construction
consistent with the reservation of the power. If a doubt arises as to the intent of the
legislature, that doubt must be solved in favor of the State. In Erie Railway Company vs.
Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt, speaking of
exemptions, observed that a State cannot strip itself of the most essential power of
taxation by doubtful words. It cannot, by ambiguous language, be deprived of this
highest attribute of sovereignty. In Tennessee vs. Whitworth (117 U.S., 129, 136), it was
said: In all cases of this kind the question is as to the intent of the legislature, the
presumption always being against any surrender of the taxing power. In Farrington vs.
Tennessee and County of Shelby (95 U.S., 379, 686), Mr. Justice Swayne said: . . . When
exemption is claimed, it must be shown indubitably to exist. At the outset, every
presumption is against it. A well-founded doubt is fatal to the claim. It is only when the
terms of the concession are too explicit to admit fairly of any other construction that the
proposition can be supported.

31

The tax exemption must be expressed in the statute in clear language that leaves no
doubt of the intention of the legislature to grant such exemption. And, even if it is
granted, the exemption must be interpreted in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.
xxx xxx xxx
The fact is that the term exemption in 23 is too general. A cardinal rule in statutory
construction is that legislative intent must be ascertained from a consideration of the
statute as a whole and not merely of a particular provision. For, taken in the abstract, a
word or phrase might easily convey a meaning which is different from the one actually
intended. A general provision may actually have a limited application if read together
with other provisions. Hence, a consideration of the law itself in its entirety and the
proceedings of both Houses of Congress is in order.
xxx xxx xxx
R.A. No. 7925 is thus a legislative enactment designed to set the national policy on
telecommunications and provide the structures to implement it to keep up with the
technological advances in the industry and the needs of the public. The thrust of the law
is to promote gradually the deregulation of the entry, pricing, and operations of all public
telecommunications entities and thus promote a level playing field in the
telecommunications industry. There is nothing in the language of 23 nor in the
proceedings of both the House of Representatives and the Senate in enacting R.A. No.
7925 which shows that it contemplates the grant of tax exemptions to all
telecommunications entities, including those whose exemptions had been withdrawn by
the LGC.
What this Court said in Asiatic Petroleum Co. v. Llanes applies mutatis mutandis to this
case: When exemption is claimed, it must be shown indubitably to exist. At the outset,
every presumption is against it. A well-founded doubt is fatal to the claim. It is only when
the terms of the concession are too explicit to admit fairly of any other construction that
the proposition can be supported. In this case, the word exemption in 23 of R.A. No. 7925
could contemplate exemption from certain regulatory or reporting requirements, bearing
in mind the policy of the law. It is noteworthy that, in holding Smart and Globe exempt
from local taxes, the BLGF did not base its opinion on 23 but on the fact that the
franchises granted to them after the effectivity of the LGC exempted them from the
payment of local franchise and business taxes.
As in City of Davao, supra, petitioner presently argues that because Smart
Communications, Inc. (SMART) and Globe Telecom (GLOBE) under whose respective
franchises granted after the effectivity of the Local Government Code, are exempt from
franchise tax, it follows that petitioner is likewise exempt from the franchise tax sought
to be collected by the City of Bacolod, on the reasoning that the grant of tax exemption
to SMART and GLOBE ipso facto applies to PLDT, consistent with the most-favoredtreatment clause found in Section 23 of thePublic Telecommunications Policy Act of the
Philippines (Rep. Act No. 7925).
Again, there is nothing novel in petitioners contention. In fact, this Court in City of
Davao, even adverted to PLDTs argument therein, thus:
Finally, it [PLDT] argues that because Smart and Globe are exempt from the franchise
tax, it follows that it must likewise be exempt from the tax being collected by the City of
32

Davao because the grant of tax exemption to Smart and Globe ipso facto extended the
same exemption to it.
In rejecting PLDTs contention, this Court ruled in City of Davao as follows:
The acceptance of petitioners theory would result in absurd consequences. To illustrate:
In its franchise, Globe is required to pay a franchise tax of only one and one-half
percentum (1/2% [sic] ) of all gross receipts from its transactions while Smart is required
to pay a tax of three percent (3%) on all gross receipts from business transacted.
Petitioners theory would require that, to level the playing field, any advantage, favor,
privilege, exemption, or immunity granted to Globe must be extended to all
telecommunications companies, including Smart. If, later, Congress again grants a
franchise to another telecommunications company imposing, say, one percent (1%)
franchise tax, then all other telecommunications franchises will have to be adjusted to
level the playing field so to speak. This could not have been the intent of Congress in
enacting Section 23 of Rep. Act 7925. Petitioners theory will leave the Government with
the burden of having to keep track of all granted telecommunications franchises, lest
some companies be treated unequally. It is different if Congress enacts a law specifically
granting uniform advantages, favor, privilege, exemption or immunity to all
telecommunications entities.
On PLDTs motion for reconsideration in Davao, the Court added in its en
banc Resolution of March 25, 2003,[12] that even as it is a state policy to promote a level
playing field in the communications industry, Section 23 of Rep. Act No. 7925 does not
refer to tax exemption but only to exemption from certain regulations and requirements
imposed by the National Telecommunications Commission:
xxx. The records of Congress are bereft of any discussion or even mention of tax
exemption. To the contrary, what the Chairman of the Committee on Transportation, Rep.
Jerome V. Paras, mentioned in his sponsorship of H.B. No. 14028, which became R.A. No.
7925, were equal access clauses in interconnection agreements, not tax exemptions. He
said:
There is also a need to promote a level playing field in the telecommunications industry.
New entities must be granted protection against dominant carriers through the
encouragement of equitable access charges and equal access clauses in interconnection
agreements and the strict policing of predatory pricing by dominant carriers. Equal
access should be granted to all operators connecting into the interexchange
network. There should be no discrimination against any carrier in terms of priorities
and/or quality of services.
Nor does the term exemption in 23 of R.A. No. 7925 mean tax exemption. The term
refers to exemption from certain regulations and requirements imposed by the National
Telecommunications Commission (NTC). For instance, R.A. No. 7925, 17 provides: The
Commission shall exempt any specific telecommunications service from its rate or tariff
regulations if the service has sufficient competition to ensure fair and reasonable rates or
tariffs. Another exemption granted by the law in line with its policy of deregulation is the
exemption from the requirement of securing permits from the NTC every time a
telecommunications company imports equipment.[13]
In the same en banc Resolution, the Court even rejected PLDTs contention that the inlieu-of-all-taxes clause does not refer to tax exemption but to tax exclusion and hence,
thestrictissimi juris rule does not apply, explaining that these two terms actually mean
33

the same thing, such that the rule that tax exemption should be applied in strictissimi
juris against the taxpayer and liberally in favor of the government applies equally to tax
exclusions. Thus:
Indeed, both in their nature and in their effect there is no difference between tax
exemption and tax exclusion. Exemption is an immunity or privilege; it is freedom from a
charge or burden to which others are subjected. Exclusion, on the other hand, is the
removal of otherwise taxable items from the reach of taxation, e.g., exclusions from
gross income and allowable deductions. Exclusion is thus also an immunity or privilege
which frees a taxpayer from a charge to which others are subjected. Consequently, the
rule that tax exemption should be applied in strictissimi juris against the taxpayer and
liberally in favor of the government applies equally to tax exclusions. To construe
otherwise the in lieu of all taxes provision invoked is to be inconsistent with the theory
that R.A. No. 7925, 23 grants tax exemption because of a similar grant to Globe and
Smart.[14]
PLDT likewise argued in said case that the RTC at Davao City erred in not giving
weight to the ruling of the BLGF which, according to petitioner, is an administrative
agency with technical expertise and mastery over the specialized matters assigned to it.
But then again, we held in Davao:
To be sure, the BLGF is not an administrative agency whose findings on questions of fact
are given weight and deference in the courts. The authorities cited by petitioner pertain
to the Court of Tax Appeals, a highly specialized court which performs judicial functions
as it was created for the review of tax cases. In contrast, the BLGF was created merely to
provide consultative services and technical assistance to local governments and the
general public on local taxation, real property assessment, and other related matters,
among others. The question raised by petitioner is a legal question, to wit, the
interpretation of 23 of R.A. No. 7925. There is, therefore, no basis for claiming expertise
for the BLGF that administrative agencies are said to possess in their respective fields.[15]
We note, quite interestingly, that apart from the particular local government unit
involved in the earlier case of PLDT vs. Davao, the arguments presently advanced by
petitioner on the issue herein posed are but a mere reiteration if not repetition of the
very same arguments it has already raised in Davao. For sure, the errors presently
assigned are substantialy the same as those in Davao, all of which have been adequately
addressed and passed upon by this Court in its decision therein as well as in its en
banc resolution in that case.
WHEREFORE, the instant petition is DENIED and the assailed decision dated July 23,
2001 of the lower court AFFIRMED.
Costs against petitioner.
SO ORDERED.

ALLIED
vs.

THREAD

CO.,

INC.,

and

KER

&

COMPANY,

LTD., petitioners,
34

HON. CITY MAYOR OF MANILA, HON. CITY TREASURER OF MANILA, HON.

LORENZO RELOVA, in his capacity as Presiding Judge, Branch II, CFI of
Manila, respondents.
Antonio A. Nieva for petitioners.
Santiago F. Alidio, S.M. Artiaga, Jr. and Jose A. Perella for respondents.

ABAD SANTOS, J.:

This is a Petition for Review challenging the decision of the then Court of First Instance of
Manila presided by then Judge, now Justice Lorenzo Relova, which upheld the validity of
Manila Ordinance No. 7516, as amended by Ordinance Nos. 7544, 7545 and 7556, and
adjudging petitioner Allied Thread Co., Inc. taxable thereunder considering that its
products are sold in Manila.
On June 12, 1974, the Municipal Board of the City of Manila enacted Ordinance No. 7516
imposing on manufacturers, importer porters or producers, doing business in the City of
Manila, business taxes based on gross sales on a graduated basis. The Mayor approved
the said Ordinance on June 15, 1974. In due time, the same ordinance underwent a
series of amendments, to wit: on June 19, 1974, by Ordinance No. 7544 approved by the
Mayor on the same date; Ordinance No. 7545 enacted by the Municipal Board on June
20, 1974 and approved by the Mayor on June 27, 1974; and Ordinance No. 7556, enacted
by the Municipal Board on July 20, 1974 and approved by the Mayor on July 29,1974.
Ordinance No. 7516 as amended, reads as follows:
Sec. 1. Business Tax. There is hereby imposed on the following business in
the City of Manila an annual tax collectible quarterly except on those for
which fixed taxes are already provided for as follows:
A. On manufacturers, importers, or producers of any article of commerce of
whatever kind or nature, including brewers, distilled spirits and/or wines in
accordance with the following schedule:
xxx xxx xxx
PROVIDED HOWEVER, that for purposes of collection of this tax,
manufacturers and producers maintaining or operating branch or sales
offices elsewhere shall record the sale in the branch or sales office making
the sale and the tax thereon shall accrue to the City of Manila if the branch
of sales office is in Manila. In cases where there is no such branch or sales
office in the city, the sale shag be duly recorded in the principal office along
with the sales made in the principal office. Sixty percent of all sales recorded
in the principal office shall be taxable by the City of Manila if the principal
office is in Manila, while the remaining forty percent shall be deemed as
sales made in the factory and shall he taxable by the local government
where the factory is located.
In cases where a manufacturer or producer has factories in Manila and in
different localities, the forty per cent sales allocation mentioned in the
preceding paragraph shall be appropriated among the City of Manila and the
35

localities where the factories are situated in proportion to their respective

volumes of production during the period for which the tax is due.
The records show that petitioner Allied Id Co., inc. is engaged in the business of
manufacturing sewing thread and yarn under duly registered marks and labels. It
operates its factory and maintains an office in Pasig, Rizal. In order to sell its products in
Manila and in other parts of the Philippines, petitioner Allied Thread Co., Inc. engaged the
services of a sales broker, Ker & Company, Ltd. (co-petitioner herein), the latter deriving
commissions from every sale made for its principal.
Having been affected by the aforementioned Ordinance, being manufacturers and sales
brokers, on July 22, 1974, Allied Thread Co., Inc. and Ker & Co., Ltd. filed with the defunct
Court of First Instance of Manila, a petition for Declaratory Relief, contending that
Ordinance No. 7516, as amended, is not valid nor enforceable as the same is contrary to
Section 54 of Presidential Decree No. 426, as clarified by Local Tax Regulation No. 1-74
dated April 8, 1974 of the Department of Finance, reading as follows:
J. GENERAL PROVISIONS
1. All existing tax ordinance of provinces, cities, municipalities and barrios
shall be deemed ipso factonullified on June 30, 1974.
2. The local boards or councils should enact their respective tax ordinances
pursuant to the provisions of the Local Tax Code, as amended by P.D. 426, to
take effect not earlier than July 1, 1974.
3. Pursuant to the provisions of Section 42 of the Code, as amended by
Section 18 of the said Decree, a local tax ordinance shall go into effect on
the 15th day after approved by the local chief executives in accordance with
Section 41 of the Code. 4. In view hereof, and considering the provisions of
Section 54 of the Code, regarding the accrual of taxes a local tax ordinance
intended to take effect on July 1, 1974 should be enacted by the Local Chief
Executive not later than June 15, 1974. (Emphasis supplied)
Otherwise stated, petitioners assert that due to the series of amendments to Ordinance
No. 7516, the same Ordinance fell short of the deadline set by Sec. 54 of P.D. No. 426
that "for an ordinance intended to take effect on July 1, 1974, it must be enacted on or
before June 15, 1974." Necessarily, so it is asserted, the said Ordinance No. 7516 as
amended, is not valid nor enforceable.
Petitioners further contend that the questioned Ordinance did not comply with the
necessary publication requirement in a newspaper of general circulation as mandated by
Sec. 43 of the Local Tax Code. Petitioner Allied Thread Co., Inc. also claims that it should
not be subjected to the said Ordinance No. 7516 as amended, because it does not
operate or maintain a branch office in Manila and that its principal office and factory are
located in Pasig, Rizal.
We agree with the decision of the then Court of First Instance of Manila, upholding the
validity of Ordinance No. 7516 as amended, and finding petitioner Allied Thread Co., Inc.
the proper subject thereto.
There is no dispute that Ordinance No. 7516 was enacted by the Municipal Board of
Manila on June 12, 1974 and approved by the City Mayor on June 15, 1974. Fifteen (15)
36

days thereafter, or on July 1, 1974, the said ordinance became effective pursuant to Sec.
42 of the Local Tax Code. It is clear therefore that Ordinance No. 7516 has fully
conformed with P.D. No. 426 and Local Tax Regulation No. 1-74 which require that "a local
tax ordinance intended to take effect on July 1, 1974 should be enacted by the Local
Chief Executive not later than June 15, 1974 ". The subsequent amendments to the basic
ordinance did not in any way invalidate it nor move the date of its effectivity. To hold
otherwise would limit the power of the defunct Municipal Board of Manila to amend an
existing ordinance as exigencies require.
Petitioners complain that they were not fully apprised of the enactment of Ordinance No.
7516 for the same was not duly published in a newspaper of general circulation.
Respondents argue however, that copies of Ordinance No. 7516 and its amendments
were posted in public buildings, government offices, and public places in lieu of
publication in newspaper of general circulation.
We are persuaded that there was substantial compliance of the law on publication.
Section 43 of the Local Tax Code provides two modes of apprising the public of a new
ordinance, either, (a) by means of publication in a newspaper of general circulation or,
(b) by means of posting of copies thereof in the local legislative hall or premises and two
other conspicuous places within the territorial jurisdiction of the local government.
Respondents, having complied with the second mode of notice, We are of the opinion
that there is no legal infirmity to the validity of Ordinance No. 7516 as amended.
Finally, petitioner Allied Thread Co., Inc. claims exclusion from Ordinance No. 7515 as
amended on the ground that it does not maintain an office or branch office in the City of
Manila, where the subject Ordinance only applies. This contention is devoid of merit.
Allied Thread Co., Inc. admits that it does business in the City of Manila through a broker
or agent, Ker & Company, Ltd. Doing business in the City of Manila is all that is required
to fall within the coverage of the Ordinance.
It should be noted that Ordinance No. 7516 as amended imposes a business tax on
manufacturers, importers or producers doing business in the City of Manila. The tax
imposition here is upon the performance of an act, enjoyment of a privilege, or the
engaging in an occupation, and hence is in the nature of an excise tax.
The power to levy an excise upon the performance of an act or the engaging in an
occupation does not depend upon the domicile of the person subject to the excise nor
upon the physical location of the property and in connection with the act or occupation
taxed, but depends upon the place in which the act is performed or occupation engaged
in.
Thus, the gauge for taxability under the said Ordinance No. 7516 as amended does not
depend on the location of the office, but attaches upon the place where the respective
sale transaction(s) is perfected and consummated. (See Koppel (Phil.) vs. Yatco, 77 Phil.
496 [1946]) Since Allied Thread Co., Inc. sells its products in the City of Manila through
its broker, Ker & Company, Ltd., it cannot escape the tax liability imposed by Ordinance
No. 7516 as amended.
WHEREFORE, the petition is hereby dismissed for lack of merit. Costs against the
petitioners.
SO ORDERED.
37

Spouses RAMON and G.R. No. 154027

ROSITA TAN,
Petitioners, Present:
Panganiban, J.,
Chairman,
- versus - Sandoval-Gutierrez,
Corona,
Carpio Morales, and
Garcia, JJ
GORGONIA BANTEGUI,
Represented by GUADALUPE B.
BAUTISTA; and Spouses FLORANTE Promulgated:
and FLORENCIA B. CAEDO,
Respondents. October 24, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION
PANGANIBAN, J.:

T
he auction sale of land to satisfy alleged delinquencies in the payment of real estate
taxes derogates or impinges on property rights and due process. Thus, the steps
prescribed by law for the sale, particularly the notices of delinquency and of sale, must
be followed strictly. Failure to observe those steps invalidates the sale.
The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the
September 27, 2001 Decision [2] and the June 18, 2002 Resolution [3] of the Court of
Appeals (CA) in CA-GR CV No. 51829. The assailed Decision reads as follows:
WHEREFORE, finding no reversible error in the judgment appealed
from, the same is AFFIRMED, with costs against [petitioners].[4]

The assailed Resolution denied petitioners Motion for Reconsideration.

