Pascual v. Sec. of Public Works Congress passed an RA appropriating P85K for the construction of Pasig feeder road terminals.

The Provincial Governor of Rizal filed an action for declaratory relief and injunction, claiming that at the time of the passage and approval of the Act, these feeder roads had not yet been constructed and were not connected to any government property or main highway. The feeder roads were actually within the Antonio Subdivision, which was owned by Jose Zulueta, a member of the Senate of the Philippines. Zulueta, before the passage of the Act, had offered to donate the property to the municipality of Pasig, but the deed of donation was executed only several months after the RA was passed. Hence, Congress appropriated public funds for the construction of feeder roads that were, at the time the law was passed, private property. ISSUE: Whether the appropriation is valid. HELD: The appropriation is invalid. The taxing power must be exercised for public purposes only and not for the advantage of private individuals. The right of the legislature to appropriate public funds is correlative with its right to tax. As the Constitution prohibits taxation except for a public purpose, so also no appropriation of state funds can be made other than for a public purpose. The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interests as opposed to the furtherance of the advantage of individuals, although such advantage to individuals might incidentally serve the public. Even if subsequently, Zulueta executed the deed of donation in favor of the municipality, making the roads public property, the appropriation is still invalid. The validity of the statute depends upon the powers of Congress at the time of its passage, not upon events occurring after. At the time the bill was passed, the road was still private property. Therefore, the appropriation sought a private purpose and was null and void. The subsequent donation could not have cured this nullity.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-75697 June 18, 1987 VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner, vs. VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY MAYOR and CITY TREASURER OF MANILA, respondents. Nelson Y. Ng for petitioner. The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.: This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette. On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No. 1994 amended the National Internal Revenue Code providing, inter alia: SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported blank video tapes shall be subject to sales tax. On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over petitioner's opposition, upon the allegations that intervention was necessary for the complete protection of their rights and that their "survival and very existence is threatened by the unregulated proliferation of film piracy." The Intervenors were thereafter allowed to file their Comment in Intervention. The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows: 1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others, videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government revenues; 2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the Government of approximately P180 Million in taxes each year; 3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the movie industry, particularly the more than 1,200 movie houses and theaters throughout the country, and occasioned industry-wide displacement and unemployment due to the shutdown of numerous moviehouses and theaters; 4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create an environment conducive to growth and development of all business industries, including the movie industry which has an accumulated investment of about P3 Billion; 5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire financial condition of the movie industry upon which more than 75,000 families and 500,000 workers depend for their livelihood, but also provide an additional source of revenue for the Government, and at the same time rationalize the heretofore uncontrolled distribution of videograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the Constitution for the State to support the rearing of the youth for civic efficiency and the development of moral character and promote their physical, intellectual, and social well-being; 7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant malpractices which have flaunted our censorship and copyright laws; 8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and betraying the national economic recovery program, bold emergency measures must be adopted with dispatch; ... (Numbering of paragraphs supplied). Petitioner's attack on the constitutionality of the DECREE rests on the following grounds: 1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government is a RIDER and the same is not germane to the subject matter thereof; 2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due process clause of the Constitution; 3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon him by Amendment No. 6; 4. There is undue delegation of power and authority; 5. The Decree is an ex-post facto law; and 6. There is over regulation of the video industry as if it were a nuisance, which it is not. We shall consider the foregoing objections in seriatim. 1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose which a statute seeks to achieve. It is not necessary that the title express each and every end that the statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to the subject matter expressed in the title, or as long as they are not inconsistent with or foreign to the general subject and title. 2 An act having a single general subject, indicated in the title, may contain any number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and may be considered in furtherance of such subject by providing for the method and means of carrying out the general object." 3 The rule also is that the constitutional requirement as to the title of a bill should not be so narrowly construed as to cripple or impede the power of legislation. 4 It should be given practical rather than technical construction. 5 Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is without merit. That section reads, inter alia: Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the other fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila Commission. xxx xxx xxx The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and title. As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout the DECREE. The express purpose of the DECREE to include taxation of the video industry in order to regulate and rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles explain the motives of the lawmaker in presenting the measure. The title of the DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or that the latter be an index to the body of the DECREE. 7 2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization that earnings of videogram establishments of around P600 million per annum have not been subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers for every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators. The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition. The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another. 11 It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation". 12 Taxation has been made the implement of the state's police power. 13 At bottom, the rate of tax is a matter better addressed to the taxing legislature. 3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that in his judgment requires immediate action, he may, in order to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which shall form part of the law of the land." In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently summarizes the justification in that grave emergencies corroding the moral values of the people and betraying the national economic recovery program necessitated bold emergency measures to be adopted with dispatch. Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the exercise of legislative power under the said Amendment still pends resolution in several other cases, we reserve resolution of the question raised at the proper time. 4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other agencies and units of the government and deputize, for a fixed and limited period, the heads or personnel of such agencies and units to perform enforcement functions for the Board" is not a delegation of the power to legislate but merely a conferment of authority or discretion as to its execution, enforcement, and implementation. "The true distinction is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very language of the decree, the authority of the BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencies concerned being "subject to the direction and control of the BOARD." That the grant of such authority might be the source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in law. 5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law required at the time of the commission of the offense." It is petitioner's position that Section 15 of the DECREE in providing that: All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the videogram business and to register with the BOARD all their inventories of videograms, including videotapes, discs, cassettes or other technical improvements or variations thereof, before they could be sold, leased, or otherwise disposed of. Thereafter any videogram found in the possession of any person engaged in the videogram business without the required proof of registration by the BOARD, shall be prima facie evidence of violation of the Decree, whether the possession of such videogram be for private showing and/or public exhibition. raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration of any videogram cannot be presented and thus partakes of the nature of an ex post facto law. The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15 ... it is now well settled that "there is no constitutional objection to the passage of a law providing that the presumption of innocence may be overcome by a contrary presumption founded upon the experience of human conduct, and enacting what evidence shall be sufficient to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have been proved that they shall be prima facie evidence of the existence of the guilt of the accused and shift the burden of proof provided there be a rational connection between the facts proved and the ultimate facts presumed so that the inference of the one from proof of the others is not unreasonable and arbitrary because of lack of connection between the two in common experience". 16

