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Chamber of Real Estate and Builders’ the income tax on the sale of real estate classified as ordinary
Associations, Inc., v. The Hon. Executive assets, instead of the entity’s net taxable income as provided
Secretary Alberto Romulo, et al for under the Tax Code;
G.R. No. 160756. March 9, 2010  Mandate the collection of income tax on a per
transaction basis, contrary to the Tax Code provision
Facts: Petitioner Chamber of Real Estate and Builders’ which imposes income tax on net income at the end of
Associations, Inc. (CREBA), an association of real estate the taxable period;
developers and builders in the Philippines, questioned the  Go against the due process clause because the
validity of Section 27(E) of the Tax Code which imposes the government collects income tax even when the net
minimum corporate income tax (MCIT) on corporations. income has not yet been determined; gain is never
assured by mere receipt of the selling price; and
Under the Tax Code, a corporation can become subject to the  Contravene the equal protection clause because the
MCIT at the rate of 2% of gross income, beginning on the 4th CWT is being charged upon real estate enterprises, but
taxable year immediately following the year in which it not on other business enterprises, more particularly,
commenced its business operations, when such MCIT is those in the manufacturing sector, which do business
greater than the normal corporate income tax. If the regular similar to that of a real estate enterprise.
income tax is higher than the MCIT, the corporation does not
pay the MCIT. Issues: (1) Is the imposition of MCIT constitutional? (2) Is the
imposition of CWT on income from sales of real properties
CREBA argued, among others, that the use of gross income as classified as ordinary assets constitutional?
MCIT base amounts to a confiscation of capital because gross
income, unlike net income, is not realized gain. Held: (1) Yes. The imposition of the MCIT is constitutional.
An income tax is arbitrary and confiscatory if it taxes capital,
CREBA also sought to invalidate the provisions of RR No. 2- because it is income, and not capital, which is subject to
98, as amended, otherwise known as the Consolidated income tax. However, MCIT is imposed on gross income which
Withholding Tax Regulations, which prescribe the rules and is computed by deducting from gross sales the capital spent by
procedures for the collection of CWT on sales of real properties a corporation in the sale of its goods, i.e., the cost of goods and
classified as ordinary assets, on the grounds that these other direct expenses from gross sales. Clearly, the capital is
regulations: not being taxed.

 Use gross selling price (GSP) or fair market value Various safeguards were incorporated into the law imposing
(FMV) as basis for determining MCIT.
Firstly, recognizing the birth pangs of businesses and the Also, the collection of income tax via the CWT on a per
reality of the need to recoup initial major capital expenditures, transaction basis, i.e., upon consummation of the sale, is not
the MCIT is imposed only on the 4th taxable year immediately contrary to the Tax Code which calls for the payment of the net
following the year in which the corporation commenced its income at the end of the taxable period. The taxes withheld are
operations. in the nature of advance tax payments by a taxpayer in order to
cancel its possible future tax obligation. They are installments
Secondly, the law allows the carry-forward of any excess of the on the annual tax which may be due at the end of the taxable
MCIT paid over the normal income tax which shall be credited year. The withholding agent-buyer’s act of collecting the tax at
against the normal income tax for the three immediately the time of the transaction, by withholding the tax due from
succeeding years. the income payable, is the very essence of the withholding tax
method of tax collection.
Thirdly, since certain businesses may be incurring genuine
repeated losses, the law authorizes the Secretary of Finance to On the alleged violation of the equal protection clause, the
suspend the imposition of MCIT if a corporation suffers losses taxing power has the authority to make reasonable
due to prolonged labor dispute, force majeure and legitimate classifications for purposes of taxation. Inequalities which
business reverses. result from singling out a particular class for taxation, or
exemption, infringe no constitutional limitation. The real
(2) Yes. Despite the imposition of CWT on GSP or FMV, the estate industry is, by itself, a class and can be validly treated
income tax base for sales of real property classified as ordinary differently from other business enterprises.
assets remains as the entity’s net taxable income as provided in
the Tax Code, i.e., gross income less allowable costs and What distinguishes the real estate business from other
deductions. The seller shall file its income tax return and credit manufacturing enterprises, for purposes of the imposition of
the taxes withheld by the withholding agent-buyer against its the CWT, is not their production processes but the prices of
tax due. If the tax due is greater than the tax withheld, then the their goods sold and the number of transactions involved. The
taxpayer shall pay the difference. If, on the other hand, the tax income from the sale of a real property is bigger and its
due is less than the tax withheld, the taxpayer will be entitled frequency of transaction limited, making it less cumbersome
to a refund or tax credit. for the parties to comply with the withholding tax scheme. On
the other hand, each manufacturing enterprise may have tens
The use of the GSP or FMV as basis to determine the CWT is of thousands of transactions with several thousand customers
for purposes of practicality and convenience. The knowledge of every month involving both minimal and substantial amounts.
the withholding agent-buyer is limited to the particular
transaction in which he is a party. Hence, his basis can only be
the GSP or FMV which figures are reasonably known to him. 2. COMMISSIONER OF INTERNAL REVENUE,
petitioner, vs. CEBU PORTLAND CEMENT
COMPANY and COURT OF TAX APPEALS, already prescribed, not having been made within the
respondents. reglementary five-year period from the filing of the tax returns.
G.R. No. L-29059 December 15, 1987
ISSUE: Whether or not sales tax was properly imposed upon
FACTS: By virtue of a decision of the CTA, as modified on private respondent.
appeal by the Supreme Court, the CIR was ordered to refund to
Cebu Portland Cement Company the amount of P 359,408.98, HELD: Yes, because cement has always been considered a
representing overpayments of ad valorem taxes on cement manufactured product and not a mineral product. This matter
produced and sold by it. When respondent moved for a writ of was extensively discussed and categorically resolved in
execution, petitioner opposed on the ground that the private Commissioner of Internal Revenue v. Republic Cement
respondent had an outstanding sales tax liability to which the Corporation, decided on August 10, 1983, stating that cement
judgment debt had already been credited. In fact, it was qua cement was never considered as a mineral product within
stressed, there was still a balance owing on the sales taxes in the meaning of Section 246 of the Tax Code, notwithstanding
the amount of P 4,789,279.85 plus 28% surcharge. The CTA that at least 80% of its components are minerals, for the
granted the CIR’s motion. simple reason that cement is the product of a manufacturing
process and is no longer the mineral product contemplated in
The CIR claims that the refund should be charged against the the Tax Code (i.e.; minerals subjected to simple treatments)
tax deficiency of the private respondent on the sales of cement for the purpose of imposing the ad valorem tax.
under Section 186 of the Tax Code. His position is that cement
is a manufactured and not a mineral product and therefore not The argument that the assessment cannot as yet be enforced
exempt from sales taxes. The petitioner also denies that the because it is still being contested loses sight of the urgency of
sales tax assessments have already prescribed because the the need to collect taxes as "the lifeblood of the government."
prescriptive period should be counted from the filing of the If the payment of taxes could be postponed by simply
sales tax returns, which had not yet been done by the private questioning their validity, the machinery of the state would
respondent. grind to a halt and all government functions would be
Meanwhile, the private respondent disclaims liability for the
sales taxes, on the ground that cement is not a manufactured 3. Municipality of Makati v. Court of Appeals
product but a mineral product. As such, it was exempted from GR # 89898-9 10/01/90
sales taxes. Also, the alleged sales tax deficiency could not as
yet be enforced against it because the tax assessment was not Facts: An expropriation proceeding for a piece of land filed by
yet final, the same being still under protest and still to be the Municipality of Makati against Admiral Financial and
definitely resolved on the merits. Besides, the assessment had Credit Corp resulted with the Municipality having to pay P
5,291,666.00 less initial payments by the municipality. After
that, private respondent filed a writ for execution for the
balance. Regional Trial Court granted the motion and directed [Algue claimed the 75,000 to be deductible from their tax, to
the bank to deliver the said balance. Subsequent motions for which the CIR disallowed.]
reconsideration and appeal to the respondent Court of Appeals
by the municipality in order to stop the garnishment. ISSUE: Whether or not the Collector of Internal Revenue
correctly disallowed the P75,000.00 deduction claimed by
Issues: Whether or not the court can validly subject private respondent Algue as legitimate business expenses in its
government accounts/property to garnishment. Whether or income tax returns.
not the the court erred with the decision of assessing the
higher amount as to how much the municipality is willing to HELD: NO – CIR is not correct. The burden is on the
pay. taxpayer to prove the validity of the claimed deduction. In the
present case, however, we find that the onus has been
Held: The court ruled that the Municipality of Makati's discharged satisfactorily. The private respondent has proved
accounts or property cannot be held for garnishment as that the payment of the fees was necessary and reasonable in
government's fund, held for public use, can not be held for the light of the efforts exerted by the payees in inducing
garnishment. However, the court still held the Municipality investors and prominent businessmen to venture in an
liable for the assessed value of the land and improvements experimental enterprise and involve themselves in a new
because the private respondent should be entitled to just business requiring millions of pesos. This was no mean feat
compensation. and should be, as it was, sufficiently recompensed.

4. CIR –v– Algue, Inc., & CTA Taxes are the lifeblood of the government and so should be
G.R. No. L-28896 February 17, 1988 collected without unnecessary hindrance. On the other hand,
such collection should be made in accordance with law as any
FACTS: Algue, Inc., a domestic corporation engaged in arbitrariness will negate the very reason for government itself.
engineering, construction and other allied activities. Philippine It is therefore necessary to reconcile the apparently conflicting
Sugar Estate Development Company had earlier appointed interests of the authorities and the taxpayers so that the real
Algue as its agent, authorizing it to sell its land, factories and purpose of taxation, which is the promotion of the common
oil manufacturing process. [There was a sale for which] Algue good, may be achieved.
received as agent a commission of P126,000.00, and it was
from this commission that the P75,000.00 promotional fees It is said that taxes are what we pay for civilization society.
were paid to the aforenamed individuals. The payees duly Without taxes, the government would be paralyzed for lack of
reported their respective shares of the fees in their income tax the motive power to activate and operate it. Hence, despite the
returns and paid the corresponding taxes thereon, and there natural reluctance to surrender part of one's hard earned
was no distribution of dividends was involved. income to the taxing authorities, every person who is able to
must contribute his share in the running of the government. presumed to have done so. The CTA and the CA ruled that
The government for its part, is expected to respond in the form petitioner failed to overcome this presumption because it did
of tangible and intangible benefits intended to improve the not present its 1990 Return, which would have shown that the
lives of the people and enhance their moral and material amount in dispute was not applied as a tax credit. Hence, the
values. This symbiotic relationship is the rationale of taxation CA concluded that petitioner was not entitled to a tax refund.
and should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power. Issue: Whether or not petitioner is entitled to the refund of
P112,491.90, representing excess creditable withholding tax
But even as we concede the inevitability and indispensability of paid for the taxable year 1989.
taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed Held: It is undisputed that petitioner had excess withholding
procedure. If it is not, then the taxpayer has a right to taxes for the year 1989 and was thus entitled to a refund
complain and the courts will then come to his succor. For all amounting to P112,491. Pursuant to Section 69 of the 1986 Tax
the awesome power of the tax collector, he may still be stopped Code which states that a corporation entitled to a refund may
in his tracks if the taxpayer can demonstrate, as it has here, opt either (1) to obtain such refund or (2) to credit said amount
that the law has not been observed. for the succeeding taxable year.