38

The Facts

The antecedents are related by the CA as follows:

The subject matter of the controversy is a 232 square-meter lot situated at
No. 37-E Calavite St. La Loma, Quezon City, Metro Manila. Said piece of
property was registered in the name of [Respondent] Gorgonia Bantegui
(Bantegui for brevity), married to Jesus Bayot, under Transfer Certificate of
Title [(TCT)] No. 47163 of the Register of Deeds of Quezon City, issued on
May 6, 1959, and later reconstituted under [TCT] No. 28458.
Bantegui acquired the property sometime in 1954 and rented it to spouses
Florante B. Caedo and Florencia B. Caedo (Caedos for brevity), who resided
therein until 1994. In 1970, she left for the United States of America. She
returned to the Philippines in January 1988 and executed her special power
of attorney[,] making Guadalupe B. Bautista (Bautista for brevity) her
representative, [after which], she went back to the United States.
Her taxes on the subject property were paid[,] but only until 1977. The real
property taxes from the year 1978 to 1983 amounting to P3,034.99[,]
inclusive of penalties, however, were not paid.
For failure of Bantegui to pay said taxes, the [c]ity [t]reasurer of Quezon City
sold said property at public auction held on November 21, 1984, to the
spouses Edilberto and Josefina Capistrano (Capistranos for brevity), for the
sum of P10,000.00. The Certificate of Sale of Delinquent Property was
subsequently issued in their favor on November 26, 1984.
Since the property was not redeemed within the one (1) year redemption
period, title to said property was consolidated to the Capistranos and [TCT]
No. 361851 was issued in their names on June 4, 1987. The Capistranos,
however, did not take possession of the land [or inform] the Caedos about
the sale or collected any rent from them. They[,] likewise[,] did not pay real
property taxes thereon.
The property was later sold on June 20, 1988 by the Capistranos to spouses
Evelyn and Jesse Pereyra (Pereyras for brevity) for P60,000.00. Their TCT was
cancelled and a new [TCT] No. 2059 was issued on January 10, 1989 in the
name of the Pereyras, who also did not take possession of the property in
question. They, however, mortgaged the same to the Rural Bank of Imus,
Cavite, which [mortgage] was annotated on the title of the property.
These transfers were unknown to Bantegui and the Caedos[,] despite the fact
that Evelyn Pereyra is the daughter of the Caedos, as the latter did not
inform them about anything concerning these transactions. All this time[,]
the actual occupants, the Caedos, considered themselves as tenants of
Bantegui, such that they paid rent to her until December 1993, when they
handed the water pump as payment of their arrears.
Bantegui, on her part, applied for administrative reconstitution of her title[,]
as it was lost in a fire. Reconstituted Title No. 28458 was subsequently issued
in her name. She likewise paid the realty taxes on the subject property for
the years 1987 to 1989. The [c]ity [t]reasurer of Quezon City, however,
refused to accept her payment for the year 1990.
39

Meanwhile, on May 3, 1990, said property was again sold by the Pereyras to
the spouses Ramon and Rosita Tan (Tans for brevity) for P350,000.00, with
the latter paying the amount of P300,000.00 to the Rural Bank of Imus,
Cavite for the release of the mortgage per agreement by the parties. They
likewise paid the overdue taxes and other expenses incurred by the Pereyras
pertaining to said mortgage.
The Tans, like their predecessors, did not take immediate possession of the
property [or inform] the occupants (Caedos) of their title to the land. Towards
the latter part of 1990, however, the Tans, thru their lawyer, informed the
Caedos of their ownership over the property and demanded that the Caedos
vacate the property. They subsequently filed an action for ejectment against
the Caedos before the Municipal Trial Court of Quezon City on January 18,
1991. On October 31, 1991, the Court ruled in favor of the Tans. The Caedos
then interposed an appeal on February 2, 1992[,] which was remanded to the
same Court for further proceedings, and for failure of the Caedos to appear
during the hearing of the case, they were declared in default and were
subsequently ejected from the property on February 20, 1994, when the
house that they erected thereon was demolished.
On February 11, 1992, Bantegui, thru her sister Guadalupe Bautista, and
joined by the spouses Caedo[,] filed a Complaint for Annulment of Sale,
Quieting of Title, Injunction and Damages with the Regional Trial Court of
Quezon City. The complaint was later amended on May 14, 1992, impleading
the spouses Capistrano and the [c]ity [t]reasurer of Quezon City as codefendants, and deleting quieting of title from the prayer and inserting
reconveyance.[5]

After the trial court rendered its Decision [6] in favor of respondents, petitioners appealed
to the CA.
Ruling of the Court of Appeals

In declaring that petitioners were not purchasers in good faith and had no better right to
the subject property than that of any of their predecessors-in-interest, the appellate
court gave the following reasons. First, the auction sale was tainted with irregularities: no
notices of delinquency and of sale were sent to the owner.Second, the owner continued
to

pay

realty

taxes

on

the

property,

even

after

the

date of the sale. She would not have done so had she been aware that it had already
been auctioned off. Third, the selling price was grossly inadequate and, when viewed
together with the other facts and circumstances, would render the sale itself
void. Fourth, the purchasers failed to take possession of the property, pay the real taxes,
and inform the lessees of the purchase. As a result, the latter continued to pay rent to
the owner. As stated earlier, the CA affirmed the trial courts Decision.
40

Hence, this Petition.[7]

The Issues

Petitioners raise the following issues for the Courts consideration:

I.
The Honorable Court of Appeals erred in affirming that the tax sale of
Banteguis property was tainted with irregularities that rendered the same
null and void.

II.
The Honorable Court of Appeals erred in affirming that the Resolution of the
Quezon City Regional Trial Court, Branch 85, confirming in favor of the
Capistranos the final bill of sale of the auctioned property is not conclusive.
III.
The Honorable Court of Appeals likewise erred in declaring that the
petitioners were not purchasers in good faith and innocent purchasers for
value.
IV.
The Honorable Court of Appeals erred in affirming that petitioners should pay
respondents nominal damages of P50,000 and attorneys fees of P50,000.[8]

The foregoing may be summed up into only one issue: whether the auction sale was
valid.

The Courts Ruling

The Petition has no merit.

Sole Issue:
Whether the Auction Sale Was Valid

41

The tax sale did not conform to the requirements prescribed under Presidential Decree
(PD) No. 464, otherwise known as the Real Property Tax Code.[9]

First, no notice of delinquency or of sale was given to either Gorgonia Bantegui, the
delinquent owner; or to her representative.

On the one hand, Section 65 of PD 464 provides:

SECTION 65. Notice of delinquency in the payment of the real property tax.
Upon the real property tax or any installment thereof becoming
delinquent, the x x x city treasurer shall immediately cause notice of the fact
to be posted at the main entrance of the x x x city hall and in a public and
conspicuous place in each barrio of the x x x city as the case may be. The
notice of delinquency shall also be published once a week for three
consecutive weeks, in a newspaper of general circulation in the x x x city, if
any there be, and announced by a crier at the market place for at least three
market days.
Such notice shall specify the date upon which tax became delinquent,
and shall state that personal property may be seized to effect payment. It
shall also state that, at any time, before the seizure of personal property,
payment may be made with penalty in accordance with the next following
section, and further, that unless the tax and penalties be paid before the
expiration of the year for which the tax is due, or the tax shall have been
judicially set aside, the entire delinquent real property will be sold at public
auction, and that thereafter the full title to the property will be and remain
with the purchaser, subject only to the right of delinquent taxpayer or any
other person in his behalf to redeem the sold property within one year from
the date of sale.

On the other hand, Section 73 of PD 464 states:

SECTION 73. Advertisement of sale of real property at public auction.
After the expiration of the year for which the tax is due, the x x x city
treasurer shall advertise the sale at public auction of the entire delinquent
real property, except real property mentioned in subsection (a) of Section
forty hereof, to satisfy all the taxes and penalties due and the costs of sale.
Such advertisement shall be made by posting a notice for three consecutive
weeks at the main entrance of the x x x city or x x x hall in the case of cities,
and in a public and conspicuous place in barrio or district wherein the
property is situated, in English, Spanish and the local dialect commonly used,
and by announcement at least three market days at the market by crier, and,
in the discretion of the x x x city treasurer, by publication once a week for
three consecutive weeks in a newspaper of general circulation published in
the x x x city.
The notice, publication, and announcement by crier shall state the
amount of the taxes, penalties and costs of sale; the date, hour, and place of
sale, the name of the taxpayer against whom the tax was assessed; and the
42

kind or nature of property and, if land, its approximate areas, lot number,
and location stating the street and block number, district or barrio,
municipality and the province or city where the property to be sold is
situated. Copy of the notice shall forthwith be sent either by registered mail
or by messenger, or through the barrio captain, to the delinquent taxpayer,
at his address as shown in the tax rolls or property tax record cards of the x x
x city where the property is located, or at his residence, if known to said
treasurer or barrio captain: Provided, however, That a return of the proof of
service under oath shall be fi led by the person making the service
with the x x x city treasurer concerned.

The auction sale of real property for the collection of delinquent taxes is in personam,
not in rem.[10] Although sufficient in proceedings in rem like land registration, mere notice
by
[11]

publication

will

not

satisfy

the

requirements

of

proceedings in

personam.

[P]ublication of the notice of delinquency [will] not suffice, considering that the

procedure in tax sales is in personam.[12] It is still incumbent upon the city treasurer to
send the notice directly to the taxpayer -- the registered owner of the property -- in order
to protect the latters interests. Although preceded by proper advertisement and
publication, an auction sale is void absent an actual notice to a delinquent taxpayer. [13]

The sale of land for tax delinquency is in derogation of property rights and due process[;]
the prescribed steps must be followed strictly. [14] In the present case, notices either of
delinquency or of sale were not given to the delinquent taxpayer. Those notices are
mandatory,

and

failure

to

issue

them

invalidates

sale. [15]

Because it was clearly in contravention of the requirements under the law and
jurisprudence, the subsequent sale of the real property did not make its purchaser the
new owner.

A certificate of title under the Torrens system serves as evidence of an indefeasible title
to the property in favor of the person whose name appears on it. [16]While it is true that
Transfer Certificates of Title have already been issued in the names of the subsequent
purchasers, they should nonetheless be invalidated. Considering the failure to abide by
the mandatory requirements of a proceeding in personam, no better title than that of the
original owner can be assumed by the transferees.

43

Besides, the incontrovertible nature of a certificate of title applies only when the issue
involved is the validity of the original and not of the transfer. Subsequent titles issued to
the prejudice of the rightful owner will produce no legal effects whatsoever. [17] Quod
nullum est, nullum producit effectum. That which is a nullity produces no effect.[18]
A gross inadequacy in the price is of no moment either. It is true that the lower the price,
the easier it will be for the owner to effect redemption; [19] but the fact remains that
without the mandatory notices, the registered owner will never be given the opportunity
to redeem the property, despite the lapse of one year from the date the sale is
registered.[20]

Moreover, failure to assert ownership over a property is indicative of the doubtful validity
of its sale. The immediate purchasers in the present case neither took possession nor
informed the occupants (the Caedos) of the formers alleged acquisition of the property.
The purchasers did not even demand rent or ask them to vacate, as a result of which the
Caedos continued to pay rent to Respondent Bantegui. Indeed, registered owners have
the right to enjoy the property that they own, [21] including the jus utendi or the right to
receive from it whatever it produces,[22] like civil fruits.[23]

Second, only a copy of the Resolution of Branch 85 of the Regional Trial Court of Quezon
City, confirming the final bill of sale to the Capistranos, has been submitted by the city
treasurer to show the validity of the sale.[24]

This Resolution is, however, inconclusive. With greater significance is the categorical and
unrefuted statement in it that the [s]ealed envelope containing a copy of the petition
addressed to Gorgonia Bantegui x x x was returned to sender unclaimed x x x. [25] That
statement definitely confirms the lack of notices, without which the subsequent
proceeding to sell the property produces no legal effect. Notice of sale to the delinquent
landowners and to the public[,] in general[,] is an essential and indispensable
requirement of law, the non-fulfillment of which vitiates the sale.[26]

Third, Section 80 of PD 464 provides that any balance of the proceeds of the sale left
after

deducting

the

amount

of

the

taxes

and
44

penalties due and the costs of sale, shall be returned to the owner or his representative.
Again contrary to the mandate of the law, the balance of the proceeds from the tax sale
was not even returned to Respondent Bantegui or her representative after the issuance
of the final bill of sale. The failure to return the proceeds reinforced the apparent
irregularity not only in the conduct of the tax sale, but also in its subsequent disposition.

Fourth, petitioners were not innocent purchasers for value. Despite their awareness of
defects in their title, they still failed to investigate or take the necessary precaution.

Good faith is a question of intention.[27] It consists in the possessors belief that the person
from whom a thing has been received is its owner and can convey title. [28] It is
determined by outward acts and proven conduct.[29]

A purchaser of real estate at the tax sale obtains only such title as that held by the
taxpayer[;] the principle of caveat emptor applies.[30] Purchasers cannot close their eyes
to facts that should have put any reasonable person upon guard, and then claim that
they acted in good faith under the belief that there was no defect in the title. [31] If
petitioners do not investigate or take precaution despite knowing certain facts, they
cannot be considered in good faith. The defense of indefeasibility of a Torrens title does
not extend to a transferee who takes the title despite a notice of the flaw in it. [32] From a
vendor who does not have any title to begin with, no right is passed to a transferee.

In the present case, the exercise of the right of possession over the property was
attempted by none of the purchasers, except petitioners.[33] The latters predecessors-ininterest did not deny the fact that respondent spouses had continued to stay in and rent
the property from Respondent Bantegui, its registered owner. Information about the
purchase

was

not

at

all

relayed

by

Evelyn

Pereyra, a subsequent purchaser and former resident, to the Caedos who were her very
own parents.[34] When the land sold is in the possession of a person other than the
vendor, the purchaser is required to go beyond the certificate of title and make inquiries
concerning the rights of the actual possessor.[35]

45

Furthermore, nothing on the record shows that, aside from Respondent Bantegui, the
purchasers paid real property taxes, as required of every registered property owner. The
tax on real property for any year shall attach to, become due and payable [36] from, and
be the personal liability of its owner at the beginning of the year. [37] Curiously, the city
government allowed Respondent Bantegui to continue paying real property taxes even
after the redemption period and the confirmation of the final bill of sale. Moreover, the
records mention no payment of real property taxes from 1984 to 1986.

Finally, Respondent Bantegui remained in continuous possession of the owners duplicate

copy of the Certificate of Title. She was even allowed to undertake an administrative
reconstitution of her file copy after its destruction by fire. Accordingly, the Register of
Deeds issued a reconstituted title in her name, in which the property had been registered
as early as 1959. For reasons known only to the alleged purchasers, no attempt was
even made to have the title immediately cancelled. It is basic that registration does not
vest title, which is a mere evidence of title to a property.

More important, the reconstituted title was allowed despite the fact that several TCTs had
already been previously issued in favor of petitioners predecessors-in-interest. Although
reconstitution alone neither confirms nor adjudicates ownership, [38] considering the
surrounding circumstances of this case, the Court hereby confirms Respondent Banteguis
rightful ownership of the property.

Entitlement to Damages
As

the

trial

and

the

appellate

courts

held,

respondents

indeed

failed to offer proof to justify the award of actual or compensatory damages. The actual
value of the house on the property at the time of the demolition of the structure was not
established. One is entitled to adequate compensation only for pecuniary loss that has
been duly proved.[39]

46

Nominal damages as granted by the lower courts in the amount of P50,000 may be a
plausible remedy, however. These damages are justified especially when common sense
dictates that a pecuniary loss has indeed been suffered, but is incapable of precise
computation. They are adjudicated, not for the purpose of indemnifying respondents for any
loss suffered, but for vindicating or recognizing their right to a property that has been
violated or invaded.[40]

Lastly, the award by the appellate court of P50,000 in attorneys fees also appears
reasonable because, by petitioners act, respondents were compelled to incur expenses to
protect their interest.[41]

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution
are AFFIRMED. Costs against petitioners.

SO ORDERED.

ERICSSON TELECOMMUNI- G.R. NO. 176667

CATIONS, INC.,
Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
CITY OF PASIG, represented by
its City Mayor, Hon. Vicente P.
Eusebio, et al.* Promulgated:
Respondent. November 22, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
AUSTRIA-MARTINEZ, J.:

47

Ericsson Telecommunications, Inc. (petitioner), a corporation with principal office

in Pasig City, is engaged in the design, engineering, and marketing of telecommunication
facilities/system. In an Assessment Notice dated October 25, 2000 issued by the City
Treasurer of Pasig City, petitioner was assessed a business tax deficiency for the years
1998 and 1999 amounting to P9,466,885.00 and P4,993,682.00, respectively, based on
its gross revenues as reported in its audited financial statements for the years 1997 and
1998.Petitioner filed a Protest dated December 21, 2000, claiming that the computation
of the local business tax should be based on gross receipts and not on gross revenue.
The City of Pasig (respondent) issued another Notice of Assessment to petitioner on
November 19, 2001, this time based on business tax deficiencies for the years 2000 and
2001, amounting to P4,665,775.51 and P4,710,242.93, respectively, based on its gross
revenues for the years 1999 and 2000. Again, petitioner filed a Protest on January 21,
2002, reiterating its position that the local business tax should be based on gross
receipts and not gross revenue.
Respondent denied petitioners protest and gave the latter 30 days within which to
appeal the denial. This prompted petitioner to file a petition for review [1] with the
Regional Trial Court (RTC) of Pasig, Branch 168, praying for the annulment and
cancellation of petitioners deficiency local business taxes totaling P17,262,205.66.
Respondent and its City Treasurer filed a motion to dismiss on the grounds that the court
had no jurisdiction over the subject matter and that petitioner had no legal capacity to
sue. The RTC denied the motion in an Order dated December 3, 2002 due to respondents
failure to include a notice of hearing. Thereafter, the RTC declared respondents in default
and allowed petitioner to present evidence ex- parte.
In a Decision[2] dated March 8, 2004, the RTC canceled and set aside the assessments
made by respondent and its City Treasurer. The dispositive portion of the RTC Decision
reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff and ordering defendants to CANCEL and SET ASIDE Assessment
Notice dated October 25, 2000and Notice of Assessment dated November
19, 2001.
SO ORDERED.[3]
On appeal, the Court of Appeals (CA) rendered its Decision [4] dated November 20,
2006, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby ordered SET ASIDE
and a new one entered DISMISSING the plaintiff/appellees complaint
WITHOUT PREJUDICE.
SO ORDERED.[5]
48

The CA sustained respondents claim that the petition filed with the RTC should
have been dismissed due to petitioners failure to show that Atty. Maria Theresa B. Ramos
(Atty. Ramos), petitioners Manager for Tax and Legal Affairs and the person who signed
the Verification and Certification of Non-Forum Shopping, was duly authorized by the
Board of Directors.
Its motion for reconsideration having been denied in a Resolution [6] dated February 9,
2007, petitioner now comes before the Court via a Petition for Review on Certiorari under
Rule 45 of the Rules of Court, on the following grounds:
(1) THE COURT OF APPEALS ERRED IN DISMISSING THE CASE FOR LACK OF
SHOWING THAT THE SIGNATORY OF THE VERIFICATION/ CERTIFICATION IS
NOT SPECIFICALLY AUTHORIZED FOR AND IN BEHALF OF PETITIONER.
(2)

THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO

RESPONDENTS APPEAL, CONSIDERING THAT IT HAS NO JURISDICTION
OVER THE SAME, THE MATTERS TO BE RESOLVED BEING PURE
QUESTIONS OF LAW, JURISDICTION OVER WHICH IS VESTED ONLY WITH
THIS HONORABLE COURT.

(3) ASSUMING THE COURT OF APPEALS HAS JURISDICTION OVER

RESPONDENTS APPEAL, SAID COURT ERRED IN NOT DECIDING ON THE
MERITS OF THE CASE FOR THE SPEEDY DISPOSITION THEREOF,
CONSIDERING
THAT
THE
DEFICIENCY
LOCAL
BUSINESS
TAX
ASSESSMENTS ISSUED BY RESPONDENT ARE CLEARLY INVALID AND
CONTRARY TO THE PROVISIONS OF THE PASIG REVENUE CODE AND THE
LOCAL GOVERNMENT CODE.[7]
After receipt by the Court of respondents complaint and petitioners reply, the petition is
given due course and considered ready for decision without the need of memoranda
from the parties.
The Court grants the petition.
First, the complaint filed by petitioner with the RTC was erroneously dismissed by
the CA for failure of petitioner to show that its Manager for Tax and Legal Affairs, Atty.
Ramos, was authorized by the Board of Directors to sign the Verification and Certification
of Non-Forum Shopping in behalf of the petitioner corporation.
Time and again, the Court, under special circumstances and for compelling reasons,
sanctioned substantial compliance with the rule on the submission of verification and
certification against non-forum shopping.[8]

49

In General Milling Corporation v. National Labor Relations Commission,[9] the Court

deemed as substantial compliance the belated attempt of the petitioner to attach to the
motion for reconsideration the board resolution/secretarys certificate, stating that there
was no attempt on the part of the petitioner to ignore the prescribed procedural
requirements.
In Shipside

Incorporated

v.

Court

of

Appeals,[10] the authority

of

the

petitioners

resident manager to sign the certification against forum shopping was submitted to the
CA only after the latter dismissed the petition. The Court considered the merits of the
case and the fact that the petitioner subsequently submitted a secretarys certificate, as
special circumstances or compelling reasons that justify tempering the requirements in
regard to the certificate of non-forum shopping.[11]
There were also cases where there was complete non-compliance with the rule
on certification against forum shopping and yet the Court proceeded to decide the case
on the merits in order to serve the ends of substantial justice.[12]
In the present case, petitioner submitted a Secretarys Certificate signed on May 6, 2002,
whereby Atty. Ramos was authorized to file a protest at the local government level and
to sign, execute and deliver any and all papers, documents and pleadings relative to the
said protest and to do and perform all such acts and things as may be necessary to
effect the foregoing.[13]
Applying the foregoing jurisprudence, the subsequent submission of the Secretarys
Certificate and the substantial merits of the petition, which will be shown forthwith,
justify a relaxation of the rule.
Second, the CA should have dismissed the appeal of respondent as it has no jurisdiction
over the case since the appeal involves a pure question of law. The CA seriously erred in
ruling that the appeal involves a mixed question of law and fact necessitating an
examination and evaluation of the audited financial statements and other documents in
order to determine petitioners tax base.
There is a question of law when the doubt or difference is on what the law is on a certain
state of facts. On the other hand, there is a question of fact when the doubt or difference
is on the truth or falsity of the facts alleged. [14] For a question to be one of law, the same
must not involve an examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the issue invites a
50

review of the evidence presented, the question posed is one of fact. Thus, the test of
whether a question is one of law or of fact is not the appellation given to such question
by the party raising the same; rather, it is whether the appellate court can determine the
issue raised without reviewing or evaluating the evidence, in which case, it is a question
of law; otherwise it is a question of fact.[15]
There is no dispute as to the veracity of the facts involved in the present case. While
there is an issue as to the correct amount of local business tax to be paid by petitioner,
its determination will not involve a look into petitioners audited financial statements or
documents, as these are not disputed; rather, petitioners correct tax liability will be
ascertained through an interpretation of the pertinent tax laws, i.e., whether the local
business tax, as imposed by the Pasig City Revenue Code (Ordinance No. 25-92) and the
Local Government Code of 1991, should be based on gross receipts, and not on gross
revenue which respondent relied on in computing petitioners local business tax
deficiency.This, clearly, is a question of law, and beyond the jurisdiction of the CA.
Section 2(c), Rule 41 of the Rules of Court provides that in all cases where
questions of law are raised or involved, the appeal shall be to this Court by petition for
review on certiorari under Rule 45.
Thus, as correctly pointed out by petitioner, the appeal before the CA should have
been dismissed, pursuant to Section 5(f), Rule 56 of the Rules of Court, which provides:
Sec. 5. Grounds for dismissal of appeal.- The appeal may be
dismissed motu proprio or on motion of the respondent on the following
grounds:
xxxx
(f) Error in the choice or mode of appeal.
xxxx
Third, the dismissal of the appeal, in effect, would have sustained the RTC Decision
ordering respondent to cancel the Assessment Notices issued by respondent, and
therefore, would have rendered moot and academic the issue of whether the local
business tax on contractors should be based on gross receipts or gross revenues.
However, the higher interest of substantial justice dictates that this Court should resolve
the same, to evade further repetition of erroneous interpretation of the law, [16] for the
guidance of the bench and bar.
As earlier stated, the substantive issue in this case is whether the local business tax on
contractors should be based on gross receipts or gross revenue.
51

Respondent assessed deficiency local business taxes on petitioner based on the latters
gross revenue as reported in its financial statements, arguing that gross receipts is
synonymous

with

gross

earnings/revenue,

which,

in

turn, includes

uncollected

earnings. Petitioner, however, contends that only the portion of the revenues which were
actually and constructively received should be considered in determining its tax base.
Respondent is authorized to levy business taxes under Section 143 in relation to Section
151 of the Local Government Code.
Insofar as petitioner is concerned, the applicable provision is subsection (e),
Section 143 of the same Code covering contractors and other independent contractors,
to wit:
SEC. 143. Tax on Business. - The municipality may impose taxes on the
following businesses:
xxxx
(e) On contractors and other independent contractors, in accordance with
the following schedule:

With gross receipts for the

preceding calendar year in
the amount of:

Amount
Tax
Annum

of
Per

xxxx
(Emphasis supplied)

The above provision specifically refers to gross receipts which is defined under Section
131 of the Local Government Code, as follows:
xxxx
(n) Gross Sales or Receipts include the total amount of money or its
equivalent representing the contract price, compensation or service fee,
including the amount charged or materials supplied with the services and the
deposits or advance payments actually or constructively received during the
taxable quarter for the services performed or to be performed for another
person excluding discounts if determinable at the time of sales, sales return,
excise tax, and value-added tax (VAT);
xxxx
The law is clear. Gross receipts include money or its equivalent actually or constructively
received in consideration of services rendered or articles sold, exchanged or leased,
whether actual or constructive.
52

In Commissioner

of

Internal

Revenue

v.

Bank

of

Commerce,[17] the

Court

interpreted gross receipts as including those which were actually or constructively

received, viz.:
Actual receipt of interest income is not limited to physical
receipt. Actual receipt may either be physical receipt or constructive
receipt. When the depository bank withholds the final tax to pay the tax
liability of the lending bank, there is prior to the withholding a constructive
receipt by the lending bank of the amount withheld. From the
amount constructively received by the lending bank, the depository bank
deducts the final withholding tax and remits it to the government for the
account of the lending bank. Thus, the interest income actually received by
the lending bank, both physically and constructively, is the net interest plus
the amount withheld as final tax.
The
concept
of
a
withholding
tax
on
income obviously
and
necessarily implies that the amount of the tax withheld comes from the
income earned by the taxpayer. Since the amount of the tax withheld
constitutes income earned by the taxpayer, then that amount manifestly
forms part of the taxpayers gross receipts. Because the amount withheld
belongs to the taxpayer, he can transfer its ownership to the government in
payment of his tax liability. The amount withheld indubitably comes from
income of the taxpayer, and thus forms part of his gross receipts. (Emphasis
supplied)
Further elaboration was made by the Court in Commissioner of Internal Revenue v. Bank
of the Philippine Islands,[18] in this wise:
Receipt of income may be actual or constructive. We have held that the
withholding process results in the taxpayers constructive receipt of the
income withheld, to wit:
By analogy, we apply to the receipt of income the rules
on actual and constructive possession provided in Articles 531 and 532 of
our Civil Code.
Under Article 531:
Possession is acquired by the material occupation of a thing or
the exercise of a right, or by the fact that it is subject to the action of
our will, or by the proper acts and legal formalities established for
acquiring such right.
Article 532 states:
Possession may be acquired by the same person who is to enjoy
it, by his legal representative, by his agent, or by any person without
any power whatever; but in the last case, the possession shall not be
considered as acquired until the person in whose name the act of
possession was executed has ratified the same, without prejudice to
the juridical consequences of negotiorum gestio in a proper case.
The last means of acquiring possession under Article 531 refers
to juridical actsthe acquisition of possession by sufficient titleto which
53

the law gives the force of acts of possession. Respondent argues that
only items of income actually received should be included in its gross
receipts. It claims that since the amount had already been withheld at
source, it did not have actualreceipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the
acquisition of the right of possession is through the proper acts and
legal formalities established therefor. The withholding process is one
such act. There may not be actual receipt of the income withheld;
however, as provided for in Article 532, possession by any person
without any power whatsoever shall be considered as acquired when
ratified by the person in whose name the act of possession is executed.
In our withholding tax system, possession is acquired by
the payor as the withholding agent of the government, because the
taxpayer ratifies the very act of possession for the government. There
is thus constructive receipt. The processes of bookkeeping and
accounting for interest on deposits and yield on deposit substitutes
that are subjected to FWT are indeedfor legal purposestantamount to
delivery, receipt or remittance.[19]
Revenue Regulations No. 16-2005 dated September 1, 2005[20] defined and gave
examples of constructive receipt, to wit:
SEC. 4. 108-4. Definition of Gross Receipts. -- x x x
Constructive receipt occurs when the money consideration or its
equivalent is placed at the control of the person who rendered the service
without restrictions by the payor. The following are examples of constructive
receipts:
(1) deposit in banks which are made available to the seller of services
without restrictions;
(2) issuance by the debtor of a notice to offset any debt or obligation and
acceptance thereof by the seller as payment for services rendered; and
(3) transfer of the amounts retained by the payor to the account of the
contractor.
There is, therefore, constructive receipt, when the consideration for the articles sold,
exchanged or leased, or the services rendered has already been placed under the control
of the person who sold the goods or rendered the services without any restriction by
the payor.
In contrast, gross revenue covers money or its equivalent actually or constructively
received, including the value of services rendered or articles sold, exchanged or
leased, the payment of which is yet to be received. This is in consonance with the
International Financial Reporting Standards, [21] which defines revenue as the gross inflow
of economic benefits (cash, receivables, and other assets) arising from the ordinary
operating activities of an enterprise (such as sales of goods, sales of services, interest,
54

royalties, and dividends),[22] which is measured at the fair value of the consideration
received or receivable.[23]
As aptly stated by the RTC:
[R]evenue from services rendered is recognized when services have been
performed and are billable. It is recorded at the amount received
or expected to be received. (Section E [17] of the Statements of Financial
Accounting Standards No. 1).[24]
In petitioners case, its audited financial statements reflect income or revenue which
accrued to it during the taxable period although not yet actually or constructively
received or paid. This is because petitioner uses the accrual method of accounting,
where income is reportable when all the events have occurred that fix the taxpayers
right to receive the income, and the amount can be determined with reasonable
accuracy; the right to receive income, and not the actual receipt, determines when to
include the amount in gross income.[25]
The imposition of local business tax based on petitioners gross revenue will inevitably
result in the constitutionally proscribed double taxation taxing of the same person twice
by the same jurisdiction for the same thing [26] inasmuch as petitioners revenue or income
for a taxable year will definitely include its gross receipts already reported during the
previous year and for which local business tax has already been paid.
Thus, respondent committed a palpable error when it assessed petitioners local business
tax based on its gross revenue as reported in its audited financial statements, as Section
143 of the Local Government Code and Section 22(e) of the Pasig Revenue Code clearly
provide that the tax should be computed based on gross receipts.
WHEREFORE, the petition is GRANTED. The Decision dated November 20, 2006 and
Resolution dated February 9, 2007 issued by the Court of Appeals are SET ASIDE, and
the Decision dated March 8, 2004 rendered by the Regional Trial Court of Pasig, Branch
168 is REINSTATED.
SO ORDERED.

ALLIED
BANKING
CORPORATION AS TRUSTEE
FOR THE TRUST FUND OF
COLLEGE ASSURANCE PLAN

G.R. No. 154126

Present:
55

PHILIPPINES, INC. (CAP),

Petitioner,

-versus-

THE
QUEZON
CITY
GOVERNMENT, THE QUEZON
CITY
TREASURER,
THE
QUEZON
CITY
ASSESSOR
AND THE CITY MAYOR OF
QUEZON CITY,
Respondents.

DAVIDE, JR., C.J.,

PUNO,
PANGANIBAN,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL- GUTIERREZ,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
CALLEJO, SR.,
AZCUNA,
TINGA,
CHICO-NAZARIO, and
GARCIA, JJ.
Promulgated:

October 11, 2005

x----------------------------------------------------------------x
DECISION
CARPIO MORALES, J.:

From the Resolution[1] of April 10, 2002 issued by Branch 225 of the Regional Trial Court
(RTC) of Quezon City dismissing the petition for prohibition and declaratory relief [2]of
Allied Banking Corporation (petitioner), the present appeal by certiorari was lodged.
On December 19, 1995, the Quezon City government enacted City Ordinance No.
357, Series of 1995 (the ordinance),[3] Section 3 of which reads:
Section 3. The City Assessor shall undertake a general revision of real
property assessments using as basis the newly approved schedule specified
in Sections 1 and 2 hereof. He shall apply the new assessment level of 15%
for residential and 40% for commercial and industrial classification,
respectively as prescribed in Section 8 (a) of the 1993 Quezon City Revenue
Code to determine the assessed value of the land. Provided; however,
that parcels of land sold, ceded, transferred and conveyed for
remuneratory consideration after the effectivity of this revision
shall be subject to real estate tax based on the actual amount
reflected in the deed of conveyance or the current approved zonal
valuation of the Bureau of Internal Revenue prevailing at the time of
sale, cession, transfer and conveyance, whichever is higher, as
evidenced by the certificate of payment of the capital gains tax
issued therefor.[4] (Emphasis and underscoring supplied)

On July 1, 1998, petitioner, as trustee for College Assurance Plan of the Philippines, Inc.,
purchased from Liwanag C. Natividad et al. a 1,000 square meter parcel of land located
along Aurora Boulevard, Quezon City in the amount of P38,000,000.00.[5]
56

Prior

to

the

sale,

Natividad

et

al.

had

been

paying

the

total

amount

of P85,050.00[6] as annual real property tax based on the propertys fair market value
of P4,500,000.00and assessed value of P1,800,000.00 under Tax Declaration No. D-10203778.[7]
After its acquisition of the property, petitioner was, in accordance with Section 3 of
the ordinance, required to pay P102,600.00 as quarterly real estate tax (or P410,400.00
annually) under Tax Declaration No. D-102-03780 which pegged the market value of the
property at P38,000,000.00 the consideration appearing in the Deed of Absolute Sale,
and its assessed value at P15,200,000.00.[8]
Petitioner paid the quarterly real estate tax for the property from the 1 st quarter of
1999 up to the 3rd quarter of 2000. Its tax payments for the 2 nd, 3rd, and 4th quarter of
1999, and 1st and 2nd quarter of 2000 were, however, made under protest.[9]
In its written protest[10] with the City Treasurer, petitioner assailed Section 3 of the
ordinance as null and void, it contending that it is violative of the equal protection and
uniformity of taxation clauses of the Constitution.[11] Petitioner, moreover, contended that
the proviso is unjust, excessive, oppressive, unreasonable, confiscatory and contrary to
Section 130 of the Local Government Code which provides:
SECTION 130. Fundamental Principles. The following fundamental
principles shall govern the exercise of the taxing and revenue-raising powers
of local government units:
(a)

Taxation shall be uniform in each local

government unit;

(b)

Taxes, fees, charges and other impositions

shall:

(1)

be equitable and based as far as practicable on the taxpayers

ability to pay;
(2)
be levied and collected only for public purposes;
(3)
not be unjust, excessive, oppressive, or confiscatory;
(4)
not be contrary to law, public policy, national economic policy, or
in restraint of trade;
xxx

Petitioner, through its counsel, later sent a March 24, 2000 demand letter to the
Quezon City Treasurers Office seeking a refund of the real estate taxes it erroneously
collected from it.[12] The letter was referred for appropriate action [13] to the City Assessor
who, by letter dated May 7, 2000, denied the demand for refund on the ground that the
ordinance is presumed valid and legal unless otherwise declared by a court of competent
jurisdiction.[14]
57