5. BPI Family Savings Bank v. CA, et al. Petitioner presented evidence to prove its claim that it did not
GR No. 122480; April 12, 2000 apply the amount as a tax credit.

Facts: Petitioner BPI Family Savings Bank had an excess A copy of the Final Adjustment Return for 1990 was attached
withholding taxes for the year 1989 amounting to P112,491.90. to petitioner's Motion for Reconsideration filed before the
It indicated in its 1989 Income Tax Return that it would apply CTA. A final adjustment return shows whether a corporation
the said amount as a tax credit for the succeeding taxable year, incurred a loss or gained a profit during the taxable year. In
1990. However because of business losses, petitioner informed this case, that Return clearly showed that petitioner incurred
the Bureau of Internal Revenue (BIR) that it would claim the P52,480,173 as net loss in 1990. Clearly, it could not have
amount as a tax refund, instead of applying it as a tax credit. applied the amount in dispute as a tax credit.
When no action from the BIR was forthcoming, petitioner filed
its claim with the Court of Tax Appeals. The BIR did not controvert the veracity of the said return. It
did not even file an opposition to petitioner's Motion and the
The CTA and the CA, however, denied the claim for tax refund. 1990 Final Adjustment Return attached thereto.
Since petitioner declared in its 1989 Income Tax Return that it
would apply the excess withholding tax as a tax credit for the Petitioner also calls the attention of this Court, as it had done
following year, the Tax Court held that petitioner was before the CTA, to a Decision rendered by the Tax Court in
CTA Case No. 4897, involving its claim for refund for the year common carrier's taxes P59,523.75 and P47,619.00,
1990. In that case, the Tax Court held that "petitioner suffered respectively (Total P107,142.75). Upon arriving, however, at
a net loss for the taxable year 1990 . . . ." Respondent, however, Guimaras Port of Iloilo, the vessel found no sugar for loading.
urges this Court not to take judicial notice of the said case. NASUTRA and Soriamont mutually agreed to have the vessel
sail for Japan without any cargo. Claiming the pre-payment of
Respondents' reasoning underscores the weakness of their income and common carrier's taxes as erroneous since no
case. For if they had really believed that petitioner is not receipt was realized from the charter agreement, Tokyo
entitled to a tax refund, they could have easily proved that it instituted a claim for tax credit or refund of the sum
did not suffer any loss in 1990. Indeed, it is noteworthy that P107,142.75 from CIR. Petitioner failed to act promptly on the
respondents opted not to assail the fact appearing therein — claim , hence Tokyo filed a petition for review 6 before Court of
that petitioner suffered a net loss in 1990 — in the same way Tax Appeals. CTA decided for Tokyo and denied MR of CIR.
that it refused to controvert the same fact established by
petitioner's other documentary exhibits Issue: WON Tokyo Shipping Co. Ltd., is entitled to a refund or
tax credit – whether it was able to prove that it derived no
Technicalities and legalisms, however exalted, should not be receipts from its charter agreement, and hence is entitled to a
misused by the government to keep money not belonging to it refund of the taxes it pre-paid to the government.
and thereby enrich itself at the expense of its law-abiding
citizens. If the State expects its taxpayers to observe fairness Ruling: Yes. Pursuant to Section 24 (b) (2) of the National
and honesty in paying their taxes, so must it apply the same Internal Revenue Code which at that time, a resident foreign
standard against itself in refunding excess payments of such corporation engaged in the transport of cargo is liable for taxes
taxes. Indeed, the State must lead by its own example of honor, depending on the amount of income it derives from sources
dignity and uprightness. within the Philippines. Thus, before such a tax liability can be
enforced the taxpayer must be shown to have earned income
6. COMMISSIONER OF INTERNAL REVENUE sourced from the Philippines.
vs.TOKYO SHIPPING CO. LTD., represented by
SORIAMONT STEAMSHIP AGENCIES INC., and Indeed, a claim for refund is in the nature of a claim for
COURT OF TAX APPEALS exemption 8 and should be construed in strictissimi
244 SCRA 342; May 26, 1995 juris against the taxpayer. And Tokyo has the burden of proof
to establish the factual basis of its claim for tax refund.
Facts: Tokyo Shipping a foreign corporation represented in
the Philippines by Soriamont Steamship Agencies and owns But sufficient evidence has already been adduced by Tokyo
and operates M/V Gardenia. NASUTRA 2 chartered M/V proving that it derived no receipt from its charter agreement
Gardenia to load 16,500 metric tons of raw sugar in the with NASUTRA - M/V "Gardenia" arrived in Iloilo on January
Philippines. Soriamont Agency, 4 paid the required income and
10, 1981 but found no raw sugar to load and returned to Japan Atlas. Thus, it does not come within the ambit of Section 29(b)
without any cargo laden on board.
(7)(A), and it is not exempt from the payment of taxes.
7. COMMISSIONER OF INTERNAL REVENUE V. Notes: Findings of fact of the Court of Tax Appeals are entitled
MISTUBISHI METAL CORPORATION (181 to the highest respect and can only be disturbed on appeal if
SCRA 214) they are not supported by substantial evidence or if there is a
showing of gross error or abuse on the part of the tax court.
Facts: Atlas Consolidated Mining andDevelopment Laws granting exemption from tax are construed strictissimi
Corporation, a domestic corporation, entered into a Loan and juris against the taxpayer and liberally in favor of the taxing
Sales Contract with Mitsubishi Metal Corporation, a Japanese power. Taxation is the rule and exemption is the exception.
corporation licensed to engage in business in the Philippines. To
be able to extend the loan to Atlas, Mitsubishi entered into
another loan agreement with Export-Import Bank (Eximbank), 8. Phil Bank of Communications vs. CIR, et. al.
a financing institution owned, controlled, and financed by the 302 SCRA 241 January 28, 1999
Japanese government. After making interest payments to
Mitsubishi, with the corresponding 15% tax thereon remitted to Facts: Petitioner, Philippine Bank of Communications
the Government of the Philippines, Altas claimed for tax credit (PBCom), a commercial banking corporation duly organized
with the Commissioner of Internal Revenue based on Section under Philippine laws, filed its quarterly income tax returns
29(b)(7) (A) of the National Internal Revenue Code, stating that for the first and second quarters of 1985, reported profits, and
since Eximbank, and not Mitsubishi, is where the money for the paid the total income tax of P5,016,954.00. The taxes due were
loan originated from Eximbank, then it should be exempt from settled by applying PBCom's tax credit memos.
paying taxes on its loan thereon.
Subsequently, however, PBCom suffered losses so that when it
Issue: WON the interest income from the loans extended to filed its Annual Income Tax Returns for the year-ended
Atlas by Mitsubishi is excludible from gross income taxation. December 31, 1986, the petitioner likewise reported a net loss
of P14,129,602.00, and thus declared no tax payable for the
NO. Mitsubishi secured the loan from Eximbank in its own year.
independent capacity as a private entity and not as a conduit of
But during these two years, PBCom earned rental income from
Eximbank. Therefore, what the subject of the 15% withholding leased properties. The lessees withheld and remitted to the
tax is not the interest income paid by Mitsubishi to Eximbank, BIR withholding creditable taxes of P282,795.50 in 1985 and
but the interest income earned by Mitsubishi from the loan to P234,077.69 in 1986.
Subsequently, Petitioner requested the Commissioner of adopted to enforce the collection of taxes levied should be
Internal Revenue, among others, for a tax credit of summary and interfered with as little as possible.
P5,016,954.00 representing the overpayment of taxes in the
first and second quarters of 1985. From the same perspective, claims for refund or tax credit
should be exercised within the time fixed by law because the
Thereafter, on July 25, 1988, petitioner filed a claim for refund BIR being an administrative body enforced to collect taxes, its
of creditable taxes withheld by their lessees from property functions should not be unduly delayed or hampered by
rentals in 1985 for P282,795.50 and in 1986 for P234,077.69. incidental matters.

Pending the investigation of the respondent Commissioner of Sec. 230 of the National Internal Revenue Code (NIRC) of 1977
Internal Revenue, petitioner instituted a Petition for Review (now Sec. 229, NIRC of 1997) provides for the prescriptive
on November 18, 1988 before the Court of Tax Appeals (CTA). period for filing a court proceeding for the recovery of tax
erroneously or illegally collected.
The CTA rendered a decision which, as stated on the outset,
denied the request of petitioner for a tax refund or credit in the The rule states that the taxpayer may file a claim for refund or
sum amount of P5,299,749.95, on the ground that it was filed credit with the Commissioner of Internal Revenue, within two
beyond the two-year reglementary period provided for by law. (2) years after payment of tax, before any suit in CTA is
The petitioner's claim for refund in 1986 amounting to commenced. The two-year prescriptive period provided,
P234,077.69 was likewise denied on the assumption that it was should be computed from the time of filing the Adjustment
automatically credited by PBCom against its tax payment in Return and final payment of the tax for the year.
the succeeding year.

ISSUE: Whether the Court of Appeals erred in denying the 9. Sison v. Ancheta
plea for tax refund or tax credits on the ground of prescription GR No. L-59431; 25 July 1984

HELD: No. Basic is the principle that "taxes are the lifeblood F A C T S: Batas Pambansa 135 was enacted. Sison, as
of the nation." The primary purpose is to generate funds for taxpayer, alleged that its provision (Section 1) unduly
the State to finance the needs of the citizenry and to advance discriminated against him by the imposition of higher rates
the common weal. 13 Due process of law under the upon his income as a professional, that it amounts to class
Constitution does not require judicial proceedings in tax cases. legislation, and that it transgresses against the equal
This must necessarily be so because it is upon taxation that the protection and due process clauses of the Constitution as well
government chiefly relies to obtain the means to carry on its as the rule requiring uniformity in taxation.
operations and it is of utmost importance that the modes
I S S U E: Whether or not BP 135 violates the due process monthly rentals not exceeding three hundred pesos (P300.00)
and equal protection clauses, and the rule on uniformity in in July, 1971.
On July 14, 1971, the National Legislature enacted Republic
H E L D: There is a need for proof of such persuasive Act No. 6359 prohibiting for one year from its effectivity, an
character as would lead to a conclusion that there was a increase in monthly rentals of dwelling units or of lands on
violation of the due process and equal protection clauses. which another's dwelling is located, where such rentals do not
Absent such showing, the presumption of validity must prevail. exceed three hundred pesos (P300.00) a month but allowing
Equality and uniformity in taxation means that all taxable an increase in rent by not more than 10% thereafter.
articles or kinds of property of the same class shall be taxed at
the same rate. The taxing power has the authority to make On October 12, 1972, Presidential Decree No. 20 amended R.A.
reasonable and natural classifications for purposes of taxation. No. 6359 by making absolute the prohibition to increase
Where the differentiation conforms to the practical dictates of monthly rentals below P300.00 and by indefinitely suspending
justice and equity, similar to the standards of equal protection, the aforementioned provision of the Civil Code, excepting
it is not discriminatory within the meaning of the clause and is leases with a definite period. Consequently, the Reyeses were
therefore uniform. Taxpayers may be classified into different precluded from raising the rentals and from ejecting the
categories, such as recipients of compensation income as tenants thereof.
against professionals. Recipients of compensation income are
not entitled to make deductions for income tax purposes as The City Assessor of Manila assessed the value of the Reyeses
there is no practically overhead expense, while professionals property on the schedule of market values duly reviewed by the
and businessmen have no uniform costs or expenses necessary Secretary of Finance. The revision entailed an increase to the
to produce their income. There is ample justification to adopt tax rates and the petitioners averred that the reassessment
the gross system of income taxation to compensation income, imposed upon them greatly exceeded the annual income
while continuing the system of net income taxation as regards derived from their properties.
professional and business income.
ISSUE: WON income approach is the method to be used in
the tax assessment and not the comparable sales approach.
10. Reyes vs. Almanzor
196 SCRA 322; April 26, 1991 HELD: The income approach and not the comparable sales
approach must be used.
FACTS: Petitioners J.B.L. Reyes, Edmundo and Milagros
Reyes are owners of parcels of land situated in Tondo and Sta. “By no strength of the imagination can the market value of
Cruz Districts, City of Manila, which are leased and entirely properties covered by P.D. No. 20 be equated with the market
occupied as dwelling sites by tenants. Said tenants were paying
value of properties not so covered. The former has naturally a In the case at bar, PAL attacks the formal validity of Republic
much lesser market value in view of the rental restrictions. Act No. 7716. PAL contends that it violates Art. VI, Section
26[1] which provides that "Every bill passed by Congress shall
In the case at bar, not even the factors determinant of the embrace only one subject which shall be expressed in the title
assessed value of subject properties under the "comparable thereof." It is contended that neither H. No. 11197 nor S. No.
sales approach" were presented by the public respondents, 1630 provided for removal of exemption of PAL transactions
namely: (1) that the sale must represent a bonafide arm's from the payment of the VAT and that this was made only in
length transaction between a willing seller and a willing buyer the Conference Committee bill which became Republic Act No.
and (2) the property must be comparable property. Nothing 7716 without reflecting this fact in its title.
can justify or support their view as it is of judicial notice that
for properties covered by P.D. 20 especially during the time in The title of Republic Act No. 7716 is:
question, there were hardly any willing buyers. As a general
rule, there were no takers so that there can be no reasonable AN ACT RESTRUCTURING THE VALUE-ADDED
basis for the conclusion that these properties were comparable TAX [VAT] SYSTEM, WIDENING ITS TAX BASE AND
with other residential properties not burdened by P.D. 20.” ENHANCING ITS ADMINISTRATION, AND FOR
GR No. 115852; 30 October 1995 FOR OTHER PURPOSES.