Petitioner thereupon filed on August 11, 2000 a petition for prohibition and
declaratory relief before the Quezon City RTC for the declaration of nullity of Section 3 of
the ordinance; the enjoining of respondents Quezon City Treasurer, Quezon City Assessor,
and City Mayor of Quezon City from further implementing the ordinance; for the Quezon
City Treasurer to be ordered to refund the amount of P633,150.00 representing the real
property tax erroneously collected and paid under protest; and for respondents to pay
attorneys fees in the amount of P1,000,000.00 and costs of the suit.[15]
In support of its thesis, petitioner contended that the re-assessment under the
third sentence of Section 3 of the ordinance for purposes of real estate taxation of a
propertys fair market value where it is sold, ceded, transferred or conveyed for
remuneratory consideration is null and void as it is an invalid classification of real
properties which are transferred, ceded or conveyed and those which are not, the latter
remaining to be valued and assessed in accordance with the general revisions of
assessments of real properties under the first sentence of Section 3.[16]
Petitioner additionally contended that the proviso of Section 3 of the ordinance
which allows re-assessment every time the property is transferred, ceded or conveyed
violates Sections 219[17] and 220[18] of the Local Government Code which provide that the
assessment of real property shall not be increased oftener than once every three (3)
years except in case of new improvements substantially increasing the value of said
property or of any change in its actual use.[19]
Before respondents could file any responsive pleading or on March 6, 2001,
respondent Quezon City Government enacted Ordinance No. SP-1032, S-2001 [20] which
repealed the assailed proviso in Section 3 of the 1995 Ordinance. The repealing
ordinance which took effect upon its approval on March 28, 2001 reads in part:
WHEREAS, the implementation of the second (2nd) sentence of Section 3
of the Ordinance creates a situation whereby owners of newly acquired land
for remuneratory consideration beginning January 1, 1996 and forward will
have to pay higher taxes than its adjoining/adjacent lot or lots in the adjoining
blocks, or nearby lots within its immediate vicinity which have remained
undisturbed, not having been sold, ceded, transferred, and/or conveyed;
WHEREAS, the owners of the newly acquired property are
complaining/protesting the validity/legality of the second (2 nd) sentence of
Section 3 of the ordinance for being either arbitrary, unjust, excessive,
oppressive, and/or contrary to law;
WHEREAS, Section 5 Article X of the Philippine Constitution provides
that: Each local government unit shall have the power to create its own
sources of revenue and to levy taxes, fees and charges subject to
such guidelines and limitations as the Congress may provide, consistent with
the basic policy of local autonomy. Such taxes, fees and charges shall accrue
exclusively to the local government (Underscoring supplied);

58

WHEREAS, the guidelines and limitations imposed on the local

government units in the exercise of their taxing powers have been expressly
stipulated by Congress when it enacted Section 130 of Republic Act No. 7160,
otherwise known as the Local Government Code of 1991 xxx;
WHEREAS, these fundamental principles of taxation find support and
affirmation in the following applicable cases decided by the Court of Tax
Appeals (sic), on similar cases which held that:
1. An increase in the valuation of land due to sale and transfer of such
property was arbitrary. Uniformity in taxation means that all kinds of
property of the same class shall be taxed at the same rate. (Churchhill vs.
Concepcion, 34 Phi. 969; Eastern Theatrical Co. vs. Alfonso, 83 Phil. 852)
xxx.
2. The law requires the real property shall be assessed at its true and full
value, or cash value, or fair market value. But in determining or fixing the
fair market value of property for tax purposes it is essential that the rules
of uniformity be observed. More important tha[n] the obligation to seek
the fair market value of property is the obligation of the assessor to see to
it that the rule of taxation shall be uniform, for this a (sic) rule which is
guaranteed by the Constitution. A taxpayer should not be made to pay
more taxes on his property while owners of surrounding properties, under
the same circumstance pay less.
WHEREAS, it is clear from the foregoing premises that the second (2 nd)
sentence of the Ordinance, fixing the realty tax based on the actual amount
reflected in the deed of conveyance or the current approved zonal valuation x
x x is violative of, and repugnant to, the uniformity rule of taxation;
WHEREAS, in view of the above considerations there appear to be merit
and validity to the complaints/protests of tax payers, a re-examination and
repeal of the entire second sentence of Section 3 of the Ordinance is in order.

Petitioner subsequently moved to declare respondents in default[21] for failure to file a

responsive pleading within the period, as extended. Before the motion could be heard,
[22]

however, respondents moved to dismiss the petition, [23] averring that the passage of

the repealing ordinance had rendered the petition moot and academic.
Petitioner opposed the motion, it alleging that while its action for the declaration of
nullity of the proviso was rendered moot and academic by its repeal, its claim for refund
and attorneys fees had not been mooted, and the trial court still had to determine if
Section 3 of the ordinance is null and void ab initio and perforce, may not be enforced
during the intervening period from the time of its enactment until the time of its repeal.
[24]

Respondents maintained, however, that the assailed proviso remained in full force
and effect until the date of its repeal, based on the rule that a statute is construed
prospectively unless the legislative intent was to give it retrospective application. [25] And
they called attention to the provision in Section 2 of the repealing ordinance that [it]
59

shall take effect upon its approval, hence, clearly showing that the local legislative body
was to grant it prospective application.[26]
As to the claim for refund, respondents averred that it was premature for the trial
court to take cognizance thereof as petitioner had an administrative remedy. [27]
By Resolution of April 10, 2002, the trial court granted respondents motion to
dismiss in this wise:
There is no need for this Court to resolve whether the subject
Ordinance is null and void as the same was already declared to be violative
of, and repugnant to the uniformity rule on taxation by the Quezon City
Council itself thru its pronouncements in Quezon City Ordinance No. 1032,
Series of 2001. x x x
xxx
As to petitioners claim for refund, since an administrative remedy is
available for refund of taxes illegally and erroneously collected and petitioner
has not yet availed of it, the Court shall not take cognizance of this issue
considering the rule on Exhaustion of Administrative Remedy.
[28]
(Underscoring supplied)

Its Motion for Reconsideration[29] having been denied,[30] petitioner comes before
this Court on appeal by certiorari under Rule 45 on the following issues:
A
WHETHER OR NOT THE TRIAL COURT ERRED IN DISMISSING THE INSTANT
CASE FOR FAILURE OF THE PETITIONER TO EXHAUST ADMINISTRATIVE
REMEDIES.
B
WHETHER OR NOT SECTION 3, QUEZON CITY ORDINANCE NO. 357, SERIES
OF 1995, WHICH WAS ABROGATED FOR BEING UNCONSTITUTIONAL CAN BE
THE BASIS OF COLLECTING REAL ESTATE TAXES PRIOR TO ITS REPEAL.[31]

Although as a rule, administrative remedies must first be exhausted before resort

to judicial action can prosper, there is a well-settled exception in cases where the
controversy does not involve questions of fact but only of law.[32]
Nevertheless, while cases raising purely legal questions are excepted from the rule
requiring exhaustion of administrative remedies before a party may resort to the courts,
petitioner, in the case at bar, does not raise just pure questions of law. Its cause of action
requires the determination of the amount of real property tax paid under
60

protest and the amount of attorneys fees. These issues are essentially questions of
fact which preclude this Court from reviewing the same.[33]
Since the procedure for obtaining a refund of real property taxes is provided under
Sections

252,[34] 226,[35] 229,[36] 230[37] and

231[38] of

the

Local

Government

Code,

petitioners action for prohibition in the RTC was premature as it had a plain, speedy and
adequate remedy of appeal in the ordinary course of law. [39] As such, the trial court
correctly dismissed its action on the ground that it failed to exhaust the administrative
remedies stated above.[40]
Raising questions of fact is moreover inappropriate in an appeal by certiorari under Rule
45 of the Rules of Court where only questions of law may be reviewed. [41] It is axiomatic
that the Supreme Court is not a trier of facts [42] and the factual findings of the court a
quo are conclusive upon it, except: (1) where the conclusion is a finding grounded
entirely on speculation, surmise and conjectures; (2) where the inference made is
manifestly mistaken; (3) where there is grave abuse of discretion; and (4) where the
judgment is based on a misapprehension of facts, and the findings of fact of the trial
court are premised on the absence of evidence and are contradicted by evidence on
record.[43]
From a considered scrutiny of the records of the case, this Court finds that petitioner has
shown no cause for this Court to apply any of the foregoing exceptions.
Petitioner has not put squarely in issue the constitutionality of the proviso in
Section 3 of the ordinance. It merely alleges that the said proviso can not be the basis for
collecting real estate taxes at any given time, the Sangguniang Panlungsod of Quezon
City not having intended to impose such taxes in the first place. As such the repealing
ordinance should be given retroactive effect.
As a rule, the courts will not resolve the constitutionality of a law, if the
controversy can be settled on other grounds.[44]
Where questions of constitutional significance are raised, the Court can exercise its
power of judicial review only if the following requisites are complied: First, there must be
before the Court an actual case calling for the exercise of judicial review. Second, the
question before the Court must be ripe for adjudication. Third, the person challenging the
validity of the act must have standing to challenge. Fourth, the question of
constitutionality must have been raised at the earliest opportunity, and lastly, the issue
of constitutionality must be the very lis mota of the case.[45]
61

Considering that there are factual issues still waiting to be threshed out at the level of
the administrative agency, there is no actual case calling for the exercise of judicial
review. In addition, the requisite that the constitutionality of the assailed proviso in
question be the very lis mota of the case is absent. Thus, this Court refrains from passing
on the constitutionality of the proviso in Section 3 of the 1995 Ordinance.
The factual issues which petitioner interjected in its petition aside, the only crucial legal
query in this case is the validity of the proviso fixing the appraised value of property at
the stated consideration at which the property was last sold.
This Court holds that the proviso in question is invalid as it adopts a method of
assessment or appraisal of real property contrary to the Local Government Code, its
Implementing Rules and Regulations and the Local Assessment Regulations No. 192[46] issued by the Department of Finance.[47]
Under these immediately stated authorities, real properties shall be appraised at the
current and fair market value prevailing in the locality where the property is
situated[48] and classified for assessment purposes on the basis of its actual use.[49]

Fair market value is the price at which a property may be sold by a seller who is not
compelled to sell and bought by a buyer who is not compelled to buy, [50] taking into
consideration all uses to which the property is adapted and might in reason be applied.
The criterion established by the statute contemplates a hypothetical sale. Hence, the
buyers need not be actual and existing purchasers.[51]
As this Court stressed in Reyes v. Almanzor,[52] assessors, in fixing the value of real
property, have to consider all the circumstances and elements of value, and must
exercise prudent discretion in reaching conclusions.[53] In this regard, Local Assessment
Regulations No. 1-92[54] establishes the guidelines to assist assessors in classifying,
appraising and assessing real property.
Local Assessment Regulations No. 1-92 suggests three approaches in estimating the fair
market value, namely: (1) the sales analysis or market data approach; (2) the income
capitalization approach; and (3) the replacement or reproduction cost approach. [55]
Under the sales analysis approach, the price paid in actual market transactions is
considered by taking into account valid sales data accumulated from among the various
sources stated in Sections 202, 203, 208, 209, 210, 211 and 213 of the Code.[56]

62

In the income capitalization approach, the value of an income-producing property is no

more than the return derived from it. An analysis of the income produced is necessary in
order to estimate the sum which might be invested in the purchase of the property.
The reproduction cost approach, on the other hand, is a factual approach used
exclusively in appraising man-made improvements such as buildings and other
structures, based on such data as materials and labor costs to reproduce a new replica of
the improvement.
The assessor uses any or all of these approaches in analyzing the data gathered to arrive
at the estimated fair market value to be included in the ordinance containing the
schedule of fair market values.
Given these different approaches to guide the assessor, it can readily be seen that the
Code did not intend to have a rigid rule for the valuation of property, which is affected by
a multitude of circumstances which no rule could foresee or provide for. Thus, what a
thing has cost is no singular and infallible criterion of its market value.[57]
Accordingly, this Court holds that the proviso directing that the real property tax be
based on the actual amount reflected in the deed of conveyance or the prevailing BIR
zonal value is invalid not only because it mandates an exclusive rule in determining the
fair market value but more so because it departs from the established procedures stated
in the Local Assessment Regulations No. 1-92 and unduly interferes with the duties
statutorily placed upon the local assessor[58] by completely dispensing with his analysis
and discretion which the Code and the regulations require to be exercised. An ordinance
that contravenes any statute is ultra vires and void.[59]
Further, it is noted that there is nothing in the Charter of Quezon City [60] and the Quezon
City Revenue Code of 1993[61] that authorize public respondents to appraise property at
the consideration stated in the deed of conveyance.
Using the consideration appearing in the deed of conveyance to assess or appraise
real properties is not only illegal since the appraisal, assessment, levy and collection of
real property tax shall not be let to any private person, [62] but it will completely destroy
the fundamental principle in real property taxation that real property shall be classified,
valued and assessed on the basis of its actual use regardless of where located, whoever
owns it, and whoever uses it. [63] Necessarily, allowing the parties to a private sale to
dictate the fair market value of the property will dispense with the distinctions of actual
use stated in the Code and in the regulations.
The invalidity of the assessment or appraisal system adopted by the proviso is not
cured even if the proviso mandates the comparison of the stated consideration as
63

against the prevailing BIR zonal value, whichever is higher, because an integral part of
that system still permits valuing real property in disregard of its actual use.
In the same vein, there is also nothing in the Code or the regulations showing the
congressional intent to require an immediate adjustment of taxes on the basis of the
latest market developments as, in fact, real property assessments may be revised and/or
increased only once every three (3) years. [64] Consequently, the real property tax burden
should not be interpreted to include those beyond what the Code or the regulations
expressly and clearly state.
Still another consequence of the proviso is to provide a chilling effect on real
property owners or administrators to enter freely into contracts reflecting the increasing
value of real properties in accordance with prevailing market conditions. While the Local
Government Code provides that the assessment of real property shall not be increased
oftener than once every three (3) years,[65] the questioned part of the proviso subjects
the real property to a tax based on the actual amount appearing on the deed of
conveyance or the current approved zonal valuation of the Bureau of Internal Revenue
prevailing at the time of sale, cession, transfer and conveyance, whichever is higher. As
such, any subsequent sale during the three-year period will result in a real property tax
higher than the tax assessed at the last prior conveyance within the same period. To
save on taxes, real property owners or administrators are forced to hold on to the
property until after the said three-year period has lapsed. Should they nonetheless
decide to sell within the said three-year period, they are compelled to dispose the
property at a price not exceeding that obtained from the last prior conveyance in order
to avoid a higher tax assessment. In these two scenarios, real property owners are
effectively prevented from obtaining the best price possible for their properties
and unduly hampers the equitable distribution of wealth.
While the state may legitimately decide to structure its tax system to discourage
rapid turnover in ownership of real properties, such state interest must be expressly
stated in the executing statute or it can at least be gleaned from its provisions.
In the case at bar, there is nothing in the Local Government Code, the
implementing rules and regulations, the local assessment regulations, the Quezon City
Charter, the Quezon City Revenue Code of 1993 and the Whereas clauses of the 1995
Ordinance from which this Court can draw, at the very least, an intimation of this state
interest. As such, the proviso must be stricken down for being contrary to public policy
and for restraining trade.[66]
In fine, public respondent Quezon City Government exceeded its statutory authority
when it enacted the proviso in question. The provision is thus null and void ab initio for
being ultra vires and for contravening the provisions of the Local Government Code, its
implementing regulations and the Local Assessment Regulations No. 1-92. As such, it
acquired no legal effect and conferred no rights from its inception.
A word on the applicability of the doctrine in this decision. It applies only in the
determination of real estate tax payable by owners or administrators of real property.
64

In light of the foregoing disquisitions, addressing the issue of retroactivity of the

repealing ordinance is rendered unnecessary.
WHEREFORE, the petition is hereby GRANTED. The assailed portion of the provisions of
Section 3 of Quezon City Ordinance No. 357, Series of 1995 is hereby declared invalid.
Petitioners claim for refund, however, must be lodged with the Local Board of
Assessment Appeals, if it is not barred by the statute of limitations.

SO ORDERED.

SMART COMMUNICATIONS, INC.,

Petitioner,

G.R. No. 155491

Present:

- versus -

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
THE CITY OF DAVAO,
represented NACHURA, and
herein by its Mayor HON. RODRIGO REYES, JJ.
R.
DUTERTE,
and
the
SANGGUNIANG
PANLUNGSOD Promulgated:
OFDAVAO CITY,
Respondents.
September 16, 2008
x------------------------------------------------------------------------------------x

DECISION
NACHURA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by
Smart Communications, Inc. (Smart) against the City of Davao, represented by its Mayor,
Hon. Rodrigo R. Duterte, and the Sangguniang Panlungsod of Davao City, to annul the
Decision[1] dated July 19, 2002 of the Regional Trial Court (RTC) and its Order [2] dated
September 26, 2002 in Sp. Civil Case No. 28,976-2002.

The Facts
65

On February 18, 2002, Smart filed a special civil action for declaratory relief [3] under Rule
63 of the Rules of Court, for the ascertainment of its rights and obligations under the Tax
Code of the City of Davao,[4] particularly Section 1, Article 10 thereof, the pertinent
portion of which reads:
Notwithstanding any exemption granted by any law or other special law,
there is hereby imposed a tax on businesses enjoying a franchise, at a rate
of seventy-five percent (75%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the income or receipts
realized within the territorial jurisdiction of Davao City.

Smart contends that its telecenter in Davao City is exempt from payment of franchise
tax to the City, on the following grounds: (a) the issuance of its franchise under Republic
Act (R.A.) No. 7294[5] subsequent to R.A. No. 7160 shows the clear legislative intent to
exempt it from the provisions of R.A. 7160;[6] (b) Section 137 of R.A. No. 7160 can only
apply to exemptions already existing at the time of its effectivity and not to future
exemptions; (c) the power of the City of Davao to impose a franchise tax is subject to
statutory limitations such as the in lieu of all taxes clause found in Section 9 of R.A. No.
7294; and (d) the imposition of franchise tax by the City of Davao would amount to a
violation of the constitutional provision against impairment of contracts.[7]
On March 2, 2002, respondents filed their Answer [8] in which they contested the tax
exemption claimed by Smart. They invoked the power granted by the Constitution to
local government units to create their own sources of revenue. [9]
On May 17, 2002, a pre-trial conference was held. Inasmuch as only legal issues were
involved in the case, the RTC issued an order requiring the parties to submit their
respective memoranda and, thereafter, the case would be deemed submitted for
resolution.[10]
On July 19, 2002, the RTC rendered its Decision[11] denying the petition. The trial court
noted that the ambiguity of the in lieu of all taxes provision in R.A. No. 7294, on whether
it covers both national and local taxes, must be resolved against the taxpayer. [12] The RTC
ratiocinated that tax exemptions are construed in strictissimi juris against the taxpayer
and liberally in favor of the taxing authority and, thus, those who assert a tax exemption
must justify it with words too plain to be mistaken and too categorical not to be
misinterpreted.[13] On the issue of violation of the non-impairment clause of the
Constitution, the trial court cited Mactan Cebu International Airport Authority v. Marcos,
[14]
and declared that the citys power to tax is based not merely on a valid delegation of
legislative power but on the direct authority granted to it by the fundamental law. It
added that while such power may be subject to restrictions or conditions imposed by
Congress, any such legislated limitation must be consistent with the basic policy of local
autonomy.[15]
Smart filed a motion for reconsideration which was denied by the trial court in an
Order[16] dated September 26, 2002.
66

Thus, the instant case.