F A C T S: The Value-Added Tax [VAT] is levied on the sale, Furthermore, section 103 of RA 7716 states the following:
barter or exchange of goods and properties as well as on the
sale or exchange of services. It is equivalent to 10% of the gross Section 103. Exempt Transactions.- The following shall be
selling price or gross value in money of goods or properties exempt from the value-added tax:
sold, bartered or exchanged or of the gross receipts from the
sale or exchange of services. Republic Act No. 7716 seeks to [q] Transactions which are exempt under special laws, except
widen the tax base of the existing VAT system and enhance its those granted under Presidential Decree Nos. 66, 529, 972,
administration by amending the National Internal Revenue 1491, 1590.
The effect of the amendment is to remove the exemption
These are various suits for certiorari and prohibition granted to PAL, as far as the VAT is concerned.
challenging the constitutionality of RA 7716:
Philippine Airlines [PAL] claims that its franchise under P.D.
No. 1590 which makes it liable for a franchise tax of only 2% of
gross revenues "in lieu of all the other fees and charges of any Republic Act No. 7716 expressly amends PAL's franchise [P. D.
kind, nature or description, imposed, levied, established, No. 1590] by specifically excepting from the grant of
assessed or collected by any municipal, city, provincial, or exemptions from the VAT PAL's exemption under P. D. No.
national authority or government agency, now or in the 1590. This is within the power of Congress to do under Art.
future," cannot be amended by Rep. Act No. 7716 as to make it XII, Section 11 of the Constitution, which provides that the
[PAL] liable for a 10% value-added tax on revenues, because grant of a franchise for the operation of a public utility is
Sec. 24 of P.D. No. 1590 provides that PAL's franchise can only subject to amendment, alteration or repeal by Congress when
be amended, modified or repealed by a special law specifically the common good so requires.
for that purpose.

I S S U E: Whether or not this amendment of Section 103 of 12. ARTURO M. TOLENTINO, petitioner, vs. THE
the NIRC is fairly embraced in the title of Republic Act No. SECRETARY OF FINANCE and THE
7716, although no mention is made therein of P. D. No. 1590 COMMISSIONER OF INTERNAL REVENUE,
respondents. G.R. No. 115455 August 25, 1994
H E L D: The court ruled in in the affirmative. The title states
that the purpose of the statute is to expand the VAT system, FACTS: Herein various petitioners seek to declare RA 7166 as
and one way of doing this is to widen its base by withdrawing unconstitutional as it seeks to widen the tax base of the
some of the exemptions granted before. To insist that P. D. No. existing VAT system and enhance its administration by
1590 be mentioned in the title of the law, in addition to Section amending the National Internal Revenue Code. The value-
103 of the NIRC, in which it is specifically referred to, would be added tax (VAT) is levied on the sale, barter or exchange of
to insist that the title of a bill should be a complete index of its goods and properties as well as on the sale or exchange of
content. services. It is equivalent to 10% of the gross selling price or
gross value in money of goods or properties sold, bartered or
The constitutional requirement that every bill passed by exchanged or of the gross receipts from the sale or exchange of
Congress shall embrace only one subject which shall be services.
expressed in its title is intended to prevent surprise upon the
members of Congress and to inform the people of pending CREBA asserts that R.A. No. 7716 (1) impairs the obligations of
legislation so that, if they wish to, they can be heard regarding contracts, (2) classifies transactions as covered or exempt
it. If, in the case at bar, petitioner did not know before that its without reasonable basis and (3) violates the rule that taxes
exemption had been withdrawn, it is not because of any defect should be uniform and equitable and that Congress shall
in the title but perhaps for the same reason other statutes, "evolve a progressive system of taxation."
although published, pass unnoticed until some event somehow
calls attention to their existence.
With respect to the first contention, it is claimed that the
application of the tax to existing contracts of the sale of real
property by installment or on deferred payment basis would constitutionality in civil liberties cases, but obviously it does
result in substantial increases in the monthly amortizations to set up a hierarchy of values within the due process clause."
be paid because of the 10% VAT. The additional amount, it is
pointed out, is something that the buyer did not anticipate at Petitioners contend that as a result of the uniform 10% VAT,
the time he entered into the contract. the tax on consumption goods of those who are in the higher-
income bracket, which before were taxed at a rate higher than
It is next pointed out that while Section 4 of R.A. No. 7716 10%, has been reduced, while basic commodities, which before
exempts such transactions as the sale of agricultural products, were taxed at rates ranging from 3% to 5%, are now taxed at a
food items, petroleum, and medical and veterinary services, it higher rate.
grants no exemption on the sale of real property which is
equally essential. The sale of real property for socialized and Just as vigorously as it is asserted that the law is regressive, the
low-cost housing is exempted from the tax, but CREBA claims opposite claim is pressed by respondents that in fact it
that real estate transactions of "the less poor," i.e., the middle distributes the tax burden to as many goods and services as
class, who are equally homeless, should likewise be exempted. possible particularly to those which are within the reach of
Finally, it is contended, for the reasons already noted, that higher-income groups, even as the law exempts basic goods
R.A. No. 7716 also violates Art. VI, Section 28(1) which and services. It is thus equitable. The goods and properties
provides that "The rule of taxation shall be uniform and subject to the VAT are those used or consumed by higher-
equitable. The Congress shall evolve a progressive system of income groups. These include real properties held primarily
taxation." for sale to customers or held for lease in the ordinary course of
business, the right or privilege to use industrial, commercial or
ISSUE: Whether or not RA 7166 violates the principle of scientific equipment, hotels, restaurants and similar places,
progressive system of taxation. tourist buses, and the like. On the other hand, small business
establishments, with annual gross sales of less than P500,000,
HELD: No, there is no justification for passing upon the are exempted. This, according to respondents, removes from
claims that the law also violates the rule that taxation must be the coverage of the law some 30,000 business establishments.
progressive and that it denies petitioners' right to due process On the other hand, an occasional paper of the Center for
and that equal protection of the laws. The reason for this Research and Communication cities a NEDA study that the
different treatment has been cogently stated by an eminent VAT has minimal impact on inflation and income distribution
authority on constitutional law thus: "When freedom of the and that while additional expenditure for the lowest income
mind is imperiled by law, it is freedom that commands a class is only P301 or 1.49% a year, that for a family earning
momentum of respect; when property is imperiled it is the P500,000 a year or more is P8,340 or 2.2%.
lawmakers' judgment that commands respect. This dual
standard may not precisely reverse the presumption of Lacking empirical data on which to base any conclusion
regarding these arguments, any discussion whether the VAT is
regressive in the sense that it will hit the "poor" and middle- Constitution as moral incentives to legislation, not as judicially
income group in society harder than it will the "rich," is largely enforceable rights.
an academic exercise. On the other hand, the CUP's contention
that Congress' withdrawal of exemption of producers
cooperatives, marketing cooperatives, and service
cooperatives, while maintaining that granted to electric 13. ABAKADA v. Ermita (Delegation to the
cooperatives, not only goes against the constitutional policy to President)
promote cooperatives as instruments of social justice (Art. XII, 469 SCRA 1: September 1, 2005
§ 15) but also denies such cooperatives the equal protection of
the law is actually a policy argument. The legislature is not Facts: RA 9337: VAT Reform Act enacted on May 24, 2005.
required to adhere to a policy of "all or none" in choosing the Sec. 4 (sales of goods and properties), Sec. 5 (importation of
subject of taxation. 44 goods) and Sec. 6 (services and lease of property) of RA 9337,
in collective, granted the Secretary of Finance the authority to
Nor is the contention of the Chamber of Real Estate and ascertain: (a) whether by 12/31/05, the VAT collection as a
Builders Association (CREBA), petitioner in G.R. 115754, that percentage of the 2004 GDP exceeds 2.8% or (b)the national
the VAT will reduce the mark up of its members by as much as government deficit as a percentage of the 2004 GDP exceeds
85% to 90% any more concrete. It is a mere allegation. On the 1.5%. If either condition is met, the Sec of Finance must inform
other hand, the claim of the Philippine Press Institute, the President who, in turn, must impose the 12% VAT rate
petitioner in G.R. No. 115544, that the VAT will drive some of (from 10%) effective January 1, 2006.
its members out of circulation because their profits from
advertisements will not be enough to pay for their tax liability, ABAKADA maintained that Congress abandoned its exclusive
while purporting to be based on the financial statements of the authority to fix taxes and that RA 9337 contained a uniform
newspapers in question, still falls short of the establishment of proviso authorizing the President upon recommendation by
facts by evidence so necessary for adjudicating the question the DOF Secretary to rasie VAT to 12%.
whether the tax is oppressive and confiscatory.
Sen Pimentel maintained that RA 9337 constituted undue
Indeed, regressivity is not a negative standard for courts to delegation of legislative powers and a violation of due process
enforce. What Congress is required by the Constitution to do is since the law was ambiguous and arbitrary. Same with Rep.
to "evolve a progressive system of taxation." This is a directive Escudero.
to Congress, just like the directive to it to give priority to the
enactment of laws for the enhancement of human dignity and Pilipinas Shell dealers argued that the VAT reform was
the reduction of social, economic and political inequalities arbitrary, oppressive and confiscatory.
(Art. XIII, § 1), or for the promotion of the right to "quality
education" (Art. XIV, § 1). These provisions are put in the
Respondents countered that the law was complete, that it left FACTS: Reparations Commission of the Philippines sold to
no discretion to the President, and that it merely charged the Botelho the vessel "M/S Maria Rosello" for the amount of
President with carrying out the rate increase once any of the P6,798,888.88. The former likewise sold to General Shipping
two conditions arise. the vessel "M/S General Lim" at the price of P6,951,666.66.
Upon arrival at the port of Manila, the Bureau of Customs
Issue: WON there was undue delegation. placed the same under custody and refused to give due course
[to applications for registration], unless the aforementioned
Held: No delegation but mere implementation of the law. sums of P483,433 and P494,824 be paid as compensating tax.
Constitution allows as under exempted delegation the The buyers subsequently filed with the CTA their respective
delegation of tariffs, customs duties, and other tolls, levies on petitions for review. Pending the case, Republic Act No. 3079
goods imported and exported. VAT is tax levied on sales of amended Republic Act No. 1789 — the Original Reparations
goods and services which could not fall under this exemption. Act, under which the aforementioned contracts with the
Hence, its delegation if unqualified is unconstitutional. Buyers had been executed — by exempting buyers of
reparations goods acquired from the Commission, from
Legislative power is authority to make a complete law. Thus, to liability for the compensating tax.
be valid, a law must be complete in itself, setting forth therein
the policy and it must fix a standard, limits of which are Invoking [section 20 of the RA 3079], the Buyers applied, for
sufficiently determinate and determinable. the renovation of their utilizations contracts with the
Commission, which granted the application, and, then, filed
No undue delegation when congress describes what job must with the Tax Court, their supplemental petitions for review.
be done who must do it and the scope of the authority given. The CTA ruled in favor of the buyers.
(Edu v Ericta)
[On appeal, the CIR and COC maintain that such proviso
Sec of Finance was merely tasked to ascertain the existence of should not be applied retroactively], upon the ground that a
facts. All else was laid out. Mainly ministerial for the Secretary tax exemption must be clear and explicit; that there is no
to ascertain the facts and for the president to carry out the express provision for the retroactivity of the exemption,
implementation for the VAT. They were agents of the established by Republic Act No. 3079, from the compensating
legislative dept tax; that the favorable provisions, which are referred to in
section 20 thereof, cannot include the exemption from
compensating tax; and, that Congress could not have intended
14. CIR and Commissioner of Customs vs. Botelho any retroactive exemption, considering that the result thereof
Shipping Corp. & General Shipping Co., Inc. would be prejudicial to the Government.
G.R. Nos. L-21633-34 June 29, 1967
ISSUE: Whether or not the tax exemption can be applied 15. Tan v. Del Rosario
retroactively G.R. No. 109289. October 3, 1994

HELD: YES. The inherent weakness of the last ground Facts: Petitioners assail RA 7496, also commonly known as
becomes manifest when we consider that, if true, there could the Simplified Net Income Taxation Scheme ("SNIT"),
be no tax exemption of any kind whatsoever, even if Congress amending certain provisions of the National Internal Revenue
should wish to create one, because every such exemption Code, as violative of the constitutional requirement that
implies a waiver of the right to collect what otherwise would be taxation shall be "shall be uniform and equitable." The law
due to the Government, and, in this sense, is prejudicial would now attempt to tax single proprietorships and
thereto. It may not be amiss to add that no tax exemption — professionals differently from the manner it imposes the tax on
like any other legal exemption or exception — is given without corporations and partnerships.
any reason therefor. In much the same way as other statutory
commands, its avowed purpose is some public benefit or Petitioner gives a fairly extensive discussion on the merits of
interest, which the law-making body considers sufficient to the law, illustrating, in the process, what he believes to be an
offset the monetary loss entitled in the grant of the exemption. imbalance between the tax liabilities of those covered by the
Indeed, section 20 of Republic Act No. 3079 exacts a valuable amendatory law and those who are not.
consideration for the retroactivity of its favorable provisions,
namely, the voluntary assumption, by the end-user who Issue: Whether or not RA 7496 is violative of the
bought reparations goods prior to June 17, 1961 of "all the new constitutional requirement that taxation shall be uniform and
obligations provided for in" said Act. equitable.

Furthermore, Section 14 of the Law on Reparations, as Held: Petition denied. Uniformity of taxation means that (1)
amended, exempts from the compensating tax, not particular the standards that are used therefore are substantial and not
persons, but persons belonging to a particular class. Indeed, arbitrary, (2) the categorization is germane to achieve
appellants do not assail the constitutionality of said section 14, legislative purpose, (3) the law applies, all things being equal,
insofar as it grants exemptions to end-users who, after the to both present and future conditions and (4) the classification
approval of Republic Act No. 3079, on June 17, 1961, applies equally well to all those belonging to the same class.
purchased reparations goods procured by the Commission.
From the viewpoint of Constitutional Law, especially the equal With the legislature primarily lies the discretion to determine
protection clause, there is no difference between the grant of the nature (kind), object (purpose), extent (rate), coverage
exemption to said end-users, and the extension of the grant to (subjects) and situs (place) of taxation. This court cannot freely
those whose contracts of purchase and sale mere made before delve into those matters which, by constitutional fiat, rightly
said date, under Republic Act No. 1789. rest on legislative judgment. Of course, where a tax measure
becomes so unconscionable and unjust as to amount to
confiscation of property, courts will not hesitate to strike it 4. On June 4, 1949, Republic Act No. 357, any such loan
down, for, despite all its plenitude, the power to tax cannot or loans shall be exempt from taxes, duties, fees,
override constitutional proscriptions. This stage, however, has imposts, charges, contributions and restrictions of the
not been demonstrated to have been reached within any Republic of the Philippines
appreciable distance in this controversy before us. 5. On the same date, R.A. No. 358, to facilitate payment of
its indebtedness, the National Power Corporation shall
16. MACEDA vs. MACARAIG, JR be exempt from all taxes.
223 SCRA 217 June 8, 1993 6. On July 10, 1952, R.A. No. 813 amended R.A. No. 357.
Topic: Classification of Taxes According The tax provision as stated in R.A. No. 357, was not
to Burden or Incidence (Direct or amended.
Indirect) 7. On June 2, 1954, R.A. No. 987 was enacted specifically
to withdraw NPC's tax exemption for real estate taxes.
Facts: This matter of indirect tax exemption of the private 8. On September 8, 1955, R.A. No. 1397, the tax
respondent National Power Corporation (NPC) is brought to exemption provision related to the payment of this
this Court a second time. Unfazed by the Decision We total indebtedness was not amended nor deleted.
promulgated on May 31, 1991 petitioner Ernesto Maceda asks 9. On June 13, 1958, R.A. No. 2055, the tax provision
this Court to reconsider said Decision. related to the repayment of loans was not amended nor
A Chronological review of the relevant NPC laws, specially with 10. On June 18, 1960, R.A. No 2641 converted the NPC
respect to its tax exemption provisions. from a public corporation into a stock corporation. No
1. On November 3, 1936, Commonwealth Act No. 120: tax exemption was incorporated in said Act.
creating the National Power Corporation. The main 11. On June 17, 1961, R.A. No. 3043. No tax provision was
source of funds for the NPC was the flotation of bonds incorporated in said Act.
in the capital markets 4 and these bonds...“issued under 12. On June 17, 1967, R.A. No 4897. No tax provision was
the authority of this Act shall be exempt from the incorporated in said Act.
payment of all taxes by the Commonwealth of the 13. On September 10, 1971, R.A. No. 6395 was enacted
Philippines…” revising the charter of the NPC. The bonds issued shall
2. On June 24, 1938, C.A. No. 344, the provision on tax be exempt from the payment of all taxes. As to the
exemption in relation to the issuance of the NPC bonds foreign loans the NPC was authorized to contract, shall
was neither amended nor deleted. also be exempt from all taxes,
3. On September 30, 1939, C.A. No. 495, the provision on 14. On January 22, 1974, P.D. No. 380…shall also
tax exemption in relation to the issuance of the NPC be exempt from all direct and indirect taxes,
bonds was neither amended nor deleted. 15. On February 26, 1970, P.D. No. 395, no tax exemption
provision was amended, deleted or added.
16. On July 31, 1975, P.D. No. 758 was issued directing that Petitioner contends that P.D. No. 938 repealed the indirect tax
P200,000,000.00 would be appropriated annually to exemption of NPC.
cover the unpaid subscription of the Government in the
NPC authorized capital stock, which amount would be Issue: WON NPC is exempted to pay Indirect Income Tax
taken from taxes accruing to the General Funds of the
Government, proceeds from loans, issuance of bonds, Held: Yes. Classifications or kinds of Taxes: According to
treasury bills or notes to be issued Persons who pay or who bear the burden:
17. On May 27, 1976 P.D. No. 938, declared exempt from a. Direct Tax — that where the person supposed to pay
the payment of all forms of taxes… the tax really pays
18. On January 30, 1976, P.D. No. 882 was issued it. WITHOUT transferring the burden
withdrawing the tax exemption of NPC with regard to to someone else.
imports Examples: Individual income tax,
19. On July 30, 1977, P.D. 1177, All units of government, corporate income tax,
including government-owned or controlled transfer taxes (estate tax,
corporations, shall pay income taxes, customs duties donor's tax), residence tax,
and other taxes and fees are imposed under revenues immigration tax
laws: provided, that organizations otherwise exempted b. Indirect Tax — that where the tax is imposed upon
by law from the payment of such taxes/duties may ask goods BEFORE reaching the consumer
for a subsidy from the General Fund who ultimately pays for it, not as a tax,
20. On July 11, 1984, P.D. No. 1931, all exemptions from but as a part of the purchase price.
the payment of duties, taxes, fees, imposts and other Examples: the internal revenue indirect
charges heretofore granted in favor of government- taxes (specific tax,
owned or controlled corporations including their percentage taxes, (VAT) and
subsidiaries, are hereby withdrawn. the tariff and customs
21. On December 17, 1986, E.O. No. 93 was issued with a indirect taxes (import duties,
view to correct presidential restoration or grant of tax special import tax and other
exemption to other government and private entities dues)
without benefit of review by the Fiscal Incentives
Review Board, “WHEREAS, in addition to those tax A chronological review of the NPC laws will show that it has
and duty exemption privileges were restored by the been the lawmaker's intention that the NPC was to be
Fiscal Incentives Review Board (FIRB), a number of completely tax exempt from all forms of taxes — direct and
affected entities, government and private, had their tax indirect.
and duty exemption privileges restored”
P.D. No. 380 added phrase "directly or indirectly,"
P.D. No. 938 amended into “exempt from the payment of ALL COMMISSIONER OF INTERNAL REVENUE
FORMS OF taxes” G.R. Nos. L-28508-9, July 7, 1989