Smart assigns the following errors:
[a.] THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONERS
FRANCHISE (REPUBLIC ACT NO. 7294), WHICH CONTAINS THE IN LIEU OF ALL
TAXES CLAUSE, AND WHICH IS A SPECIAL LAW ENACTED SUBSEQUENT TO
THE LOCAL GOVERNMENT CODE, NO FRANCHISE TAX MAY BE IMPOSED ON
PETITIONER BY RESPONDENT CITY.
[b.] THE LOWER COURT ERRED IN HOLDING THAT PETITIONERS FRANCHISE IS
A GENERAL LAW AND DID NOT REPEAL RELEVANT PROVISIONS REGARDING
FRANCHISE TAX OF THE LOCAL GOVERNMENT CODE, WHICH ACCORDING TO
THE COURT IS A SPECIAL LAW.
[c.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137 OF THE
LOCAL GOVERNMENT CODE, WHICH, IN RELATION TO SECTION 151 THEREOF,
ALLOWS RESPONDENT CITY TO IMPOSE THE FRANCHISE TAX, AND SECTION
193 OF THE CODE, WHICH PROVIDES FOR WITHDRAWAL OF TAX EXEMPTION
PRIVILEGES, ARE NOT APPLICABLE TO THIS CASE.
[d.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTIONS 137 AND
193 OF THE LOCAL GOVERNMENT CODE REFER ONLY TO EXEMPTIONS
ALREADY EXISTING AT THE TIME OF ITS ENACTMENT BUT NOT TO FUTURE
EXEMPTIONS.
[e.] THE LOWER COURT ERRED IN APPLYING THE RULE OF STATUTORY
CONSTRUCTION THAT TAX EXEMPTIONS ARE CONSTRUED STRICTLY AGAINST
THE TAXPAYER.
[f.] THE LOWER COURT ERRED IN NOT HOLDING THAT PETITIONERS
FRANCHISE (REPUBLIC ACT NO. 7294) HAS BEEN AMENDED AND EXPANDED
BY
SECTION
23
OF
REPUBLIC
ACT
NO.
7925,
THE
PUBLIC
TELECOMMUNICATIONS POLICY ACT, TAKING INTO ACCOUNT THE FRANCHISE
OF GLOBE TELECOM, INC. (GLOBE) (REPUBLIC ACT NO. 7229), WHICH ARE
SPECIAL PROVISIONS AND WERE ENACTED SUBSEQUENT TO THE LOCAL
GOVERNMENT CODE, THEREBY PROVIDING AN ADDITIONAL GROUND WHY
NO FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.
[g.] THE LOWER COURT ERRED IN DISREGARDING THE RULING OF THE
DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL GOVERNMENT
FINANCE, THAT PETITIONER IS EXEMPT FROM THE PAYMENT OF THE
FRANCHISE TAX IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE
LOCAL GOVERNMENT CODE.
[h.] THE LOWER COURT ERRED IN NOT HOLDING THAT THE IMPOSITION OF
THE LOCAL FRANCHISE TAX ON PETITIONER WOULD VIOLATE THE
CONSTITUTIONAL PROHIBITION AGAINST IMPAIRMENT OF CONTRACTS.
[i.] THE LOWER COURT ERRED IN DENYING THE PETITION BELOW.[17]

The Issue
In sum, the pivotal issue in this case is whether Smart is liable to pay the franchise tax
imposed by the City of Davao.
67

The Ruling of the Court

We rule in the affirmative.
I. Prospective Effect of R.A. No. 7160
On March 27, 1992, Smarts legislative franchise (R.A. No. 7294) took effect. Section 9
thereof, quoted hereunder, is at the heart of the present controversy:
Section 9. Tax provisions. The grantee, its successors or assigns shall be
liable to pay the same taxes on their real estate buildings and personal
property, exclusive of' this franchise, as other persons or corporations which
are now or hereafter may be required by law to pay. In addition thereto,
the grantee, its successors or assigns shall pay a franchise tax
equivalent to three percent (3%) of all gross receipts of the
business transacted under this franchise by the grantee, its
successors or assigns and the said percentage shall be in lieu of all
taxes on this franchise or earnings thereof: Provided, That the grantee,
its successors or assigns shall continue to be liable for income taxes payable
under Title II of the National Internal Revenue Code pursuant to Section 2 of
Executive Order No. 72 unless the latter enactment is amended or repealed,
in which case the amendment or repeal shall be applicable thereto.
The grantee shall file the return with and pay the tax due thereon to the
Commissioner of Internal Revenue or his duly authorized representative in
accordance with the National Internal Revenue Code and the return shall be
subject to audit by the Bureau of Internal Revenue. (Emphasis supplied.)

Smart alleges that the in lieu of all taxes clause in Section 9 of its franchise exempts it
from all taxes, both local and national, except the national franchise tax (now VAT),
income tax, and real property tax.[18]
On January 1, 1992, two months ahead of Smarts franchise, the Local Government Code
(R.A. No. 7160) took effect. Section 137, in relation to Section 151 of R.A. No. 7160,
allowed the imposition of franchise tax by the local government units; while Section 193
thereof provided for the withdrawal of tax exemption privileges granted prior to the
issuance of R.A. No. 7160 except for those expressly mentioned therein, viz.:
Section 137. Franchise Tax. Notwithstanding any exemption granted
by any law or other special law, the province may impose a tax on
businesses enjoying a franchise, at the rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for
the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed onetwentieth (1/20) of one percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the business started to
operate, the tax shall be based on the gross receipts for the preceding
calendar year, or any fraction thereon, as provided herein.

68

Section 151. Scope of Taxing Powers. Except as otherwise provided in this

Code, the city may levy the taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the taxes, fees and
charges levied and collected by highly urbanized and independent
component cities shall accrue to them and distributed in accordance with the
provisions of this Code.
The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province or municipality by not more
than fifty percent (50%) except the rates of professional and
amusement taxes.
Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including governmentowned or controlled corporations, except local water districts, cooperatives
duly registered under RA No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this
Code. (Emphasis supplied.)

Smart argues that it is not covered by Section 137, in relation to Section 151 of R.A. No.
7160, because its franchise was granted after the effectivity of the said law. We agree
with Smarts contention on this matter. The withdrawal of tax exemptions or incentives
provided in R.A. No. 7160 can only affect those franchises granted prior to the effectivity
of the law. The intention of the legislature to remove all tax exemptions or incentives
granted prior to the said law is evident in the language of Section 193 of R.A. No. 7160.
No interpretation is necessary.
II. The in lieu of all taxes Clause in R.A. No. 7294
The in lieu of all taxes clause in Smarts franchise is put in issue before the Court. In order
to ascertain its meaning, consistent with fundamentals of statutory construction, all the
words in the statute must be considered. The grant of tax exemption by R.A. No. 7294 is
not to be interpreted from a consideration of a single portion or of isolated words or
clauses, but from a general view of the act as a whole. Every part of the statute must be
construed with reference to the context.[19]
Smart is of the view that the only taxes it may be made to bear under its franchise are
the national franchise tax (now VAT), income tax, and real property tax. [20] It claims
exemption from the local franchise tax because the in lieu of taxes clause in its franchise
does not distinguish between national and local taxes.[21]
We pay heed that R.A. No. 7294 is not definite in granting exemption to Smart from local
taxation. Section 9 of R.A. No. 7294 imposes on Smart a franchise tax equivalent to three
percent (3%) of all gross receipts of the business transacted under the franchise and the
said percentage shall be in lieu of all taxes on the franchise or earnings thereof. R.A. No
7294 does not expressly provide what kind of taxes Smart is exempted from. It is not
clear whether the in lieu of all taxes provision in the franchise of Smart would include
exemption from local or national taxation. What is clear is that Smart shall pay franchise
69

tax equivalent to three percent (3%) of all gross receipts of the business transacted
under its franchise. But whether the franchise tax exemption would include exemption
from exactions by both the local and the national government is not unequivocal.
The uncertainty in the in lieu of all taxes clause in R.A. No. 7294 on whether Smart is
exempted from both local and national franchise tax must be construed strictly against
Smart which claims the exemption. Smart has the burden of proving that, aside from the
imposed 3% franchise tax, Congress intended it to be exempt from all kinds of franchise
taxes whether local or national. However, Smart failed in this regard.
Tax exemptions are never presumed and are strictly construed against the taxpayer and
liberally in favor of the taxing authority.[22] They can only be given force when the grant is
clear and categorical.[23] The surrender of the power to tax, when claimed, must be
clearly shown by a language that will admit of no reasonable construction consistent with
the reservation of the power. If the intention of the legislature is open to doubt, then the
intention of the legislature must be resolved in favor of the State.[24]
In this case, the doubt must be resolved in favor of the City of Davao. The in lieu of all
taxes clause applies only to national internal revenue taxes and not to local taxes. As
appropriately pointed out in the separate opinion of Justice Antonio T. Carpio in a similar
case[25] involving a demand for exemption from local franchise taxes:
[T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes,
other than income tax, imposed under the National Internal Revenue Code.
The "in lieu of all taxes" clause does not apply to local taxes. The proviso in
the first paragraph of Section 9 of Smart's franchise states that the grantee
shall "continue to be liable for income taxes payable under Title II of the
National Internal Revenue Code." Also, the second paragraph of Section 9
speaks of tax returns filed and taxes paid to the "Commissioner of Internal
Revenue or his duly authorized representative in accordance with the
National Internal Revenue Code." Moreover, the same paragraph declares
that the tax returns "shall be subject to audit by the Bureau of Internal
Revenue." Nothing is mentioned in Section 9 about local taxes. The clear
intent is for the "in lieu of all taxes" clause to apply only to taxes under the
National Internal Revenue Code and not to local taxes. Even with respect to
national internal revenue taxes, the "in lieu of all taxes" clause does not
apply to income tax.
If Congress intended the "in lieu of all taxes" clause in Smart's franchise to
also apply to local taxes, Congress would have expressly mentioned the
exemption from municipal and provincial taxes. Congress could have used
the language in Section 9(b) of Clavecilla's old franchise, as follows:
x x x in lieu of any and all taxes of any kind, nature or description
levied,
established
or
collected
by
any
authority
whatsoever, municipal, provincial or national, from which the
grantee is hereby expressly exempted, x x x. (Emphasis
supplied).
However, Congress did not expressly exempt Smart from local taxes.
Congress used the "in lieu of all taxes" clause only in reference to national
internal revenue taxes. The only interpretation, under the rule on strict
70

construction of tax exemptions, is that the "in lieu of all taxes" clause in
Smart's franchise refers only to national and not to local taxes.

It should be noted that the in lieu of all taxes clause in R.A. No. 7294 has
become functus officio with the abolition of the franchise tax on telecommunications
companies.[26]As admitted by Smart in its pleadings, it is no longer paying the 3%
franchise tax mandated in its franchise. Currently, Smart along with other
telecommunications companies pays the uniform 10% value-added tax.[27]
The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross
receipts derived from the sale or exchange of services. [28] R.A. No. 7716, as amended by
the Expanded Value Added Tax Law (R.A. No. 8241), the pertinent portion of which is
hereunder quoted, amended Section 9 of R.A. No. 7294:
SEC. 102. Value-added tax on sale of services and use or lease of
properties. (a) Rate and base of tax. There shall be levied assessed
and collected, a value-added tax equivalent to ten percent (10%) of
gross receipts derived from the sale or exchange of services,
including the use or lease of properties.
The phrase sale or exchange of services means the performance of
all kinds of services in the Philippines for others for a fee,
remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property, whether
personal or real; warehousing services; lessors or distributors of
cinematographic
films;
persons
engaged
in
milling,
processing,
manufacturing or repacking goods for others; proprietors, operators or
keepers of hotels, motels, rest houses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other
domestic common carriers by land, air, and water relative to their transport
of goods or cargoes; services of franchise grantees of telephone and
telegraph, radio and television broadcasting and all other franchise
grantees except those under Section 117 of this Code; services of
banks, non-bank financial intermediaries and finance companies; and non-life
insurance companies (except their crop insurances) including surety, fidelity,
indemnity and bonding companies; and similar services regardless of
whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties. x x x.[29]

R.A. No. 7716, specifically Section 20 thereof, expressly repealed the provisions of all
special laws relative to the rate of franchise taxes. It also repealed, amended, or
modified all other laws, orders, issuances, rules and regulations, or parts thereof which
are inconsistent with it.[30] In effect, the in lieu of all taxes clause in R.A. No. 7294 was
rendered ineffective by the advent of the VAT Law.[31]

71

However, the franchise tax that the City of Davao may impose must comply with
Sections 137 and 151 of R.A. No. 7160. Thus, the local franchise tax that may be
imposed by the City must not exceed 50% of 1% of the gross annual receipts for the
preceding calendar year based on the income on receipts realized within the territorial
jurisdiction ofDavao.
III. Opinion of the Bureau of Local Government Finance (BLGF)
In support of its argument that the in lieu of all taxes clause is to be construed as an
exemption from local franchise taxes, Smart submits the opinion of the Department of
Finance, through the BLGF, dated August 13, 1998 and February 24, 1998, regarding the
franchises of Smart and Globe, respectively.[32] Smart presents the same arguments as
the Philippine Long Distance Telephone Company in the previous cases already decided
by this Court.[33] As previously held by the Court, the findings of the BLGF are not
conclusive on the courts:
[T]he BLGF opined that 23 of R.A. No. 7925 amended the franchise of
petitioner and in effect restored its exemptions from local taxes. Petitioner
contends that courts should not set aside conclusions reached by the BLGF
because its function is precisely the study of local tax problems and it has
necessarily developed an expertise on the subject.
To be sure, the BLGF is not an administrative agency whose findings on
questions of fact are given weight and deference in the courts. The
authorities cited by petitioner pertain to the Court of Tax Appeals, a highly
specialized court which performs judicial functions as it was created for the
review of tax cases. In contrast, the BLGF was created merely to provide
consultative services and technical assistance to local governments and the
general public on local taxation, real property assessment, and other related
matters, among others. The question raised by petitioner is a legal question,
to wit, the interpretation of 23 of R.A. No. 7925. There is, therefore, no basis
for claiming expertise for the BLGF that administrative agencies are said to
possess in their respective fields.
Petitioner likewise argues that the BLGF enjoys the presumption of regularity
in the performance of its duty. It does enjoy this presumption, but this has
nothing to do with the question in this case. This case does not concern the
regularity of performance of the BLGF in the exercise of its duties, but the
correctness of its interpretation of a provision of law.[34]

IV. Tax Exclusion/Tax Exemption

Smart gives another perspective of the in lieu of all taxes clause in Section 9 of R.A. No.
7294 in order to avoid the payment of local franchise tax. It says that, viewed from
another angle, the in lieu of all taxes clause partakes of the nature of a tax exclusion and
not a tax exemption. A tax exemption means that the taxpayer does not pay any tax at
all. Smart pays VAT, income tax, and real property tax. Thus, what it enjoys is more
accurately a tax exclusion.[35]

72

However, as previously held by the Court, both in their nature and effect, there is no
essential difference between a tax exemption and a tax exclusion. An exemption is an
immunity or a privilege; it is the freedom from a charge or burden to which others are
subjected. An exclusion, on the other hand, is the removal of otherwise taxable items
from the reach of taxation, e.g., exclusions from gross income and allowable deductions.
An exclusion is, thus, also an immunity or privilege which frees a taxpayer from a charge
to which others are subjected. Consequently, the rule that a tax exemption should be
applied in strictissimi juris against the taxpayer and liberally in favor of the government
applies equally to tax exclusions.[36]

V. Section 23 of R.A. No. 7925

To further its claim, Smart invokes Section 23 of the Public Telecommunications Policy Act
(R.A. No. 7925):
SECTION 23. Equality of Treatment in the Telecommunications
Industry. Any advantage, favor, privilege, exemption, or immunity
granted under existing franchises, or may hereafter be granted,
shall ipso
facto become
part
of
previously
granted
telecommunications franchise and shall be accorded immediately
and unconditionally to the grantees of such franchises: Provided,
however, That the foregoing shall neither apply to nor affect provisions of
telecommunications franchises concerning territory covered by the franchise,
the life span of the franchise, or the type of service authorized by the
franchise. (Emphasis supplied.)

In sum, Smart wants us to interpret anew Section 23 of R.A. No. 7925, in connection with
the franchise of Globe (R.A. No. 7227),[37] which was enacted on March 19, 1992.
Allegedly, by virtue of Section 23 of R.A. No. 7925, otherwise known as the most favored
treatment clause or the equality clause, the provision in the franchise of Globe
exempting it from local taxes is automatically incorporated in the franchise of Smart.
[38]
Smart posits that, since the franchise of Globe contains a provision exempting it from
municipal or local franchise tax, this provision should also benefit Smart by virtue of
Section 23 of R.A. No. 7925. The provision in Globes franchise invoked by Smart reads:
(b) The grantee shall further pay to the Treasurer of the Philippines each year
after the audit and approval of the accounts as prescribed in this Act, one
and one-half per centum of all gross receipts from business transacted under
this franchise by the said grantee in the Philippines, in lieu of any and all
taxes of any kind, nature or description levied, established or
collected by any authority whatsoever, municipal, provincial or
national, from which the grantee is hereby expressly exempted,
effective from the date of the approval of Republic Act Numbered Sixteen
hundred eighteen.[39]

We find no reason to disturb the previous pronouncements of this Court regarding the
interpretation of Section 23 of R.A. No. 7925. As aptly explained in the en banc decision
73

of this Court in Philippine Long Distance Telephone Company, Inc. v. City of Davao, [40] and
recently
in Digital
Telecommunications
Philippines,
Inc.
(Digitel)
[41]
v. Province ofPangasinan,
Congress, in approving Section 23 of R.A. No. 7925, did not
intend it to operate as a blanket tax exemption to all telecommunications entities. [42] The
language of Section 23 of R.A. No. 7925 and the proceedings of both Houses of Congress
are bereft of anything that would signify the grant of tax exemptions to all
telecommunications entities, including those whose exemptions had been withdrawn by
R.A. No. 7160.[43] The term exemption in Section 23 of R.A. No. 7925 does not mean tax
exemption. The term refers to exemption from certain regulations and requirements
imposed by the National Telecommunications Commission.[44]
Furthermore, in the franchise of Globe (R.A. No. 7229), the legislature incontrovertibly
stated that it will be liable for one and one-half per centum of all gross receipts from
business transacted under the franchise, in lieu of any and all taxes of any kind, nature,
or description levied, established, or collected by any authority whatsoever, municipal,
provincial, or national, from which the grantee is hereby expressly exempted. [45] The
grant of exemption from municipal, provincial, or national is clear and categorical that
aside from the franchise tax collected by virtue of R.A. No. 7229, no other franchise tax
may be collected from Globe regardless of who the taxing power is. No such provision is
found in the franchise of Smart; the kind of tax from which it is exempted is not clearly
specified.
As previously explained by the Court, the stance of Smart would lead to absurd
consequences.
The acceptance of petitioner's theory would result in absurd consequences.
To illustrate: In its franchise, Globe is required to pay a franchise tax of only
one and one-half percentum (1%) of all gross receipts from its transactions
while Smart is required to pay a tax of three percent (3%) on all gross
receipts from business transacted. Petitioner's theory would require that, to
level the playing field, any "advantage, favor, privilege, exemption, or
immunity" granted to Globe must be extended to all telecommunications
companies, including Smart. If, later, Congress again grants a franchise to
another telecommunications company imposing, say, one percent (1%)
franchise tax, then all other telecommunications franchises will have to be
adjusted to "level the playing field" so to speak. This could not have been the
intent of Congress in enacting 23 of Rep. Act 7925. Petitioner's theory will
leave the Government with the burden of having to keep track of all granted
telecommunications franchises, lest some companies be treated unequally. It
is different if Congress enacts a law specifically granting uniform advantages,
favor, privilege, exemption, or immunity to all telecommunications entities.
[46]

VI. Non-impairment Clause of the Constitution

Another argument of Smart is that the imposition of the local franchise tax by the City
of Davao would violate the constitutional prohibition against impairment of contracts.
74

The franchise, according to petitioner, is in the nature of a contract between the

government and Smart.[47]
However, we find that there is no violation of Article III, Section 10 of the 1987 Philippine
Constitution. As previously discussed, the franchise of Smart does not expressly provide
for exemption from local taxes. Absent the express provision on such exemption under
the franchise, we are constrained to rule against it. The in lieu of all taxes clause in
Section 9 of R.A. No. 7294 leaves much room for interpretation. Due to this ambiguity in
the law, the doubt must be resolved against the grant of tax exemption.
Moreover, Smarts franchise was granted with the express condition that it is subject to
amendment, alteration, or repeal.[48] As held in Tolentino v. Secretary of Finance: [49]
It is enough to say that the parties to a contract cannot, through the exercise
of prophetic discernment, fetter the exercise of the taxing power of the
State. For not only are existing laws read into contracts in order to fix
obligations as between parties, but the reservation of essential attributes of
sovereign power is also read into contracts as a basic postulate of the legal
order. The policy of protecting contracts against impairment presupposes the
maintenance of a government which retains adequate authority to secure
the peace and good order of society.