President Marcos must have considered all the NPC statutes FACTS: In CTA Case No. 1251, Esso Standard Eastern Inc.
from C.A. No. 120 up to P.D. No. 938. (Esso) deducted from its gross income for 1959, as part of
itso r d i n a r y a n d n e c e s s a r y b u s i n e s s e x p e n s e s , t h e
One common theme in all these laws is that the NPC must be amount it had spent for drilling and exploration
enable to pay its indebtedness 56 which, as of P.D. No. 938, was o f i t s p e t r o l e u m concessions. This claim was disallowed by
P12 Billion in total domestic indebtedness, at any one time, the Commissioner of Internal Revenue (CIR) on the ground
and U$4 Billion in total foreign loans at any one time. The that the expensesshould be capitalized and might be written
NPC must be and has to be exempt from all forms of taxes if off as a loss only when a "dry hole" should result. Esso then
this goal is to be achieved. filed an amendedreturn where it asked for the refund of
P323,279.00 by reason of its abandonment as dry holes of
The tax exemption stood as is — with the express mention of several of its oil wells.Also claimed as ordinary and
"direct and indirect" tax exemptions. Lawmakers wanted the necessary expenses in the same return was the amount
NPC to be exempt from ALL FORMS of taxes — direct and of P340,822.04, representingmargin fees it had paid to the
indirect. Central Bank on its profit remittances to its New York head
office.On August 5, 1964, the CIR granted a tax credit of
Therefore, that NPC had been granted tax exemption P221,033.00 only, disallowing the claimed deduction for
privileges for both direct and indirect taxes under P.D. No. themargin fees paid on the ground that the margin fees paid to
938. the Central Bank could not be considered taxes or allowed
asdeductible business expenses.Esso appealed to the Court of
The Court rules and declares that the oil companies which Tax Appeals (CTA) for the refund of the margin fees it had
supply bunker fuel oil to NPC have to pay the taxes imposed earlier paid contendingthat the margin fees were
upon said bunker fuel oil sold to NPC. By the very nature of deductible from gross income either as a tax or as an
indirect taxation, the economic burden of such taxation is ordinary and necessary businessexpense. However, Esso’s
expected to be passed on through the channels of commerce to appeal was denied.
the user or consumer of the goods sold. Because, however, the
NPC has been exempted from both direct and indirect ISSUE: (1) Whether or not the margin fees are taxes.(2)
taxation, the NPC must be held exempted from absorbing the Whether or not the margin fees are necessary and ordinary
economic burden of indirect taxation business expenses.
RULING: (1) No. A tax is levied to provide revenue for manufacture of soap, edible oil, margarine and other similar
government operations, while the proceeds of the margin fee products, and for this purpose maintains a "bodega" in
areapplied to strengthen our country's international reserves. defendant Municipality where it stores copra purchased in the
The margin fee was imposed by the State in the exercise of municipality and therefrom ships the same for its
itspolice power and not the power of taxation.(2) No. manufacturing and other operations.
Ordinarily, an expense will be considered 'necessary' where the
expenditure is appropriate and helpful inthe development of On December 13, 1957, the Municipal Council of Jagna enacted
the taxpayer's business. It is 'ordinary' when it connotes a Municipal Ordinance No. 4, Series of 1957 or An Ordinance
payment which is normal in relation to thebusiness of the imposing storage fees of all exportable copra deposited in the
taxpayer and the surrounding circumstances. Since the bodega within the jurisdlcti0n of the municipality of jagna
margin fees in question were incurred for theremittance bohol. For a period of six years, from 1958 to 1963, plaintiff
of funds to Esso's Head Office in New York, which is a separate paid defendant Municipality, allegedly under protest, storage
and distinct income taxpayer from the branchin the fees in the total sum of P42,265.13.
Philippines, for its disposal abroad, it can never be said
therefore that the margin fees were appropriate and helpfulin On March 3, 1964, plaintiff filed this suit in the Court of First
the development of Esso's business in the Philippines Instance of Manila, Branch VI, wherein it prayed that 1)
exclusively or were incurred for purposes proper to the Ordinance No. 4 be declared inapplicable to it, or in the alter.
conductof the affairs of Esso's branch in the Philippines native, that it be pronounced ultra-vires and void for being
exclusively or for the purpose of realizing a profit or of beyond the power of the Municipality to enact; and 2) that
minimizing a loss inthe Philippines exclusively. defendant Municipality be ordered to refund to it the amount
of P42,265.13 which it had paid under protest; and costs.
MANUFACTURING CORPORATION The trial Court upheld its jurisdiction as well as defendant
vs. THE MUNICIPALITY OF JAGNA, PROVINCE Municipality's power to enact the Ordinance in question under
OF BOHOL section 2238 of the Revised Administrative Code, otherwise
G.R. No. L-24265 December 28, 1979 known as the general welfare clause.

TOPIC: Nature and amount of license ISSUES: Whether defendant Municipality was authorized to
impose and collect the storage fee provided for in the
FACTS: Plaintiff-appellant is a domestic corporation with challenged Ordinance under the laws then prevailing.
principal offices in Manila. lt is a consolidated corporation of
Procter & Gamble Trading Company and Philippine Whether the imposition of P0.10 per 100 kilos of copra stored
Manufacturing Company, which later became Procter & in a bodega within the municipality ofJagnas' territory is
Gamble Trading Company, Philippines. It is engaged in the beyond the cost of regulation and surveillance
bar, appellant has not sufficiently shown that the rate imposed
HELD: The validity of the Ordinance must be upheld by the questioned Ordinance is oppressive, excessive and
pursuant to the broad authority conferred upon municipalities prohibitive.
by Commonwealth Act No. 472, which was the prevailing law
when the Ordinance was enacted. 19. Golden Ribbon Lumber Co., Inc. v. City of
A municipality is authorized to impose three kinds of licenses: GR No. L-18534 24 December 1964
(1) a license for regulation of useful occupation or enterprises;
(2) license for restriction or regulation of non-useful F A C T S: Golden Ribbon Lumber Co., Inc., a duly organized
occupations or enterprises; and (3) license for revenue. 4 It is domestic corporation, operated a lumber mill and lumber yard
thus unnecessary, as plaintiff would have us do, to determine in Butuan City. Pursuant to Ordinance No. 5, as amended by
whether the subject storage fee is a tax for revenue purposes or Ordinance Nos. 9, 10, 47, and 49 of the said city, it paid the
a license fee to reimburse defendant Municipality for service of taxes provided therein. Claiming that said ordinance, as
supervision because defendant Municipality is authorized not amended, was void, it later brought the present action to have
only to impose a license fee but also to tax for revenue it so declared; to recover the amount paid, and to have
purposes. appellants permanently enjoined from enforcing said
ordinance as amended.
The storage fee imposed under the question Ordinance is
actually a municipal license tax or fee on persons, firms and I S S U E: Whether or not Ordinance No. 5 falls within the
corporations, like plaintiff, exercising the privilege of storing Charter of the City of Butuan.
copra in a bodega within the Municipality's territorial
jurisdiction. For the term "license tax" has not acquired a fixed H E L D: No. The tax imposed is and was really intended to be
meaning. It is often used indiseriminately to designate on lumber sold and not a tax on, or, license fee for the privilege
impositions exacted for the exercise of various privileges. In of operating a lumber mill and/or a lumber yard. It violates RA
many instances, it refers to revenue-raising exactions on 2264 as municipal corporations are prohibited from imposing
privileges or activities. charges of taxes of such nature.

(2) Municipal corporations are allowed wide discretion in Appellants’ claim that the questioned tax is one on business or
determining the rates of imposable license fees even in cases of a privilege tax for the operation of a lumber mill or a lumber
purely police power measures. In the absence of proof as to yard is without merit. The character or nature of a tax is
municipal conditions and the nature of the business being determined by its operation, practical results and incidents.
taxed as well as other factors relevant to the issue of Neither the original ordinance in question nor the amendatory
arbitrariness or unreasonableness of the questioned rates, ones provide that payment thereof is a condition precedent to
Courts will go slow in writing off an Ordinance. In the case at
the enjoyment of such privilege or that its non-payment would maintenance are solely paid by it; 3. Maintenance and
result in the cancellation of any previous license granted. dredging of the channel are done by the Company personnel;
4. At not time has the government paid any centavo for such
Lastly, the rule is well-settled that municipal corporations are activities.
clothed with no power of taxation; that its charter or a statute
must clearly show an intent to confer that power or the ISSUE: WON the Victorias Milling Co. claim of exception for
municipal corporation cannot assume and exercise it, and that PPA fees is meritorious.
any such power granted must be construed strictly, any doubt
or ambiguity arising out from the terms of the grant to be HELD: No, the petitioners claim that there is no basis for the
resolved against the municipality. PPA to assess and impose the dues and charge is devoid of
153 SCRA 317; August 27, 1987 As correctly stated by the Solicitor General, the fees and
charges PPA collects are not for the use of the wharf that
FACTS: This is a petition for review on certiorari of the petitioner owns but for the privilege of navigating in public
July 27, 1984 Decision of the Office of the Presidential waters, of entering and leaving public harbours and berthing
Assistant For Legal Affairs dismissing the appeal from the on public streams or waters.
adverse ruling of the Philippine Ports Authority on the sole
ground that the same was filed beyond the reglementary As to the requirement to remit 10% of the handling charges,
period. Section 6B-(ix) of the Presidential Decree No. 857 authorized
the PPA "To levy dues, rates, or charges for the use of the
On April 28, 1981, the Iloilo Port Manager of respondent premises, works, appliances, facilities, or for services provided
Philippine Ports Authority (PPA for short) wrote petitioner by or belonging to the Authority, or any organization
Victorias Milling Co., requiring it to have its tugboats and concerned with port operations." This 10% government share
barges undergo harbor formalities and pay entrance/clearance of earnings of arrastre and stevedoring operators is in the
fees as well as berthing fees effective May 1, 1981. PPA, nature of contractual compensation to which a person desiring
likewise, requiring petitioner to secure a permit for cargo to operate arrastre service must agree as a condition to the
handling operations at its Da-an Banua wharf and remit 10% grant of the permit to operate.
of its gross income for said operations as the government's
share. 21. CIR v. CA, CTA, AdMU
GR No.115349; 18 April 1997
Victorias Milling Co. maintained that it is except from paying
PPA any fee or charge because: 1. The wharf and its facilities
are built and installed on it’s own land; 2. Repairs and
F A C T S: Private respondent, Ateneo de Manila University, contractor' is not specifically defined so as to delimit the scope
is a non-stock, non-profit educational institution with auxiliary thereof, so much so that any person who . . . renders physical
units and branches all over the country. The Institute of and mental service for a fee, is now indubitably considered an
Philippine Culture (IPC) is an auxiliary unit with no legal independent contractor liable to 3% contractor's tax."
personality separate and distinct from private respondent. The
IPC is a Philippine unit engaged in social science studies of
I S S U E: Whether or not private respondent falls under the
Philippine society and culture. Occasionally, it accepts
purview of independent contractor pursuant to Section 205 of
sponsorships for its research activities from international
the Tax Code and is subject to a 3% contractors tax.
organizations, private foundations and government agencies.
H E LD: The petition is unmeritorious.
On 8 July 1983, private respondent received from CIR a
demand letter dated 3 June 1983, assessing private respondent
The term "independent contractors" include persons
the sum of P174,043.97 for alleged deficiency contractor’s tax,
(juridical or natural) not enumerated above (but not including
and an assessment dated 27 June 1983 in the sum of
individuals subject to the occupation tax under Section 12 of
P1,141,837 for alleged deficiency income tax, both for the fiscal
the Local Tax Code) whose activity consists essentially of the
year ended 31 March 1978. Denying said tax liabilities, private
sale of all kinds of services for a fee regardless of whether or
respondent sent petitioner a letter-protest and subsequently
not the performance of the service calls for the exercise or use
filed with the latter a memorandum contesting the validity of
of the physical or mental faculties of such contractors or their
the assessments.
After some time petitioner issued a final decision dated 3 Petitioner Commissioner of Internal Revenue erred in
August 1988 reducing the assessment for deficiency applying the principles of tax exemption without first applying
contractor’s tax from P193,475.55 to P46,516.41, exclusive of the well-settled doctrine of strict interpretation in the
surcharge and interest. imposition of taxes. It is obviously both illogical and
impractical to determine who are exempted without first
The lower courts ruled in favor of respondent. Hence this determining who are covered by the aforesaid provision. The
petition. Commissioner should have determined first if private
respondent was covered by Section 205, applying the rule of
Petitioner Commissioner of Internal Revenue contends that strict interpretation of laws imposing taxes and other burdens
Private Respondent Ateneo de Manila University "falls within on the populace, before asking Ateneo to prove its exemption
the definition" of an independent contractor and "is not one of therefrom.
those mentioned as excepted"; hence, it is properly a subject of
the three percent contractor's tax levied by the foregoing Interpretation of Tax Laws. The doctrine in the
provision of law. Petitioner states that the "term 'independent interpretation of tax laws is that “(a) statute will not be
construed as imposing a tax unless it does so clearly, expressly, thing. . . .” In the case at bench, it is clear from the evidence on
and unambiguously. . . . (A) tax cannot be imposed without record that there was no sale either of objects or services
clear and express words for that purpose. Accordingly, the because, as adverted to earlier, there was no transfer of
general rule of requiring adherence to the letter in construing ownership over the research data obtained or the results of
statutes applies with peculiar strictness to tax laws and the research projects undertaken by the Institute of Philippine
provisions of a taxing act are not to be extended by Culture.
implication.” In case of doubt, such statutes are to be
construed most strongly against the government and in favor
of the subjects or citizens because burdens are not to be 22. COMMISSIONER OF INTERNAL REVENUE,
imposed nor presumed to be imposed beyond what statutes petitioner, vs. THE HON. COURT OF APPEALS,
expressly and clearly import. R.O.H. AUTO PRODUCTS PHILIPPINES, INC.
Ateneo’s Institute of Philippine Culture never sold its services respondents. G.R. No. 108358 January 20, 1995
for a fee to anyone or was ever engaged in a business apart
from and independently of the academic purposes of the Facts: On 22 August 1986, Executive Order No. 41 was
university. Funds received by the Ateneo de Manila University promulgated declaring a one-time tax amnesty on unpaid
are technically not a fee. They may however fall as gifts or income taxes, later amended to include estate and donor's
donations which are “tax-exempt” as shown by private taxes and taxes on business, for the taxable years 1981 to 1985.
respondent’s compliance with the requirement of Section 123 Respondent R.O.H. Auto Products Philippines, Inc., availing of
of the National Internal Revenue Code providing for the the amnesty, filed in October 1986 and November 1986, its Tax
exemption of such gifts to an educational institution. Amnesty Return and Supplemental Tax Amnesty Return No.
Transaction of IPC not a contract of sale nor a and paid the corresponding amnesty taxes due.
contract for a piece of work. The transactions of Ateneo’s
Institute of Philippine Culture cannot be deemed either as a Prior to this availment, petitioner Commissioner of Internal
contract of sale or a contract for a piece of work. By the Revenue, in a communication received by private respondent
contract of sale, one of the contracting parties obligates on August 13, 1986, assessed the latter deficiency income and
himself to transfer the ownership of and to deliver a business taxes for its fiscal years 1981 and 1982 in an aggregate
determinate thing, and the other to pay therefor a price certain amount of P1,410,157.71. Meanwhile, respondent averred that
in money or its equivalent. In the case of a contract for a piece since it had been able to avail itself of the tax amnesty, the
of work, “the contractor binds himself to execute a piece of deficiency tax notice should forthwith be cancelled and
work for the employer, in consideration of a certain price or withdrawn. This was denied by the CIR Revenue
compensation. . . . If the contractor agrees to produce the work Memorandum Order No. 4-87, implementing Executive Order
from materials furnished by him, he shall deliver the thing No. 41, had construed the amnesty coverage to include only
produced to the employer and transfer dominion over the assessments issued by the Bureau of Internal Revenue after
the promulgation of the executive order on August 22 1986 23.HYDRO RESOURCES V. COURT OF TAX
and not to assessments theretofore made. APPEALS ET AL.
GR 80276; December 21, 1990
On appeal, The Court of Tax appeal upheld for the respondent,
which was further upheld by the Court of Appeals. FACTS Hydro Resources Contractors Corporation entered
into a contract of sale with the National Irrigation Authority
ISSUE: Whether or not the the deficiency assessments were (NIA) for the construction of Magat River Multipurpose
extinguished by reason of respondent’s availment of the tax Project in Isabella in August 1978. The contract provided that
amnesty. Hydro will import parts, construction equipment and tools and
taxes and duties to be paid by NIA. Tools and equipment
HELD: Yes, as the scope of the amnesty covers the unpaid arrived during 1978 and 1979. NIA reneged on the contract.
income taxes for the years 1981 to 1985. If, as the Therefore causing the transfer its sale to Hydro in seperate
Commissioner argues, Executive Order No. 41 had not been dates in December 6, 1982 and March 24, 1983. Executive
intended to include 1981-1985 tax liabilities already assessed Order 860 took effect during December 21, 1982 provided for
(administratively) prior to August 22, 1986, the law could have 3% ad valorem tax on importations and it specifically provided
simply so provided in its exclusionary clauses. It did not. The that it should have no retroactive effect. During the contract of
conclusion is unavoidable, and it is that the executive order sale execution, Hydro was assessed and paid the said 3% ad
has been designed to be in the nature of a general grant of tax valorem tax worth P 281,591 under protest. The Hydro when
amnesty subject only to the cases specifically excepted by it. filing for refund with Customs Commissioner who indorsed
the approval of the refund but was denied by the Secretary of
Finance and motion was denied by the Court of Tax Appeals.
Further, the law provides that, upon full compliance with the
conditions of the tax amnesty and the rules and regulations
ISSUE Whether or not should the Executive Order 860
issued pursuant to this Executive order, the taxpayer shall be
should have a retroactive effect.
relieved of any income tax liability on any untaxed income
from January 1, 1981 to December 31, 1985, including
HELD The Court of Tax Appeals erred in applying a
increments thereto and penalties on account of the non-
retroactive effect for the Executive Order therefore should not
payment of the said tax. Civil, criminal or administrative
have been subject to the additional 3% ad valorem tax. In
liability arising from the non-payment of the said tax, which
general tax laws are not retroactive in nature. Not only that
are actionable under the National Internal Revenue Code, as
Executive Order 860 specifically provides that it is not
amended, are likewise deemed extinguished.
retroactive in nature, but also when the conditional contract of
sale was executed, its had a suspensive condition contemplated
in the Civil Code (Article 1187) where it returned ownership to
the seller Hydro because NIA was not able to comply with its
part of the contract, it was deemed executed as if during the
constitution of the obligation which was in 1978 and not in the imposition of . . . interest is but a just
1982. compensation to the state for the delay in
paying the tax, and for the concomitant use by
the taxpayer of funds that rightfully should be
24.Central Azucarera Don Pedro –v– CIR and CTA in the government's hands (U.S. vs. Goldstein,
G.R. Nos. L-23236 and L-23254 May 31, 189 F [2d] 752; Ross vs. U.S., 148 Fed. Supp.
1967 330; U.S. vs. Joffray, 97 Fed. [2d] 488). The
fact that the interest charged is made
FACTS: Central Azucarera Don Pedro, a domestic corporation proportionate to the period of delay constitutes
with office at Nasugbu, Batangas, had been filing its income the best evidence that such interest is not penal
tax returns on the "fiscal year" basis ending August 31, of every but compensatory. (Castro vs. Collector of
year. Internal Revenue, G.R. No. L-12174, Resolution
on Motion for Reconsideration, December 28,
[It had been assessed deficiency tax plus interest. It paid the 1962)
deficiency tax but protested on the imposition of the interest],
claiming that the imposition of ½% monthly interest on its and we had already held that —
deficiency tax for the fiscal year 1954 to 1958, Pursuant to
Section 51 (d) of the Revenue Code, as amended by Republic The doctrine of unconstitutionality raised by
Act No. 2343, is illegal, because the imposition of interest on appellant is based on the prohibition against ex
efficiency income tax earned prior to the effectivity of the post facto laws. But this prohibition applies
amendatory law (Rep. Act 2343) [on 1959] will be tantamount only to criminal or penal matters, and not to
to giving it (Rep. Act No. 2343) retroactive application. [It laws which concern civil matters or
further contends that] the application of the amended proceedings generally, or which affect or
provision (now Sec. 51-d of the Tax Code) to the cases at bar regulate civil or private rights (Ex parte
would run counter to the constitutional restriction against the Garland, 18 Law Ed., 366; 16 C.J.S., 889-891).
enactment of ex post facto laws. (Republic vs. Oasan Vda. de Fernandez, 99
Phil. 934, 937).
ISSUE: Whether or not the imposition of the interest, is
unconstitutional Finally, section 13 of the amendatory Republic Act No. 2343
refers only to the basic tax rates, which are made applicable to
HELD: NO – [the interest was correctly imposed]. It is to be income received in 1959 onward, but does not affect the
noted that the collection of interest in these cases is not penal interest due on deficiencies, which are left to be governed by
in nature, thus — section 51 (d).
manufacturers could increase the volume contents of each
bottle and still pay the same tax rate since tax is imposed on
25.Pepsi-Cola Bottling Company of the every bottle corked. To combat this scheme, Municipal
Philippines, Inc. v. Municipality of Tanauan Ordinance No. 27 was enacted. As such, it was a repeal of
G.R. No. L-31156; February 27, 1976 Municipal Ordinance No. 23. In the stipulation of facts, the
parties admitted that the Municipal Treasurer was enforcing
Facts: In February 1963, plaintiff commenced a complaint Municipal Ordinance No. 27 only. Hence, there was no case of
seeking to declare Section 2 of R.A. 2264 (Local Autonomy double taxation.
Act) unconstitutional as an undue delegation of taxing power
and to declare Ordinance Nos. 23 and 27 issued by the 26. COMMISSIONER OF INTERNAL REVENUE vs.
Municipality of Tanauan, Leyte as null and void. S.C. JOHNSON AND SON, INC., and COURT OF
Municipal Ordinance No. 23 levies and collects from soft 309 SCRA 87 ; June 25, 1999
drinks producers and manufacturers one-sixteenth (1/16) of a
centavo for every bottle of soft drink corked. On the other Topic: Double Taxation
hand, Municipal Ordinance No. 27 levies and collects on soft
drinks produced or manufactured within the territorial Facts: SC. JOHNSON AND SON, INC., a domestic
jurisdiction of the municipality a tax of one centavo (P0.01) on corporation organized and operating under the Philippine
each gallon of volume capacity. The tax imposed in both laws, entered into a license agreement with SC Johnson and
Ordinances Nos. 23 and 27 is denominated as "municipal Son, United States of America (USA), a non-resident foreign
production tax.” corporation was granted the right to use the trademark,
patents and technology owned by the latter including the right
Issues: (1) Is Section 2 of R.A. 2264 an undue delegation of to manufacture, package and distribute the products. License
the power of taxation? (2) Do Ordinance Nos. 23 and 24 Agreement was duly registered with the Technology Transfer
constitute double taxation and impose percentage or specific Board of the Bureau of Patents, Trade Marks and Technology
taxes? Transfer under Certificate of Registration No. 8064. SC.
JOHNSON AND SON, INC was obliged to pay SC Johnson and
Held: (1) NO. The power of taxation is purely legislative and Son, USA royalties based on a percentage of net sales and
cannot be delegated to the executive or judicial department of subjected the same to 25% withholding tax on royalty
the government without infringing upon the theory of payments which [respondent] paid from July 1992 to May
separation of powers. But as an exception, the theory does not 1993. Respondent filed with the International Tax Affairs
apply to municipal corporations. Legislative powers may be Division (ITAD) of the BIR a claim for refund of overpaid
delegated to local governments in respect of matters of local withholding tax on royalties arguing that Since the agreement
concern. (2) NO. The Municipality of Tanauan discovered that was approved by the Technology Transfer Board, the
preferential tax rate of 10% should apply hence royalties paid does not refer to payment of the tax but to the subject matter
by the [respondent] to SC Johnson and Son, USA is only of the tax, that is, royalties, because the "most favored nation"
subject to 10% withholding tax pursuant to the most-favored clause is intended to allow the taxpayer in one state to avail of
nation clause of the RP-US Tax Treaty. more liberal provisions contained in another tax treaty
wherein the country of residence of such taxpayer is also a
The Commissioner did not act on said claim for refund. party thereto, subject to the basic condition that the subject
Respondent filed a petition for review before the CTA to claim matter of taxation in that other tax treaty is the same as that in
a refund of the overpaid withholding tax on royalty payments. the original tax treaty under which the taxpayer is liable; thus,
CTA decided for Respondent and ordered CIR to issue a tax the RP-US Tax Treaty speaks of "royalties of the same kind
credit certificate in the amount of P963,266.00 representing paid under similar circumstances".
overpaid withholding tax on royalty payments, beginning July,
1992 to May, 1993. CIR filed a petition for review with CA. CA Issue: WON SC Johnson can refund.
upheld CTA.
Ruling: NO. The tax rates on royalties and the circumstances
CIR contends that under RP-US Tax Treaty, which is known as of payment thereof are the same for all the recipients of such
the "most favored nation" clause, the lowest rate of the royalties and there is no disparity based on nationality in the
Philippine tax at 10% may be imposed on royalties derived by a circumstances of such payment. 6 On the other hand, a cursory
resident of the United States from sources within the reading of the various tax treaties will show that there is no
Philippines only if the circumstances of the resident of the similarity in the provisions on relief from or avoidance of
United States are similar to those of the resident of West double taxation 7 as this is a matter of negotiation between the
Germany. Since the RP-US Tax Treaty contains no "matching contracting parties. This dissimilarity is true particularly in the
credit" provision as that provided in RP-West Germany Tax treaties between the Philippines and the United States and
Treaty, the tax on royalties under the RP-US Tax Treaty is not between the Philippines and West Germany.
paid under similar circumstances as those obtaining in the RP-
West Germany Tax Treaty. Also petitioner argues that since The RP-US Tax Treaty is just one of a number of bilateral
S.C. Johnson's invocation of the "most favored nation" clause treaties which the Philippines has entered into for the
is in the nature of a claim for exemption from the application avoidance of double taxation. 9 The purpose of these
of the regular tax rate of 25% for royalties, the provisions of international agreements is to reconcile the national fiscal
the treaty must be construed strictly against it. legislations of the contracting parties in order to help the
taxpayer avoid simultaneous taxation in two different
Respondent countered that the "most favored nation" clause jurisdictions. 10 More precisely, the tax conventions are drafted
under the RP-US Tax Treaty refers to royalties paid under with a view towards the elimination of international juridical
similar circumstances as those royalties subject to tax in other double taxation, which is defined as the imposition of
treaties; that the phrase "paid under similar circumstances" comparable taxes in two or more states on the same taxpayer
in respect of the same subject matter and for identical the former is credited against the tax levied in the latter. The
periods. 11 The apparent rationale for doing away with double basic difference between the two methods is that in the
taxation is of encourage the free flow of goods and services and exemption method, the focus is on the income or capital itself,
the movement of capital, technology and persons between whereas the credit method focuses upon the tax. 15
countries, conditions deemed vital in creating robust and
dynamic economies. The phrase "royalties paid under similar circumstances" in the
most favored nation clause of the US-RP Tax Treaty
Double taxation usually takes place when a person is resident necessarily contemplated "circumstances that are tax-related".
of a contracting state and derives income from, or owns capital
in, the other contracting state and both states impose tax on In the case at bar, the state of source is the Philippines because
that income or capital. In order to eliminate double taxation, a the royalties are paid for the right to use property or rights, i.e.
tax treaty resorts to several methods. First, it sets out the trademarks, patents and technology, located within the
respective rights to tax of the state of source or situs and of the Philippines. 17 The United States is the state of residence since
state of residence with regard to certain classes of income or the taxpayer, S. C. Johnson and Son, U. S. A., is based there.
capital. In some cases, an exclusive right to tax is conferred on Under the RP-US Tax Treaty, the state of residence and the
one of the contracting states; however, for other items of state of source are both permitted to tax the royalties, with a
income or capital, both states are given the right to tax, restraint on the tax that may be collected by the state of
although the amount of tax that may be imposed by the state of source.
source is limited.
the concessional tax rate of 10 percent provided for in the RP-
Double taxation usually takes place when a person is resident Germany Tax Treaty should apply only if the taxes imposed
of a contracting state and derives income from, or owns capital upon royalties in the RP-US Tax Treaty and in the RP-
in, the other contracting state and both states impose tax on Germany Tax Treaty are paid under similar circumstances.
that income or capital. In order to eliminate double taxation, a This would mean that private respondent must prove that the
tax treaty resorts to several methods. First, it sets out the RP-US Tax Treaty grants similar tax reliefs to residents of the
respective rights to tax of the state of source or situs and of the United States in respect of the taxes imposable upon royalties
state of residence with regard to certain classes of income or earned from sources within the Philippines as those allowed to
capital. In some cases, an exclusive right to tax is conferred on their German counterparts under the RP-Germany Tax Treaty.
one of the contracting states; however, for other items of The RP-US and the RP-West Germany Tax Treaties do not
income or capital, both states are given the right to tax, contain similar provisions on tax crediting.
although the amount of tax that may be imposed by the state of
source is limited. On the other hand, in the credit method, If the rates of tax are lowered by the state of source, in this
although the income or capital which is taxed in the state of case, by the Philippines, there should be a concomitant
source is still taxable in the state of residence, the tax paid in commitment on the part of the state of residence to grant some
form of tax relief, whether this be in the form of a tax credit or Inc. The Rufinos were majority stockholders of Eastern
exemption. 24 Otherwise, the tax which could have been Theatrical Co., Inc (hereinafter Old ETC) which had a
collected by the Philippine government will simply be collected corporate term of 25 years, which terminated on January 25,
by another state, defeating the object of the tax treaty since the 1959, president of which was Ernesto Rufino. On December 8,
tax burden imposed upon the investor would remain 1958, the Eastern Theatrical Co, Inc. (hereinafter New ETC,
unrelieved. If the state of residence does not grant some form with a corporate term of 50 years) was organized, and the
of tax relief to the investor, no benefit would redound to the Rufinos were also the majority stockholders of the corporation,
Philippines, i.e., increased investment resulting from a with Vicente Rufino as the General-Manager. Both ETCs were
favorable tax regime, should it impose a lower tax rate on the engaged in the same business.
royalty earnings of the investor, and it would be better to
impose the regular rate rather than lose much-needed Old ETC held a stockholder’s meeting to merge with the New
revenues to another country. ETC on December 17, 1958 to continue its business after the
end of Old ETC’s corporate term. The merger was authorized
The entitlement of the 10% rate by U.S. firms despite the by a board resolution. It was expressly declared that the
absence of a matching credit (20% for royalties) would merger was necessary to continue operating the Capitol and
derogate from the design behind the most grant equality of Lyric Theaters in Manila even after the expiration of corporate
international treatment since the tax burden laid upon the existence, to preserve both its booking contracts and to uphold
income of the investor is not the same in the two countries. its collective bargaining agreements. Through the two Rufinos
The similarity in the circumstances of payment of taxes is a (Ernesto and Vicente), a Deed of Assignment was executed,
condition for the enjoyment of most favored nation treatment which conveyed and transferred all the business, property,
precisely to underscore the need for equality of treatment. assets and good will of the Old ETC to the New ETC in
exchange for shares of stock of the latter to be issued to
Respondent cannot be deemed entitled to the 10 percent rate the shareholders at the rate of one stock for each stock
granted under the RP-West Germany Tax Treaty for the reason held in the Old ETC. The Deed was to retroact from January 1,
that there is no payment of taxes on royalties under similar 1959. New ETC’s Board approved the merger and the Deed of
circumstances in RP-US treaty. Assignment on January 12, 1959 and all changes duly
registered with the SEC.