In truth, the Contract Clause has never been thought as a limitation on the
exercise of the States power of taxation save only where a tax exemption
has been granted for a valid consideration. x x x.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.

G.R. No. 166408

October 6, 2008

QUEZON CITY and THE CITY TREASURER OF QUEZON

vs.
ABS-CBN BROADCASTING CORPORATION, respondent.

CITY, petitioners,

DECISION
REYES, R.T., J.:
CLAIMS for tax exemption must be based on language in law too plain to be mistaken. It
cannot be made out of inference or implication.
The principle is relevant in this petition for review on certiorari of the Decision1 of the
Court of Appeals (CA) and that 2 of the Regional Trial Court (RTC) ordering the refund and
75

declaring invalid the imposition and collection of local franchise tax by the City Treasurer
of Quezon City on ABS-CBN Broadcasting Corporation (ABS-CBN).
The Facts
Petitioner City Government of Quezon City is a local government unit duly organized and
existing by virtue of Republic Act (R.A.) No. 537, otherwise known as the Revised Charter
of Quezon City. Petitioner City Treasurer of Quezon City is primarily responsible for the
imposition and collection of taxes within the territorial jurisdiction of Quezon City.
Under Section 31, Article 13 of the Quezon City Revenue Code of 1993, 3 a franchise tax
was imposed on businesses operating within its jurisdiction. The provision states:
Section 31. Imposition of Tax. - Any provision of special laws or grant of tax
exemption to the contrary notwithstanding, any person, corporation, partnership or
association enjoying a franchise whether issued by the national government or
local government and, doing business in Quezon City, shall pay a franchise tax at
the rate of ten percent (10%) of one percent (1%) for 1993-1994, twenty percent
(20%) of one percent (1%) for 1995, and thirty percent (30%) of one percent (1%)
for 1996 and the succeeding years thereafter, of gross receipts and sales derived
from the operation of the business in Quezon City during the preceding calendar
year.
On May 3, 1995, ABS-CBN was granted the franchise to install and operate radio and
television broadcasting stations in the Philippines under R.A. No. 7966. 4 Section 8 of R.A.
No. 7966 provides the tax liabilities of ABS-CBN which reads:
Section 8. Tax Provisions. - The grantee, its successors or assigns, shall be liable to
pay the same taxes on their real estate, buildings and personal property, exclusive
of this franchise, as other persons or corporations are now hereafter may be
required by law to pay. In addition thereto, the grantee, its successors or
assigns, shall pay a franchise tax equivalent to three percent (3%) of all
gross receipts of the radio/television business transacted under this
franchise by the grantee, its successors or assigns, and the said
percentage tax shall be in lieu of all taxes on this franchise or earnings
thereof; Provided that the grantee, its successors or assigns shall continue to be
liable for income taxes under Title II of the National Internal Revenue Code
pursuant to Section 2 of Executive No. 72 unless the latter enactment is amended
or repealed, in which case the amendment or repeal shall be applicable thereto.
(Emphasis added)
ABS-CBN had been paying local franchise tax imposed by Quezon City. However, in view
of the above provision in R.A. No. 9766 that it "shall pay a franchise tax x x x in lieu of all
taxes," the corporation developed the opinion that it is not liable to pay the local
franchise tax imposed by Quezon City. Consequently, ABS-CBN paid under protest the
local franchise tax imposed by Quezon City on the dates, in the amounts and under the
official receipts as follows:
O.R.
No.

Date

246427 7/18/1995
4

Amount Paid

P 1,489,977.28

76

248465 10/20/1995
1

1,489,977.28

253613 1/22/1996
4

2,880,975.65

835490 1/23/1997
6

8,621,470.83

48756

1/23/1997

2,731,135.81

67352

4/3/1997

2,731,135.81

P19,944,672.665

Total

On January 29, 1997, ABS-CBN filed a written claim for refund for local franchise tax paid
to Quezon City for 1996 and for the first quarter of 1997 in the total amount of Fourteen
Million Two Hundred Thirty-Three Thousand Five Hundred Eighty-Two and 29/100 centavos
(P14,233,582.29) broken down as follows:
O.R.
No.

Date

Amount Paid

253613 1-22-96
4

P 2,880,975.65

835490 1-23-97
6

8,621,470.83

004875 1-23-97
6

Total

2,731,135.81

P14,233,582.296

In a letter dated March 3, 1997 to the Quezon City Treasurer, ABS-CBN reiterated its
claim for refund of local franchise taxes paid.
On June 25, 1997, for failure to obtain any response from the Quezon City Treasurer, ABSCBN filed a complaint before the RTC in Quezon City seeking the declaration of nullity of
the imposition of local franchise tax by the City Government of Quezon City for being
unconstitutional. It likewise prayed for the refund of local franchise tax in the amount of
Nineteen Million Nine Hundred Forty-Four Thousand Six Hundred Seventy-Two and 66/100
centavos (P19,944,672.66) broken down as follows:
77

O.R.
No.

Date

Amount Paid

246427 7-18-95
4

P 1,489,977.28

248465 10-20-95
1

1,489,977.28

253613 1-22-96
4

2,880,975.65

835490 1-23-97
6

8,621,470.83

004875 1-23-97
6

2,731,135.81

006735 4-03-97
2

Total

2,731,135.81

P19,944,672.667

Quezon City argued that the "in lieu of all taxes" provision in R.A. No. 9766 could not
have been intended to prevail over a constitutional mandate which ensures the viability
and self-sufficiency of local government units. Further, that taxes collectible by and
payable to the local government were distinct from taxes collectible by and payable to
the national government, considering that the Constitution specifically declared that the
taxes imposed by local government units "shall accrue exclusively to the local
governments." Lastly, the City contended that the exemption claimed by ABS-CBN under
R.A. No. 7966 was withdrawn by Congress when the Local Government Code (LGC) was
passed.8 Section 193 of the LGC provides:
Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided
in this Code, tax exemptions or incentives granted to, or presently enjoyed
by all persons, whether natural or juridical, including government-owned
or -controlled corporations, except local water districts, cooperatives duly
registered under R.A. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code. (Emphasis
added)
On August 13, 1997, ABS-CBN filed a supplemental complaint adding to its claim for
refund the local franchise tax paid for the third quarter of 1997 in the amount of Two
Million Seven Hundred Thirty-One Thousand One Hundred Thirty-Five and 81/100
centavos (P2,731,135.81) and of other amounts of local franchise tax as may have been
and will be paid by ABS-CBN until the resolution of the case.
Quezon City insisted that the claim for refund must fail because of the absence of a prior
written claim for it.
78

RTC and CA Dispositions

On January 20, 1999, the RTC rendered judgment declaring as invalid the imposition on
and collection from ABS-CBN of local franchise tax paid pursuant to Quezon City
Ordinance No. SP-91, S-93, after the enactment of R.A. No. 7966, and ordered the refund
of all payments made. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered declaring the imposition on and
collection from plaintiff ABS-CBN BROADCASTING CORPORATION of local franchise
taxes pursuant to Quezon City Ordinance No. SP-91, S-93 after the enactment of
Republic Act No. 7966 to be invalid, and, accordingly, the Court hereby orders the
defendants to refund all its payments made after the effectivity of its legislative
franchise on May 3, 1995.
SO ORDERED.9
In its decision, the RTC ruled that the "in lieu of all taxes" provision contained in Section 8
of R.A. No. 7966 absolutely excused ABS-CBN from the payment of local franchise tax
imposed under Quezon City Ordinance No. SP-91, S-93. The intent of the legislature to
excuse ABS-CBN from payment of local franchise tax could be discerned from the usage
of the "in lieu of all taxes" provision and from the absence of any qualification except
income taxes. Had Congress intended to exclude taxes imposed from the exemption, it
would have expressly mentioned so in a fashion similar to the proviso on income taxes.
The RTC also based its ruling on the 1990 case of Province of Misamis Oriental v.
Cagayan Electric Power and Light Company, Inc. (CEPALCO).10 In said case, the
exemption of respondent electric company CEPALCO from payment of provincial
franchise tax was upheld on the ground that the franchise of CEPALCO was a special law,
while the Local Tax Code, on which the provincial ordinance imposing the local franchise
tax was based, was a general law. Further, it was held that whenever there is a conflict
between two laws, one special and particular and the other general, the special law must
be taken as intended to constitute an exception to the general act.
The RTC noted that the legislative franchise of ABS-CBN was granted years after the
effectivity of the LGC. Thus, it was unavoidable to conclude that Section 8 of R.A. No.
7966 was an exception since the legislature ought to be presumed to have enacted it
with the knowledge and awareness of the existence and prior enactment of Section
13711 of the LGC.
In addition, the RTC, again citing the case of Province of Misamis Oriental v. Cagayan
Electric Power and Light Company, Inc. (CEPALCO),12 ruled that the imposition of the local
franchise tax was an impairment of ABS-CBN's contract with the government. The
imposition of another franchise on the corporation by the local authority would constitute
an impairment of the former's charter, which is in the nature of a private contract
between it and the government.
As to the amounts to be refunded, the RTC rejected Quezon City's position that a written
claim for refund pursuant to Section 196 of the LGC was a condition sine qua non before
filing the case in court. The RTC ruled that although Fourteen Million Two Hundred ThirtyThree Thousand Five Hundred Eighty-Two and 29/100 centavos (P14,233,582.29) was the
only amount stated in the letter to the Quezon City Treasurer claiming refund, ABS-CBN
should nonetheless be also refunded of all payments made after the effectivity of R.A.
No. 7966. The inaction of the City Treasurer on the claim for refund of ABS-CBN legally
rendered any further claims for refund on the part of plaintiff absurd and futile in relation
to the succeeding payments.
The City of Quezon and its Treasurer filed a motion for reconsideration which was
subsequently denied by the RTC. Thus, appeal was made to the CA. On September 1,
2004, the CA dismissed the petition of Quezon City and its Treasurer. According to the
79

appellate court, the issues raised were purely legal questions cognizable only by the
Supreme Court. The CA ratiocinated:
For another, the issues which appellants submit for this Court's consideration are
more of legal query necessitating a legal opinion rather than a call for adjudication
on the matter in dispute.
xxxx
The first issue has earlier been categorized in Province of Misamis Oriental v.
Cagayan Electric and Power Co., Inc. to be a legal one. There is no more argument
to this.
The next issue although it may need the reexamination of the pertinent provisions
of the local franchise and the legislative franchise given to appellee, also needs no
evaluation of facts. It suffices that there may be a conflict which may need to be
reconciled, without regard to the factual backdrop of the case.
The last issue deals with a legal question, because whether or not there is a prior
written claim for refund is no longer in dispute. Rather, the question revolves on
whether the said requirement may be dispensed with, which obviously is not a
factual issue.13
On September 23, 2004, petitioner moved for reconsideration. The motion was,
however, denied by the CA in its Resolution dated December 16, 2004. Hence, the
present recourse.
Issues
Petitioner submits the following issues for resolution:
I.
Whether or not the phrase "in lieu of all taxes" indicated in the franchise of the
respondent appellee (Section 8 of RA 7966) serves to exempt it from the payment
of the local franchise tax imposed by the petitioners-appellants.
II.
Whether or not the petitioners-appellants raised factual and legal issues before the
Honorable Court of Appeals.14
Our Ruling
The second issue, being procedural in nature, shall be dealt with immediately. But there
are other resultant issues linked to the first.
I. The dismissal by the CA of petitioners' appeal is in order because it raised
purely legal issues, namely:
1) Whether appellee, whose franchise expressly provides that its payment of
franchise tax shall be in lieu of all taxes in this franchise or earnings thereof, is
absolutely excused from paying the franchise tax imposed by appellants;
2) Whether appellants' imposition of local franchise tax is a violation of appellee's
legislative franchise; and
3) Whether one can do away with the requirement on prior written claim for
refund.15
80

Obviously, these are purely legal questions, cognizable by this Court, to the exclusion of
all other courts. There is a question of law when the doubt or difference arises as to what
the law is pertaining to a certain state of facts.16
Section 2, Rule 50 of the Rules of Court provides that an appeal taken to the CA under
Rule 41 raising only questions of law is erroneous and shall be dismissed, issues of pure
law not being within its jurisdiction. 17Consequently, the dismissal by the CA of
petitioners' appeal was in order.
In the recent case of Sevilleno v. Carilo,18 this Court ruled that the dismissal of the appeal
of petitioner was valid, considering the issues raised there were pure questions of
law, viz.:
Petitioners interposed an appeal to the Court of Appeals but it was dismissed for
being the wrong mode of appeal. The appellate court held that since the issue
being raised is whether the RTC has jurisdiction over the subject matter of the
case, which is a question of law, the appeal should have been elevated to the
Supreme Court under Rule 45 of the 1997 Rules of Civil Procedure, as amended.
Section 2, Rule 41 of the same Rules which governs appeals from judgments and
final orders of the RTC to the Court of Appeals, provides:
SEC. 2. Modes of appeal. (a) Ordinary appeal. - The appeal to the Court of Appeals in cases decided by
the Regional Trial Court in the exercise of its original jurisdiction shall be
taken by filing a notice of appeal with the court which rendered the judgment
or final order appealed from and serving a copy thereof upon the adverse
party. No record on appeal shall be required except in special proceedings
and other cases of multiple or separate appeals where the law or these Rules
so require. In such cases, the record on appeal shall be filed and served in
like manner.
(b) Petition for review. - The appeal to the Court of Appeals in cases decided
by the Regional Trial Court in the exercise of its appellate jurisdiction shall be
by petition for review in accordance with Rule 42.
(c) Appeal by certiorari. - In all cases where only questions of law are raised
or involved, the appeal shall be to the Supreme Court by petition for review
on certiorari in accordance with Rule 45.
In Macawili Gold Mining and Development Co., Inc. v. Court of Appeals, we
summarized the rule on appeals as follows:
(1) In all cases decided by the RTC in the exercise of its original jurisdiction,
appeal may be made to the Court of Appeals by mere notice of appeal where
the appellant raises questions of fact or mixed questions of fact and law;
(2) In all cases decided by the RTC in the exercise of its original jurisdiction
where the appellant raises only questions of law, the appeal must be taken
to the Supreme Court on a petition for review on certiorari under Rule 45;
(3) All appeals from judgments rendered by the RTC in the exercise of its
appellate jurisdiction, regardless of whether the appellant raises questions of
fact, questions of law, or mixed questions of fact and law, shall be brought to
the Court of Appeals by filing a petition for review under Rule 42.
It is not disputed that the issue brought by petitioners to the Court of Appeals
involves the jurisdiction of the RTC over the subject matter of the case. We have a
long standing rule that a court's jurisdiction over the subject matter of an action is
81

conferred only by the Constitution or by statute. Otherwise put, jurisdiction of a

court over the subject matter of the action is a matter of law. Consequently, issues
which deal with the jurisdiction of a court over the subject matter of a case are
pure questions of law. As petitioners' appeal solely involves a question of law, they
should have directly taken their appeal to this Court by filing a petition for review
on certiorari under Rule 45, not an ordinary appeal with the Court of Appeals under
Rule 41. Clearly, the appellate court did not err in holding that petitioners pursued
the wrong mode of appeal.
Indeed, the Court of Appeals did not err in dismissing petitioners' appeal. Section
2, Rule 50 of the same Rules provides that an appeal from the RTC to the Court of
Appeals raising only questions of law shall be dismissed; and that an appeal
erroneously taken to the Court of Appeals shall be dismissed outright, x x
x.19 (Emphasis added)
However, to serve the demands of substantial justice and equity, the Court opts to relax
procedural rules and rule upon on the merits of the case. In Ong Lim Sing Jr. v. FEB
Leasing and Finance Corporation,20 this Court stated:
Courts have the prerogative to relax procedural rules of even the most mandatory
character, mindful of the duty to reconcile both the need to speedily put an end to
litigation and the parties' right to due process. In numerous cases, this Court has
allowed liberal construction of the rules when to do so would serve the demands of
substantial justice and equity. In Aguam v. Court of Appeals, the Court explained:
"The court has the discretion to dismiss or not to dismiss an appellant's
appeal. It is a power conferred on the court, not a duty. The "discretion must
be a sound one, to be exercised in accordance with the tenets of justice and
fair play, having in mind the circumstances obtaining in each case."
Technicalities, however, must be avoided. The law abhors technicalities that
impede the cause of justice. The court's primary duty is to render or
dispense justice. "A litigation is not a game of technicalities." "Lawsuits
unlike duels are not to be won by a rapier's thrust. Technicality, when it
deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts." Litigations must
be decided on their merits and not on technicality. Every party litigant must
be afforded the amplest opportunity for the proper and just determination of
his cause, free from the unacceptable plea of technicalities. Thus, dismissal
of appeals purely on technical grounds is frowned upon where the policy of
the court is to encourage hearings of appeals on their merits and the rules of
procedure ought not to be applied in a very rigid, technical sense; rules of
procedure are used only to help secure, not override substantial justice. It is
a far better and more prudent course of action for the court to excuse a
technical lapse and afford the parties a review of the case on appeal to attain
the ends of justice rather than dispose of the case on technicality and cause
a grave injustice to the parties, giving a false impression of speedy disposal
of cases while actually resulting in more delay, if not a miscarriage of
justice.21
II. The "in lieu of all taxes" provision in its franchise does not exempt ABS-CBN
from payment of local franchise tax.
A. The present controversy essentially boils down to a dispute between the inherent
taxing power of Congress and the delegated authority to tax of local governments under
the 1987 Constitution and effected under the LGC of 1991.
The power of the local government of Quezon City to impose franchise tax is based on
Section 151 in relation to Section 137 of the LGC, to wit:
82