The BIR, after examination, declared that the merger was not
27. CIR v Rufino
undertaken for a bona fide business purpose but only to avoid
GR Nos> L-33665-68; February 27, 1987
liability for the capital gains tax on the exchange of the old for
the new shares of stock. He then imposed deficiency
Facts: This is a petition for review on certiorari of the CTA
assessments against the private respondents, the Rufinos. The
decision which absolved petitioners from liability for capital
Rufinos requested for a reconsideration, which was denied.
gains tax on stocks received by them from Eastern Theatrical,
Therefore, they elevated their matter to the CTA, who reversed of which was the consummation of a preconceived
the judgment of the CIR, saying that they found that there was plan, not to reorganize a business but to transfer a
“no taxable gain derived from the exchange of old stocks parcel of corporate shares.” When the corporation
simply for new stocks for the New Corporation” because it was
created is nothing more than a contrivance, there is no
pursuant to a valid plan of reorganization. The CIR raised it to
the SC on petition for review on certiorari. legitimate business purpose. The Court states that
there is no such furtive intention in this case. In fact,
Issue: WON there was a valid merger and that there was no the New ETC continues to operate the Capitol and Lyric
taxable gain derived therefrom. movie theaters even up to 27 years after the merger.
There is as yet no dissolution, so the Rufinos haven’t
Held: YES, the CTA was correct in ruling that there WAS a gained any benefit yet from the merger, which makes
merger and that no taxable gain was derived. CTA decision is
them no more liable than the time the merger took
• Validity of transfer. In support of its argument that the The government’s remedy: The merger merely deferred
Rufinos were trying to avoid the payment of capital the payment for taxes until the future, which the government
gains tax, the CIR said that the New ETC did not may assert later on when gains are realized and benefits are
actually issue stocks in exchange for the properties of distributed among the stockholders as a result of the merger.
the Old ETC. The increase in capitalization only The taxes are not forfeited but merely postponed and may be
happened in March 1959, or 37 days after the Old ETC imposed at the proper time later on.
expired. Prior to registration, the New ETC could not
have validly performed the transfer. The SC ruled that 28. DELPHER TRADES CORPORATIONvs. IAC
the retroactivity of the Deed of Assignment cured the G.R. No. L-69259 January 26, 1988
defect and there was no impediment.
• Bona Fide Business Purpose. The criterion of Facts: Delfin Pacheco and sister Pelagia were the owners of a
parcel of land in Polo (now Valenzuela). On April 3, 1974, they
the law is that the purpose of the merger must be for a
leased to Construction Components International Inc. the
bona fide business purpose and not for the purpose of property and providing for a right of first refusal should it
escaping taxes. The case of Helvering v. Gregory stated decide to buy the said property.
that a mere “operation having no business or corporate
purpose—a mere devise which put on the form of a Construction Components International, Inc. assigned its
corporate reorganization as a disguise for concealing its rights and obligations under the contract of lease in favor of
real character and the sole object and accomplishment Hydro Pipes Philippines, Inc. with the signed conformity and
consent of Delfin and Pelagia. In 1976, a deed of exchange was Pachecos to a third party. The Pacheco family merely changed
executed between lessors Delfin and Pelagia Pacheco and their ownership from one form to another. The ownership
defendant Delpher Trades Corporation whereby the Pachecos remained in the same hands. Hence, the private respondent
conveyed to the latter the leased property together with has no basis for its claim of a light of first refusal
another parcel of land also located in Malinta Estate,
Valenzuela for 2,500 shares of stock of defendant corporation
with a total value of P1.5M. 29. CIR v. Toda, Jr.
GR No. 147188; 14 September 2004
On the ground that it was not given the first option to buy the
leased property pursuant to the proviso in the lease agreement, F A C T S: On 2 March 1989, CIC authorized Benigno P. Toda,
Jr., President and owner of 99.991% of its outstanding capital
respondent Hydro Pipes Philippines, Inc., filed an amended
stock, to sell the Cibeles Building. On 30 August 1989, Toda
complaint for reconveyance of the lot. purportedly sold the property for P100 million to Rafael A.
Altonaga, who, in turn, sold the same property on the same
Issue: WON the Deed of Exchange of the properties executed day to Royal Match Inc. (RMI) for P200 million. Three and a
by the Pachecos and the Delpher Trades Corporation on the half years later Toda died. On 29 March 1994, the BIR sent an
other was meant to be a contract of sale which, in effect, assessment notice and demand letter to the CIC for deficiency
prejudiced the Hydro Phil's right of first refusal over the leased income tax for the year 1989. On 27 January 1995, the Estate
property included in the "deed of exchange," of Benigno P. Toda, Jr., represented by special co-
administrators Lorna Kapunan and Mario Luza Bautista,
Held: No, by their ownership of the 2,500 no par shares of received a Notice of Assessment from the CIR for deficiency
stock, the Pachecos have control of the corporation. Their income tax for the year 1989. The Estate thereafter filed a
equity capital is 55% as against 45% of the other stockholders, letter of protest. The Commissioner dismissed the protest. On
who also belong to the same family group. In effect, the 15 February 1996, the Estate filed a petition for review with the
Delpher Trades Corporation is a business conduit of the CTA. In its decision the CTA held that the Commissioner failed
Pachecos. What they really did was to invest their properties to prove that CIC committed fraud to deprive the government
and change the nature of their ownership from unincorporated of the taxes due it. It ruled that even assuming that a pre-
to incorporated form by organizing Delpher Trades conceived scheme was adopted by CIC, the same constituted
Corporation to take control of their properties and at the same mere tax avoidance, and not tax evasion. Hence, the CTA
time save on inheritance taxes. declared that the Estate is not liable for deficiency of income
tax. The Commissioner filed a petition for review with the
The "Deed of Exchange" of property between the Pachecos and Court of Appeals. The Court of Appeals affirmed the decision
Delpher Trades Corporation cannot be considered a contract of of the CTA, hence, this recourse.
sale. There was no transfer of actual ownership interests by the
I S S U E: Whether or not this is a case of tax evasion or tax

H E L D: Tax evasion connotes the integration of three

factors: (1) the end to be achieved, i.e. the payment of less than
that known by the taxpayer to be legally due, or the non-
payment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being “evil,”
in “bad faith,” “willfull,” or “deliberate and not accidental”; and
(3) a course of action or failure of action which is unlawful. All
these factors are present in the instant case. The scheme
resorted to by CIC in making it appear that there were two
sales of the subject properties, i.e. from CIC to Altonaga, and
then from Altonaga to RMI cannot be considered a legitimate
tax planning. Such scheme is tainted with fraud. Altonaga’s
sole purpose of acquiring and transferring title of the subject
properties on the same day was to create a tax shelter. The sale
to him was merely a tax ploy, a sham, and without business
purpose and economic substance. Doubtless, the execution of
the two sales was calculated to mislead the BIR with the end in
view of reducing the consequent income tax liability.
30. CIR v. ESSO (Set-off) HELD: Yes, regardless of CIR’s assertions, the fact is
172 SCRA 369; April 18, 1989 that as early as July 15, 1960, the Government already
had in its hands the sum representing excess payment.
Facts: ESSO overpaid its 1959 income tax by P221, 033.00. It was Having been paid and received by mistake, that sum
accordingly granted a tax credit. However, ESSO’s payment of its unquestionably belonged to ESSO, and the
income tax for 1960 was found to be short byP367,994. So the Government had the obligation to return it to ESSO.
Commissioner demanded payment of the deficiency, with interest. The obligation to return money mistakenly paid arises
ESSO paid under protest, including the interest as reckoned by the from the moment that payment is made, and not from
Commissioner. ESSO’s contention: The interest was more than that the time that the payee admits the obligation to
properly reimburse. The obligation of the payee to reimburse
due. It should not have been required to pay interest on the total results from the mistake, not from the payee's
amount of the deficiency tax, P367,994.00, but only on the confession of the mistake or recognition of the
amount of P146,961.00—representing the difference between said obligation to reimburse. In other words, since the
deficiency and ESSOs earlier overpayment. ESSO thus asked for a amount of P221,033.00 belonging to ESSO was already
refund. in the hands of the Government as of July, 1960, it was
neither legally nor logically possible for ESSO
CIR’s contention: It denied the claim for refund. Income taxes are thereafter to be considered a debtor of the
determined and paid on an annual basis, such determination and Government; and whatever other obligation ESSO
payment are separate and independent transactions; and a tax credit might subsequently incur in favor of the Government
could not be considered until it has been finally approved and the would have to be reduced by that sum, in respect of
taxpayer notified. Since in this case, the tax credit was approved only which no interest could be charged.
on August 5, 1964, it could not be availed of in reduction of ESSOs
earlier tax deficiency for 1960; as of that year there was no tax credit Nothing is better settled than that courts are not to give
to speak of. In support of this, the Commissioner invokes the Section words a meaning which would lead to absurd or
51 of the Tax Code: (d) Interest on deficiency. — Interest upon the unreasonable consequences.” "Statutes should receive a
amount determined as deficiency shall be assessed at the same time as sensible construction, such as will give effect to the
the deficiency and shall be paid upon notice and demand from the legislative intention and so as to avoid an unjust or
Commissioner of Internal Revenue; and shall be collected as a part of absurd conclusion."
the tax. ESSO appealed to the Court of Tax Appeals, which in turn
ordered payment to ESSO of its "refund-claim. Hence, this appeal by
the Commissioner.
31. Domingo v. Garlitos
ISSUE: Was it proper to apply ESSO’s tax credit in reducing the total GR No. L-18993 29 June 1963
deficiency subject to interest?
F A C T S: In Domingo vs. Moscoso (106 PHIL 1138), the Supreme (3) Expense for security services for the months of April
Court declared as final and executory the order of the Court of First
and May 1986.
Instance of Leyte for the payment of estate and inheritance taxes,
charges and penalties amounting to P40,058.55 by the Estate of the
late Walter Scott Price. The petition for execution filed by the fiscal, As such, the former charged the latter for deficiency
however, was denied by the lower court. The Court held that the income taxes. Isabela Cultural Corporation contests the
execution is unjustified as the Government itself is indebted to the assessment.
Estate for 262,200; and ordered the amount of inheritance taxes be
deducted from the Government’s indebtedness to the Estate. Issue No. 1. For a taxpayer using the accrual method,
when do the facts present themselves in such a manner
I S S U E: Whether a tax and a debt may be compensated. that the taxpayer must recognize income or expense?

H E L D: The court having jurisdiction of the Estate had found that

Ruling: The accrual of income and expense is
the claim of the Estate against the Government has been recognized
and an amount of P262,200 has already been appropriated by a permitted when the all-events test has been met. This
corresponding law (RA 2700). Under the circumstances, both the test requires: (1) fixing of a right to income or liability to
claim of the Government for inheritance taxes and the claim of the pay; and (2) the availability of the reasonable accurate
intestate for services rendered have already become overdue and
determination of such income or liability. The test does
demandable as well as fully liquidated. Compensation, therefore, takes
place by operation of law, in accordance with Article 1279 and 1290 of not demand that the amount of income or liability be
the Civil Code, and both debts are extinguished to the concurrent known absolutely, only that a taxpayer has at his
amount. In other words, the estate and inheritance taxes are set off, by disposal the information necessary to compute the
virtue of the government’s indebtedness to the estate.
amount with reasonable accuracy. The all-events test is
32. COMMISSIONER OF INTERNAL REVENUE V. satisfied where computation remains uncertain, if its
ISABELA CULTURAL CORP. basis is unchangeable; the test is satisfied where a
(515 SCRA 556); February 12, 2007 computation may be unknown, but is not as much as
Topic: The all-events test; when deductions from income taxes
may be claimed unknowable, within the taxable year.

Facts: When the Bureau of Internal Revenue disallowed Isabela Issue No. 2. WON the deductions were properly
Cultural Corporation¶s claimed deductions for the years 1984-1986 in claimed by Isabela Cultural Corporation.
their 1986 taxes for expense deductions, to wit:
(1) Expenses for auditing services for the year ending 31December Ruling: The deductions for expenses for professional
fees consisting of expenses for legal and auditing
1985; services are NOT allowable. However, the deductions for
(2) Expenses for legal services for the years 1984 and 1985; and expenses for security services were properly claimed by

Isabela Cultural Corporation. For the legal and auditing services,
Isabela Cultural Corporation could have reasonably known the fees of
those firms that it hired, thus satisfying the ³all-events test.´ As such,
per Revenue Audit Memorandum Order No. 1-2000, they cannot
validly be deducted from its gross income for the said year and were
therefore properly disallowed by the BIR. As for the security services,
because they were incurred in 1986, they could be properly claimed as
deductions for the said year.

Notes The requisites for the deductibility of ordinary and necessary

trade, business, or professional expenses, like expenses paid for legal
and auditing services, are:

a. The expense must be ordinary and necessary;

b. It must have been paid or incurred during the taxable year;
c. It must have been paid or incurred in carrying on the trade or
business of the taxpayer; and
d. It must be supported by receipts, records, or other pertinent papers.

Revenue Audit Memorandum Order No. 1-2000, provides that under

the accrual method of accounting, expenses not being claimed as
deductions by a taxpayer in the current year when they are incurred
cannot be claimed as deduction from income for the succeeding year.
Thus, a taxpayer who is authorized to deduct certain expenses and
other allowable deductions for the current year but failed to do so
cannot deduct the same for the next year.

The propriety of an accrual must be judged by the facts that a taxpayer

knew, or could reasonably be expected to have known, at the closing of
its books for the taxable year. Accrual method of accounting presents
largely a question of fact; such that the taxpayer bears the burden of
proof of establishing the accrual of an item of income or deduction.