Section 137. Franchise Tax. - Notwithstanding any exemption granted by any law
or other special law, the province may impose a tax on businesses enjoying a
franchise, at the rate not exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized within its territorial jurisdiction. x x x
xxxx
Section 151. Scope of Taxing Powers. - Except as otherwise provided in this Code,
the city may levy the taxes, fees and charges which the province or municipality
may impose: Provided, however, That the taxes, fees and charges levied and
collected by highly urbanized and component cities shall accrue to them and
distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed
for the province or municipality by not more than fifty percent (50%) except the
rates of professional and amusement taxes. (Emphasis supplied)
Such taxing power by the local government, however, is limited in the sense that
Congress can enact legislation granting exemptions. This principle was upheld in City
Government of Quezon City, et al. v. Bayan Telecommunications, Inc.22 Said this Court:
This thus raises the question of whether or not the City's Revenue Code pursuant
to which the city treasurer of Quezon City levied real property taxes against
Bayantel's real properties located within the City effectively withdrew the tax
exemption enjoyed by Bayantel under its franchise, as amended.
Bayantel answers the poser in the negative arguing that once again it is only
"liable to pay the same taxes, as any other persons or corporations on all its real or
personal properties, exclusive of its franchise."
Bayantel's posture is well-taken. While the system of local government taxation
has changed with the onset of the 1987 Constitution, the power of local
government units to tax is still limited. As we explained in Mactan Cebu
International Airport Authority:
"The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer merely
be virtue of a valid delegation as before, but pursuant to direct authority
conferred by Section 5, Article X of the Constitution. Under the latter, the
exercise of the power may be subject to such guidelines and limitations as
the Congress may provide which, however, must be consistent with the basic
policy of local autonomy. x x x"
Clearly then, while a new slant on the subject of local taxation now prevails in the
sense that the former doctrine of local government units' delegated power to tax
had been effectively modified with Article X, Section 5 of the 1987 Constitution
now in place, the basic doctrine on local taxation remains essentially the same. For
as the Court stressed in Mactan, "the power to tax is [still] primarily vested in the
Congress."
This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a
Commissioner of the 1986 Constitutional Commission which crafted the 1987
Constitution, thus:
"What is the effect of Section 5 on the fiscal position of municipal
corporations? Section 5 does not change the doctrine that municipal
corporations do not possess inherent powers of taxation. What it does is to
confer municipal corporations a general power to levy taxes and otherwise
83

create sources of revenue. They no longer have to wait for a statutory grant
of these powers. The power of the legislative authority relative to the fiscal
powers of local governments has been reduced to the authority to impose
limitations on municipal powers. Moreover, these limitations must be
"consistent with the basic policy of local autonomy." The important legal
effect of Section 5 is thus to reverse the principle that doubts are resolved
against municipal corporations. Henceforth, in interpreting statutory
provisions on municipal fiscal powers, doubts will be resolved in favor of
municipal corporations. It is understood, however, that taxes imposed by
local government must be for a public purpose, uniform within a locality,
must not be confiscatory, and must be within the jurisdiction of the local unit
to pass."
In net effect, the controversy presently before the Court involves, at bottom, a
clash between the inherent taxing power of the legislature, which necessarily
includes the power to exempt, and the local government's delegated power to tax
under the aegis of the 1987 Constitution.
Now to go back to the Quezon City Revenue Code which imposed real estate taxes
on all real properties within the city's territory and removed exemptions
theretofore "previously granted to, or presently enjoyed by all persons, whether
natural or juridical [x x x]" there can really be no dispute that the power of the
Quezon City Government to tax is limited by Section 232 of the LGC which
expressly provides that "a province or city or municipality within the Metropolitan
Manila Area may levy an annual ad valorem tax on real property such as land,
building, machinery, and other improvement not hereinafter specifically
exempted." Under this law, the Legislature highlighted its power to thereafter
exempt certain realties from the taxing power of local government units. An
interpretation denying Congress such power to exempt would reduce the phrase
"not hereinafter specifically exempted" as a pure jargon, without meaning
whatsoever. Needless to state, such absurd situation is unacceptable.
For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of
Davao, this Court has upheld the power of Congress to grant exemptions over the
power of local government units to impose taxes. There, the Court wrote:
"Indeed, the grant of taxing powers to local government units under the
Constitution and the LGC does not affect the power of Congress to grant
exemptions to certain persons, pursuant to a declared national policy. The
legal effect of the constitutional grant to local governments simply means
that in interpreting statutory provisions on municipal taxing powers, doubts
must be resolved in favor of municipal corporations."23 (Emphasis supplied)
In the case under review, the Philippine Congress enacted R.A. No. 7966 on March 30,
1995, subsequent to the effectivity of the LGC on January 1, 1992. Under it, ABS-CBN
was granted the franchise to install and operate radio and television broadcasting
stations in the Philippines. Likewise, Section 8 imposed on ABS-CBN the duty of paying
3% franchise tax. It bears stressing, however, that payment of the percentage franchise
tax shall be "in lieu of all taxes" on the said franchise.24
Congress has the inherent power to tax, which includes the power to grant tax
exemptions. On the other hand, the power of Quezon City to tax is prescribed by Section
151 in relation to Section 137 of the LGC which expressly provides that notwithstanding
any exemption granted by any law or other special law, the City may impose a franchise
tax. It must be noted that Section 137 of the LGC does not prohibit grant of future
exemptions. As earlier discussed, this Court in City Government of Quezon City v. Bayan
Telecommunications, Inc.25sustained the power of Congress to grant tax exemptions over
and above the power of the local government's delegated power to tax.
84

B. The more pertinent issue now to consider is whether or not by passing R.A. No. 7966,
which contains the "in lieu of all taxes" provision, Congress intended to exempt ABS-CBN
from local franchise tax.
Petitioners argue that the "in lieu of all taxes" provision in ABS-CBN's franchise does not
expressly exempt it from payment of local franchise tax. They contend that a tax
exemption cannot be created by mere implication and that one who claims tax
exemptions must be able to justify his claim by clearest grant of organic law or statute.
Taxes are what civilized people pay for civilized society. They are the lifeblood of the
nation. Thus, statutes granting tax exemptions are construed stricissimi juris against the
taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be
clearly shown and based on language in law too plain to be mistaken. Otherwise stated,
taxation is the rule, exemption is the exception. 26 The burden of proof rests upon the
party claiming the exemption to prove that it is in fact covered by the exemption so
claimed.27
The basis for the rule on strict construction to statutory provisions granting tax
exemptions or deductions is to minimize differential treatment and foster impartiality,
fairness and equality of treatment among taxpayers. 28 He who claims an exemption from
his share of common burden must justify his claim that the legislature intended to
exempt him by unmistakable terms. For exemptions from taxation are not favored in law,
nor are they presumed. They must be expressed in the clearest and most unambiguous
language and not left to mere implications. It has been held that "exemptions are never
presumed, the burden is on the claimant to establish clearly his right to exemption and
cannot be made out of inference or implications but must be laid beyond reasonable
doubt. In other words, since taxation is the rule and exemption the exception, the
intention to make an exemption ought to be expressed in clear and unambiguous
terms.29
Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax equivalent to three (3)
percent of all gross receipts of the radio/television business transacted under the
franchise and the franchise tax shall be "in lieu of all taxes" on the franchise or earnings
thereof.
The "in lieu of all taxes" provision in the franchise of ABS-CBN does not expressly provide
what kind of taxes ABS-CBN is exempted from. It is not clear whether the exemption
would include both local, whether municipal, city or provincial, and national tax. What is
clear is that ABS-CBN shall be liable to pay three (3) percent franchise tax and income
taxes under Title II of the NIRC. But whether the "in lieu of all taxes provision" would
include exemption from local tax is not unequivocal.
As adverted to earlier, the right to exemption from local franchise tax must be clearly
established and cannot be made out of inference or implications but must be laid beyond
reasonable doubt. Verily, the uncertainty in the "in lieu of all taxes" provision should be
construed against ABS-CBN. ABS-CBN has the burden to prove that it is in fact covered
by the exemption so claimed. ABS-CBN miserably failed in this regard.
ABS-CBN cites the cases Carcar Electric & Ice Plant v. Collector of Internal
Revenue,30 Manila Railroad v. Rafferty,31 Philippine Railway Co. v. Collector of Internal
Revenue,32 and Visayan Electric Co. v. David33 to support its claim that that the "in lieu of
all taxes" clause includes exemption from all taxes.
However, a review of the foregoing case law reveals that the grantees' respective
franchises expressly exempt them from municipal and provincial taxes. Said the Court
in Manila Railroad v. Rafferty:34

85

On the 7th day of July 1906, by an Act of the Philippine Legislature, a special
charter was granted to the Manila Railroad Company. Subsection 12 of Section 1 of
said Act (No. 1510) provides that:
"In consideration of the premises and of the granting of this concession or
franchise, there shall be paid by the grantee to the Philippine Government,
annually, for the period of thirty (30) years from the date hereof, an amount
equal to one-half (1/2) of one per cent of the gross earnings of the grantee in
respect of the lines covered hereby for the preceding year; after said period
of thirty (30) years, and for the fifty (50) years thereafter, the amount so to
be paid annually shall be an amount equal to one and one-half (1 1/2) per
cent of such gross earnings for the preceding year; and after such period of
eighty (80) years, the percentage and amount so to be paid annually by the
grantee shall be fixed by the Philippine Government.
Such annual payments, when promptly and fully made by the grantee, shall
be in lieu of all taxes of every name and nature - municipal, provincial or
central - upon its capital stock, franchises, right of way, earnings, and all
other property owned or operated by the grantee under this concession or
franchise."35 (Underscoring supplied)
In the case under review, ABS-CBN's franchise did not embody an exemption similar to
those in Carcar, Manila Railroad, Philippine Railway, and Visayan Electric. Too, the
franchise failed to specify the taxing authority from whose jurisdiction the taxing power
is withheld, whether municipal, provincial, or national. In fine, since ABS-CBN failed to
justify its claim for exemption from local franchise tax, by a grant expressed in terms
"too plain to be mistaken" its claim for exemption for local franchise tax must fail.
C. The "in lieu of all taxes" clause in the franchise of ABS-CBN has become functus officio
with the abolition of the franchise tax on broadcasting companies with yearly gross
receipts exceeding Ten Million Pesos.
In its decision dated January 20, 1999, the RTC held that pursuant to the "in lieu of all
taxes" provision contained in Section 8 of R.A. No. 7966, ABS-CBN is exempt from the
payment of the local franchise tax. The RTC further pronounced that ABS-CBN shall
instead be liable to pay a franchise tax of 3% of all gross receipts in lieu of all other
taxes.
On this score, the RTC ruling is flawed. In keeping with the laws that have been passed
since the grant of ABS-CBN's franchise, the corporation should now be subject to VAT,
instead of the 3% franchise tax.
At the time of the enactment of its franchise on May 3, 1995, ABS-CBN was subject to 3%
franchise tax under Section 117(b) of the 1977 National Internal Revenue Code (NIRC),
as amended, viz.:
SECTION 117. Tax on franchises. - Any provision of general or special laws to the
contrary notwithstanding, there shall be levied, assessed and collected in respect
to all franchise, upon the gross receipts from the business covered by the law
granting the franchise, a tax in accordance with the schedule prescribed
hereunder:
(a) On electric utilities, city gas, and water supplies Two (2%) percent
(b) On telephone and/or telegraph systems, radio and/or broadcasting
stations Three (3%) percent
(c) On other franchises Five (5%) percent. (Emphasis supplied)
86

On January 1, 1996, R.A. No. 7716, otherwise known as the Expanded Value Added Tax
Law,36 took effect and subjected to VAT those services rendered by radio and/or
broadcasting stations. Section 3 of R.A. No. 7716 provides:
Section 3. Section 102 of the National Internal Revenue Code, as amended is
hereby further amended to read as follows:
SEC. 102. Value-added tax on sale of services and use or lease of properties.
- (a) Rate and base of tax. - There shall be levied, assessed and collected,
as value-added tax equivalent to 10% of gross receipts derived from the sale
or exchange of services, including the use or lease of properties.
The phrase "sale or exchange of services" means the performance of all
kinds of services in the Philippines, for others for a fee, remuneration or
consideration, including those performed or rendered by construction and
service contractors; x x x services of franchise grantees of telephone and
telegraph, radio and television broadcasting and all other franchise
grantees except those under Section 117 of this Code; x x x (Emphasis
supplied)
Notably, under the same law, "telephone and/or telegraph systems, broadcasting
stations and other franchise grantees" were omitted from the list of entities subject to
franchise tax. The impression was that these entities were subject to 10% VAT but not to
franchise tax. Only the franchise tax on "electric, gas and water utilities" remained.
Section 12 of R.A. No. 7716 provides:
Section 12. Section 117 of the National Internal Revenue Code, as amended, is
hereby further amended to read as follows:
SEC. 117. Tax on Franchises. - Any provision of general or special law to the
contrary notwithstanding there shall be levied, assessed and collected in
respect to all franchises on electric, gas and water utilities a tax of two
percent (2%) on the gross receipts derived from the business covered by the
law granting the franchise. (Emphasis added)
Subsequently, R.A. No. 824137 took effect on January 1, 199738 containing more
amendments to the NIRC. Radio and/or television companies whose annual gross
receipts do not exceed P10,000,000.00 were granted the option to choose between
paying 3% national franchise tax or 10% VAT. Section 9 of R.A. No. 8241 provides:
SECTION 9. Section 12 of Republic Act No. 7716 is hereby amended to read as follows:
"Sec. 12. Section 117 of the National Internal Revenue Code, as amended, is
hereby further amended to read as follows:
"Sec. 117. Tax on franchise. - Any provision of general or special law to the
contrary, notwithstanding,there shall be levied, assessed and collected in
respect to all franchises on radio and/or television broadcasting companies
whose annual gross receipts of the preceding year does not exceed Ten
million pesos (P10,000,000.00), subject to Section 107(d) of this Code, a tax
of three percent (3%)and on electric, gas and water utilities, a tax of two
percent (2%) on the gross receipts derived from the business covered by the
law granting the franchise: Provided, however, That radio and television
broadcasting companies referred to in this section, shall have an option to
be registered as a value-added tax payer and pay the tax due thereon:
Provided, further, That once the option is exercised, it shall not be revoked.
(Emphasis supplied)

87

On the other hand, radio and/or television companies with yearly gross
receipts exceeding P10,000,000.00 were subject to 10% VAT, pursuant to Section 102
of the NIRC.
On January 1, 1998, R.A. No. 8424 39 was passed confirming the 10% VAT liability of radio
and/or television companies with yearly gross receipts exceeding P10,000,000.00.
R.A. No. 9337 was subsequently enacted and became effective on July 1, 2005. The said
law further amended the NIRC by increasing the rate of VAT to 12%. The effectivity of the
imposition of the 12% VAT was later moved from January 1, 2006 to February 1, 2006.
In consonance with the above survey of pertinent laws on the matter, ABS-CBN is subject
to the payment of VAT. It does not have the option to choose between the payment of
franchise tax or VAT since it is a broadcasting company with yearly gross receipts
exceeding Ten Million Pesos (P10,000,000.00).
VAT is a percentage tax imposed on any person whether or not a franchise grantee, who
in the course of trade or business, sells, barters, exchanges, leases, goods or properties,
renders services. It is also levied on every importation of goods whether or not in the
course of trade or business. The tax base of the VAT is limited only to the value added to
such goods, properties, or services by the seller, transferor or lessor. Further, the VAT is
an indirect tax and can be passed on to the buyer.
The franchise tax, on the other hand, is a percentage tax imposed only on franchise
holders. It is imposed under Section 119 of the Tax Code and is a direct liability of the
franchise grantee.
The clause "in lieu of all taxes" does not pertain to VAT or any other tax. It cannot apply
when what is paid is a tax other than a franchise tax. Since the franchise tax on the
broadcasting companies with yearly gross receipts exceeding ten million pesos has been
abolished, the "in lieu of all taxes" clause has now become functus officio, rendered
inoperative.
In sum, ABS-CBN's claims for exemption must fail on twin grounds. First, the "in lieu of all
taxes" clause in its franchise failed to specify the taxes the company is sought to be
exempted from. Neither did it particularize the jurisdiction from which the taxing power
is withheld. Second, the clause has become functus officio because as the law now
stands, ABS-CBN is no longer subject to a franchise tax. It is now liable for VAT.
WHEREFORE, the petition is GRANTED and the appealed Decision REVERSED AND
SET ASIDE. The petition in the trial court for refund of local franchise tax is DISMISSED.
SO ORDERED.

NATIONAL
DEVELOPMENT
COMPANY, plaintiff-appellee,
vs.
CEBU CITY and AUGUSTO PACIS as Treasurer of Cebu City, defendant-appellants.

BELLOSILLO, J.:
Is a public land reserved by the President for warehousing purposes in favor of a
government-owned or controlled corporation, 1 as well as the warehouse subsequently
erected thereon, exempt from real property tax?
88

Petitioner National Development Company (NDC), a government-owned or controlled

corporation (GOCC) existing by virtue of C.A. 182 2 and E.O. 399, 3 is authorized to
engage in commercial, industrial, mining, agricultural and other enterprises necessary or
contributory to economic development or important to public interest. It also operates, in
furtherance of its objectives, subsidiary corporations one of which is the now defucnt
National Warehousing Corporation (NWC). 4
On August 10, 1939, the President issued Proclamation No. 430 5 reserving Block no. 4,
Reclamation Area No. 4, of Cebu City, consisting of 4,599 square meters, for warehousing
purposes under the administration of NWC. 6 Subsequently, in 1940, a warehouse with a
floor area of 1,940 square meters more or less, was constructed thereon. 7
On October 4, 1947, E.O. 93 dissolved NWC 8 with NDC taking over its assets and
functions. 9
Commencing 1948, Cebu City (CEBU) assessed and collected from NDC real estate taxes
on the land and the warehouse thereon. 10 By the first quarter of 1970, a total of
P100,316.31 was paid by NDC 11 of which only P3,895.06 was under protest. 12
On 20 March 1970, NDC wrote the City Assessor demanding full refund of the real estate
taxes paid to CEBU claiming that the land and the warehouse standing thereon belonged
to the Republic and therefore exempt from taxation. 13 CEBU did not acquiesce in the
demand, hence, the present suit filed 25 October 1972 in the Court of First Instance of
Manila.
On 29 May 1973, the Court of First Instance of Manila, Branch XXII, promulgated a
decision 14 the dispositive portion of which reads
WHEREFORE, judgment is hereby rendered sentencing the City of Cebu, thru
the Treasurer of said City, to refund to the plaintiff, National Development
Company, the real estate taxes paid by it for the parcel of land covered by
Presidential Proclamation No. 430 of August 10, 1939, and the warehouse
erected thereon from and after October 25, 1966, with interests thereon at
the legal rate from the date of the filing of the complaint and the costs of the
suit.
The defendants appealed to the Court of Appeals which however certified the case to Us
as one involving pure questions of law, pursuant to Sec. 17, R.A. 296.
In this appeal, CEBU assigns five (5) errors 15 imputed to the trial court which may be
synopsized into whether NDC is exempted from payment of the real estate taxes on the
land reserved by the President for warehousing purposes as well as the warehouse
constructed thereon, and in the affirmative, whether NDC may recover in refund
unprotested real estate taxes it paid from 1948 to 1970.
On the first question, CEBU insists on taxability of the subject properties, claiming that
no law grants NDC exemption from real estate taxes, and that NDC, as recipient of the
land reserved by the President pursuant to Sec. 83 of the Public Land Act, 16 is liable for
payment or ordinary (real estate) taxes under Sec. 115 therefore. CEBU contends that
the properties have ceased to be tax exempt under the Assessment Law. 17 when the
government disposed of them in favor of NDC, and even assuming that title to the land
remains with the government (ownership being the basis for real estate taxability under
89

the Assessment Law), the Supreme Court rulings establish increasing rather than
"ownership" as basis for real estate tax liability.
On the other hand, NDC maintains the Sec. 3 of the Assessment Law, which exempts
properties owned by the Republic from real estate tax, includes subject properties in the
exemption. It invokes the ruling in Board of Assessment Appeals vs. CTA &
NWSA 18 which held that properties of NWSA, a GOCC, were exempt from real estate tax
because Sec. 3 of the Assessment Law applied to all government properties whether
held in governmental or proprietary capacity. NDC rejects the applicability of Sec. 115 of
the Public Land Act to the subject land, claiming that provision contemplates dispositions
of public land with eventual transfer of title. In addition, NDC believes that it is neither a
grantee of a public land nor an applicant within the purview of the same provision.
As already adverted to, one of the principal issues before Us is the interpretation of a
provision of the Assessment Law, the precursor of the then Real Property Tax Code and
the Local Government Code, where "ownership" of the property and not "use" is the test
of tax liability. 19
Section, 3 par. (a), of the Assessment Law, on which NDC claims real estate tax
exemption, provides
Section 3. Property exempt from tax. The exemptions shall be as follows:
(a) Property owned by the United States of America, the Commonwealth of
the Philippines, any province, city, municipality at municipal district . . .
The same opinion of NDC was passed upon in National Development Co. v. Province of
Nueva Ecija 20 where We held that its properties were not comprehended in Sec. 3, par
(a), of the Assessment Law. In part, We stated:
1. Commonwealth Act No. 182 which created NDC contains no provision
exempting it from the payment of real estate tax on properties it may
acquire . . . There is justification in the contention of plaintiff-appellee
that . . . [I]t is undeniable that to any municipality the principal source of
revenue with which it would defray its operation will came from real property
taxes. If the National Development Company would be exempt from paying
real property taxes over these properties, the town of Gabaldon will bee
deprived of much needed revenues with which it will maintain itself and
finance the compelling needs of its inhabitants (p. 6, Brief of PlaintiffAppellee).
2. Defendant-appellant NDC does not come under classification of municipal
or public corporation in the sense that it may sue and be sued in the same
manner as any other private corporations, and in this sense, it is an entity
different from the government, defendant corporation may be sued without
its consent, and is subject to taxation. In the case NDC vs. Jose Yulo Tobias, 7
SCRA 692, it was held that . . . plaintiff is neither the Government of the
Republic nor a branch or subdivision thereof, but a government owned and
controlled corporation which cannot be said to exercise a sovereign function
(Association Cooperativa de Credito Agricola de Miagao vs. Monteclaro, 74
Phil. 281). it is a business corporation, and as such, its causes of action are
subject to the statute of limitations. . . . That plaintiff herein does not
exercise sovereign powers and, hence, cannot invoke the exemptions
thereof but is an agency for the performance of purely corporate,
90

proprietary or business functions, is apparent from its Organic Act

(Commonwealth Act 182, as amended by Commonwealth Act 311) pursuant
to Section 3 of which it "shall be subject to the provisions of the Corporation
Law insofar as they are not inconsistent" with the provisions of said
Commonwealth Act, "and shall have the general powers mentioned in said"
Corporation Law, and, hence, "may engage in commercial, industrial, mining,
agricultural, and other enterprises which may be necessary or contributory
to the economic development of the country, or important in the public
interest," as well as "acquire, hold, mortgage and alienate personal and real
property in the Philippines or elsewhere; . . . make contracts of any kind and
description", and "perform any and all acts which a corporation or natural
persons is authorized to perform under the laws now existing or which may
be enacted hereafter."
We find no compelling reason why the foregoing ruling, although referring to lands which
would eventually be transferred to private individuals, should not apply equally to this
case.
NDC cites Board of Assessment Appeals, Province of Laguna v. Court of Tax Appeal and
National Waterworks and Sewerage Authority (NWSA). In that case, We held that
properties of NWSA, a GOCC, were exempt from real estate tax because Sec. 3, par (c),
of R.A. 470 did not distinguish between those possessed by the government in
sovereign/governmental/political capacity and those in private/proprietary/patrimonial
character.
The conflict between NDC v. Nueva Ecija, supra, and BAA v. CTA and NWSA, supra, is
more superficial than real. The NDC decision speaks of properties owned by NDC, while
the BAA ruling concerns properties belonging to the Republic. The latter case appears to
be exceptional because the parties therein stipulated
1. That the petitioner National Waterworks and Sewerage Authority
(NAWASA) is a public corporation created by virtue of Republic Act. No. 1383,
and that it is owned by the Government of the Philippines as well as all
property comprising waterworks and sewerage systems placed under
it (Emphasis supplied).
There, the Court observed: "It is conceded, in the stipulation of facts, that the property
involved in this case "is owned by the Government of the Philippines." Hence, it belongs
to the Republic of the Philippines and falls squarely within letter of the above provision."
In the case at bar, no similar statement appears in the stipulation of facts, hence,
ownership of subject properties should first be established. For, while it may be stated
that the Republic owns NDC, it does not necessary follow that properties owned by NDC,
are also owned by Republic in the same way that stockholders are not ipso
facto owners of the properties of their corporation.
The Republic, like any individual, may form a corporation with personality and existence
distinct from its own. The separate personality allows a GOCC to hold and possess
properties in its own name and, thus, permit greater independence and flexibility in its
operations. It may, therefore, be stated that tax exemption of property owned by the
Republic of the Philippines "refers to properties owned by the Government and by its
agencies which do not have separate and distinct personalities (unincorporated entities).
91

We find the separate opinion of Justice Bautista-Angelo in Gonzales v. Hechanova, et

al., 21 appropriate and enlightening
. . . The Government of the Republic of the Philippines under the Revised
Administrative Code refers to that entity through which the functions of
government are exercised, including the various arms through which political
authority is made effective whether they be provincial, municipal or other
form of local government, whereas a government instrumentality refers to
corporations owned or controlled by the government to promote certain
aspects of the economic life of our people. A government agency therefore,
must necessarily after refer to the government itself to the Republic, as
distinguished from any government instrumentality which has a personality
distinct and separate from it (Section 2).
The foregoing discussion does not mean that because NDC, like most GOCC's engages in
commercial enterprises all properties of the government and its unincorporated agencies
possessed in propriety character are taxable. Similarly, in the case at bar, NDC
proceeded on the premise that the BAA ruling declared all properties owed by GOCC's as
properties in the name of the Republic, hence, exempt under Sec. 3 of the Assessment
Law.22
To come within the ambit of the exemption provided in Art. 3, par. (a), of the Assessment
Law, it is important to establish that the property is owned by the government or its
unincorporated agency, and once government ownership is determined, the nature of
the use of the property, whether for proprietary or sovereign purposes, becomes
immaterial. What appears to have been ceded to NWC (later transferred to NDC), in the
case before Us, is merely the administration of the property while the government
retains ownership of what has been declared reserved for warehousing purposes under
Proclamation No. 430.
Incidentally, the parties never raised the issued the issue of ownership from the court a
quo to this Court.
A reserved land is defined as a "[p]ublic land that has been withheld or kept back from
sale or disposition." 23 The land remains "absolute property of the government." 24 The
government "does not part with its title by reserving them (lands), but simply gives
notice to all the world that it desires them for a certain purpose." 25 Absolute disposition
of land is not implied from reservation; 26 it merely means "a withdrawal of a specified
portion of the public domain from disposal under the land laws and the appropriation
thereof, for the time being, to some particular use or purpose of the general
government." 27 As its title remains with the Republic, the reserved land is clearly
recovered by the tax exemption provision.
CEBU nevertheless contends that the reservation of the property in favor of NWC or NDC
is a form of disposition of public land which, subjects the recipient (NDC ) to real estate
taxation under Sec. 115 of the Public Land Act. as amended by R.A. 436, 28 which estate:
Sec 115. All lands granted by virtue of this Act, including homesteads upon
which final proof has not been made or approved shall, even though and
while the title remains in the State, be subject to the ordinary taxes, which
shall be paid by the grantee or the applicant, beginning with the year next
following the one in which the homestead application has been filed, or the
concession has been approved, or the contract has been signed, as the case
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may be, on the basis of the value fixed in such filing, approval or signing of
the application, concession or contract.
The essential question then is whether lands reserved pursuant to Sec. 83 are
comprehended in Sec. 115 and, therefore, taxable.
Section 115 of the Public Land Act should be treated as an exception to Art. 3, par. (a), of
the Assessment Law. While ordinary public lands are tax exempt because title thereto
belongs to the Republic, Sec. 115 subjects them to real estate tax even before ownership
thereto is transferred in the name of the beneficiaries. Sec. 115 comprehends three (3)
modes of disposition of Lands under the Public Land Act, to wit: homestead, concession,
and contract.
Liability to real property taxes under Sec. 115 is predicated on (a) filing of homestead
application, (b) approval of concession and, (c) signing of contract. Significantly, without
these words, the date of the accrual of the real estate tax would be indeterminate. Since
NDC is not a homesteader and no "contract" (bilateral agreement) was signed, it would
appear, then, that reservation under Sec. 83, being a unilateral act of the President, falls
under "concession".
"Concession" as a technical term under the Public Land Act is synonymous with
"alienation" and "disposition", and is defined in Sec. 10 as "any of the methods
authorized by this Act for the acquisition, lease, use, or benefit of the lands of the public
domain other than timber or mineral lands." Logically, where Sec. 115 contemplates
authorized methods for acquisition, lease, use, or benefit under the Act, the taxability of
the land would depend on whether reservation under Sec. 83 is one such method of
acquisition, etc. Tersely put, is reservation synonymous with alienation? Or, are the two
terms antithetical and mutually exclusive? Indeed, reservation connotes retention, while
concession (alienation) signifies cession.
Section 8 and 88 of the Public Land Act provide that reserved lands are excluded from
that may be subject of disposition, to wit
Sec. 8. Only those lands shall be declared open to disposition or concession
which have been officially delimited and classified and, when practicable,
surveyed, and which have not been reservedfor public or quasi-public uses,
nor appropriated by the Government, nor in any manner become private
property , nor those on which a private right authorized and recognized by
this Act or any valid law may be claimed, or which, having been reserved or
appropriated, have ceased to be so.
Sec. 88. The tract or tracts of land reserved under the provisions of section
eighty-three shall be non-alienable and shall not be subject to occupation,
entry, sale, lease, or other disposition until again declared alienable under
the provisions of this Act or by proclamation of the President (Emphasis
supplied)
As We view it, the effect of reservation under Sec. 83 is to segregate a piece of public
land and transform it into non-alienable or non-disposable under the Public Land Act.
Section 115, on the other hand, applies to disposable public lands. Clearly, therefore,
Sec. 115 does not apply to lands reserved under Sec. 83. Consequently, the subject
reserved public land remains tax exempt.
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However, as regards the warehouse constructed on a public reservation, a different rule

should apply because "[t]he exemption of public property from taxation does not extend
to improvements on the public lands made by pre-emptioners, homesteaders and other
claimants, or occupants, at their own expense, and these are taxable by the
state . . ." 29 Consequently, the warehouse constructed on the reserved land by NWC
(now under administration by NDC), indeed, should properly be assessed real estate tax
as such improvement does not appear to belong to the Republic.
Since the reservation is exempt from realty tax, the erroneous tax payments collected by
CEBU should be refunded to NDC. This is in consonance with Sec. 40, par. (a) of the
former Real Property Tax Code which exempted from taxation real property owned by the
Republic of the Philippines or any of its political subdivisions, as well as any GOCC so
exempt by its charter. 30
As regards the requirement of paying under protest before judicial recourse, CEBU
argues that in any case NDC is not entitled to refund because Sec. 75 of R.A. 3857, the
Revised Charter of the City of Cebu, 31 requires payment under protest before resorting
to judicial action for tax refund; that it could not have acted on the first demand letter of
NDC of 20 May 1970 because it was sent to the City Assessor and not to the City
Treasurer; that, consequently, there having been no appropriate prior demand, resort to
judicial remedy is premature; and, that even on the premise that there was proper
demand, NDC has yet to exhaust administrative remedies by way of appeal to the
Department of Finance and/or Auditor General before taking judicial action.
NDC does not agree. It disputes the applicability of the payment-underprotest requirement is Sec. 75 of the Revised Cebu City Charter because the issue is not
the validity of tax assessment but recovery of erroneous payments under Arts. 2154 and
2155 of the Civil Code. 32 It cites the case of East Asiatic Co., Ltd. v. City of
Davao33 which held that where the tax is unauthorized, "it is not a tax assessed under
the charter of the appellant City of Davao and for that reason no protest is necessary for
a claim or demand for its refund." In Ramie Textiles, Inc. vs. Mathay, Sr., 34We held
. . . Protest is not a requirement in order that a taxpayer who paid under a
mistaken belief that it is required by law, may claim for a refund. Section
54 35 of Commonwealth Act No. 470 does not apply to petitioner which could
conceivably not have been expected to protest a payment it honestly
believed to be due. The same refers only to the case where the taxpayer,
despite his knowledge of the erroneous or illegal assessment, still pays and
fails to make the proper protest, for in such case, he should manifest an
unwillingness to pay, and failing so, the taxpayer is deemed to have waved
his right to claim a refund.
In the case at bar, petitioner, therefore, cannot be said to have waived his
right. He had no knowledge of the fact that it was exempted from payment of
the realty tax under Commonwealth Act No. 470. Payment was made through
error or mistake, in the honest belief that petitioner was liable, and therefore
could not have been made under protest, but with complete voluntariness. In
any case, a taxpayer should not be held to suffer loss by his good intention
to comply with what he believes is his legal obligation, where such obligation
does not really exist . . . The fact that petitioner paid thru error or mistake,
and the government accepted the payment, gave rise to the application of
the principle of solutio indebiti under Article 2154 of the New Civil Code,
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which provides that "if something is received when there is no right to

demand it, and it was unduly delivered through mistake, the obligation to
return it arises." There is, therefore, created a tie or juridical relation in the
nature ofsolutio indebiti, expressly classified as quasi-contract under Section
2, Chapter I of Title XVII of the New Civil code.
The quasi-contract of solutio indebiti is one of the concrete manifestations of
the ancient principle that no one shall enrich himself unjustly at the expense
of another . . . Hence, it would seem unedifying for the government, that
knowing it has no right at all to collect or to receive money for alleged taxes
paid by mistake, it would be reluctant to return the same . . . Petitioner is not
unsatisfied in the assessment of its property. Assessment having been made,
it paid the real estate taxes without knowing that it is exempt.
As regards the claim for refund of tax payments spanning more than twenty (20) years,
We also said in Ramie Textiles that
Solutio indebiti is a quasi-contract, and the instant case being in the nature
of solutio indebiti, the claim for refund must be commenced within six (6)
years from date of payment pursuant to Article 1145 (2) of the New Civil
Code 36 . . .
We sustain the appellate court to the extent that its decision covers improperly collected
taxes on the reserved land under Proclamation No. 430, thus
The defense of prescription invoked by the defendant which counsel for the
plaintiff, however, did not answer in its memorandum, is partly well-taken.
Actions for refund of taxes illegally collected must be commenced within six
(6) years from the date of collection. . . . .
The stipulation of facts and the pleadings filed by the parties do not contain
data specifying when and how much were paid by the year, of the taxes
sought to be refunded. Accordingly, the Court has no other alternative but to
order the refund of an undetermined amount based, however, on the date of
payment counted six (6) years backward from October 25, 1972, when the
complaint in this case was filed. 37
As regards exhaustion of administrative remedies, We agree with the trial court that the
case constitutes an exception to the rule, as it involves purely question of
law. 38 Specifically, on the requirement of appeal to the Secretary of Finance, We further
held in the same Ramie Textiles that "[E]qually not applicable is Section 17 of
Commonwealth Act No. 470 39 cited by respondent in relation to the right of a, property
owner to contest the validity of assessment . . ."
Respondent CEBU likewise invites Our attention to the availability of appeal to the
Government Auditing Office although no authority is cited to Us. We do not find any
either to sustain the procedure.
WHEREFORE, finding that National Development Company (NDC) is exempt from real
estate tax on the reserved land but liable for the warehouse erected thereon, the
decision appealed from is accordingly MODIFIED. Consequently, let this case be
remanded to the court of origin, now the Regional Trial Court of Manila, to determine the
95

proper liability of NDC, particularly on its warehouse, and effect the corresponding
refund, payment or set-off, as the case may be, conformably with this decision. No costs.
SO ORDERED.

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