Applied to the challenged provision, there is no question that there is a rational connection between the fact proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides the fact that the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period counted from its effectivity and is, therefore, neither retrospective in character. 6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent. While the underlying objective of the DECREE is to protect the moribund movie industry, there is no question that public welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought about by the availability of unclassified and unreviewed video tapes containing pornographic films and films with brutally violent sequences; and losses in government revenues due to the drop in theatrical attendance, not to mention the fact that the activities of video establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees are required to engage in business. 17 The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On the contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax imposed. In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREE. These considerations, however, are primarily and exclusively a matter of legislative concern. Only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a statute invalid. This is as it ought to be. The principle of separation of powers has in the main wisely allocated the respective authority of each department and confined its jurisdiction to such a sphere. There would then be intrusion not allowable under the Constitution if on a matter left to the discretion of a coordinate branch, the judiciary would substitute its own. If there be adherence to the rule of law, as there ought to be, the last offender should be courts of justice, to which rightly litigants submit their controversy precisely to maintain unimpaired the supremacy of legal norms and prescriptions. The attack on the validity of the challenged provision likewise insofar as there may be objections, even if valid and cogent on its wisdom cannot be sustained. 18 In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as unconstitutional and void. WHEREFORE, the instant Petition is hereby dismissed. No costs. SO ORDERED.

G.R. No. 84818

December 18, 1989

and television standard conversion from European to American or vice versa.

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner, vs. JOSE LUIS A. ALCUAZ, as NTC Commissioner, and NTC, respondents. DOCTRINE: Fundamental is the rule that delegation of legislative power may be sustained only upon the ground that some standard for its exercise is provided and that the legislature in making the delegation has prescribed the manner of the exercise of the delegated power. In case of a delegation of rate-fixing power, the only standard which the legislature is required to prescribe for the guidance of the administrative authority is that the rate be reasonable and just. However, it has been held that even in the absence of an express requirement as to reasonableness, this standard may be implied. As a general rule, notice and hearing are not essential to the validity of administrative action where the administrative body acts in the exercise of executive, administrative, or legislative functions; but where a public administrative body acts in a judicial or quasi-judicial matter, and its acts are particular and immediate rather than general and prospective, the person whose rights or property may be affected by the action is entitled to notice and hearing. (Albert vs. Public Service Commission). The rule is that the power of the State to regulate the conduct and business of public utilities is limited by the consideration that it is not the owner of the property of the utility, or clothed with the general power of management incident to ownership, since the private right of ownership to such property remains and is not to be destroyed by the regulatory power. The power to regulate is not the power to destroy useful and harmless enterprises, but is the power to protect, foster, promote, preserve, and control with due regard for the interest, first and foremost, of the public, then of the utility and of its patrons. Any regulation, therefore, which operates as an effective confiscation of private property or constitutes an arbitrary or unreasonable infringement of property rights is void, because it is repugnant to the constitutional guaranties of due process and equal protection of the laws. (73 C.J.S 1005) Hence, the inherent power and authority of the State, or its authorized agent, to regulate the rates charged by public utilities should be subject always to the requirement that the rates so fixed shall be reasonable and just. A commission has no power to fix rates which are unreasonable or to regulate them arbitrarily. This basic requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or too high as to be oppressive. FACTS: REGALADO, J.:

Petitioner was initially exempted from the jurisdiction of NTC, but pursuant to EO 196 (June 17, 1987), petitioner was placed under the jurisdiction, control and regulation of respondent NTC. Respondent NTC now required petitioner to apply for the requisite certificate of public convenience and necessity covering its facilities and the services it renders, as well as the corresponding authority to charge rates. After twice extending the provisional authority to continue operating its existing facilities (September 16, 1987; September 16, 1988), to render the services it was then offering, and to charge the rates it was then charging. The 3rd provisional authority granted by NTC directed the petitioner to charge modified reduced rates through a reduction of fifteen percent (15%) on the present authorized rates. PHILCOMSAT assails this order as undue delegation of legislative power, particularly the adjudicatory powers of NTC. The exercise of which requires an express conferment by the legislative body. That if constitutional, the same was ultra vires because (a) the questioned order violates procedural due process for having been issued without prior notice and hearing; and (b) the rate reduction it imposes is unjust, unreasonable and confiscatory, thus constitutive of a violation of substantive due process.

ISSUES:

1. Is the order mandating a reduction of certain rates undue

delegation of quasi-judicial power to respondent NTC? NO.

2. Was there a violation of procedural due process? YES. 3. Was there a violation of substantive due process? YES.
HELD: When respondent NTC establishes a rate, its act must both be non- confiscatory and must have been established in the manner prescribed by the legislature; otherwise, in the absence of a fixed standard, the delegation of power becomes unconstitutional.

Pursuant to EO 546 and 196, NTC is empowered to determine and prescribe rates pertinent to the operation of public service communications which necessarily include the power to promulgate rules and regulations in connection therewith. Respondent NTC, in the exercise of its rate-fixing power, is limited by the requirements of public safety, public interest, reasonable feasibility and reasonable rates, which conjointly more than satisfy the requirements of a valid delegation of legislative power is provided for by EO 546.

RA 5514 granted PHILCOMSAT a franchise to establish, construct, maintain and operate equipment and facilities for international satellite communications. As well as authority to construct and operate facilities needed to deliver telecommunications services from the communications satellite system and ground terminals. By designation, petitioner is also the sole signatory for the Philippines in INTELSAT and INMARSAT, 2 global commercial telecommunications satellite corporations collectively established by various states in line with the principles set forth by the UN. The satellite services provided by petitioner enable said international carriers to serve the public with indispensable communication services, such as overseas telephone, telex, facsimile, telegrams, high speed data, live television in full color,

RE PROCEDURAL DUE PROCESS: Petitioner argues that the function involved in the rate fixing-power of NTC is adjudicatory and hence quasi-judicial, not quasi- legislative; thus, notice and hearing are necessary and the absence thereof results in a violation of due process.

The order in question which was issued by respondent Alcuaz contains all the attributes of a quasi-judicial adjudication. The order pertains exclusively to petitioner and to no other. Further, it is premised on a finding of fact that there is merit in a reduction

of some of the rates charged without affording petitioner the benefit of an explanation as to what particular aspect or aspects of the financial statements warranted a corresponding rate reduction. SC believes that an immediate reduction in the rates would adversely affect petitioners operations and the quality of its service to the public considering the maintenance requirements, the projects it still has to undertake and the financial outlay involved. Notably, petitioner was not even afforded the opportunity to cross-examine the inspector who issued the report on which respondent NTC based its questioned order. NTC categorically admitted that the questioned order was issued pursuant to its quasi-judicial functions but insists that notice and hearing are not necessary since the assailed order is merely incidental to the entire proceedings, therefore, temporary in nature. This postulate is bereft of merit. While respondents may fix a temporary rate pending final determination of the application of petitioner, such rate-fixing order, temporary though it may be, is not exempt from the statutory procedural requirements of notice and hearing, as well as the requirement of reasonableness. Assuming that such power is vested in NTC, it may not exercise the same in an arbitrary and confiscatory manner. Categorizing such an order as temporary in nature does not perforce entail the applicability of a different rule of statutory procedure than would otherwise be applied to any other order on the same matter unless otherwise provided by the applicable law. The applicable statutory provision is Section 16(c) of the Public Service Act (c) To fix and determine individual or joint rates, ... which shall be imposed, observed and followed thereafter by any public service; ...

RE SUSBTANTIVE DUE PROCESS: Petitioner contends that the rate reduction is confiscatory in that its implementation would virtually result in a cessation of its operations and eventual closure of business. NTC perfunctorily declared that based on the financial statements, there is merit for a rate reduction without any elucidation on what implications and conclusions were necessarily inferred by it from said statements. Nor did it deign to explain how the data reflected in the financial statements influenced its decision to impose a rate reduction. On the other hand, petitioner may likely suffer a severe drawback, with the consequent detriment to the public service, should the order of respondent NTC turn out to be unreasonable and improvident. Consequently SC holds that the challenged order, particularly on the issue of rates provided therein, being violative of the due process clause is void and should be nullified. WHEREFORE, the writ prayed for is GRANTED and the order of respondents is hereby SET ASIDE.

GUTIERREZ, JR., J., concurring: Senators and Congressmen are directly elected by the people. Administrative officials are not. If the members of an administrative body are, as is so often the case, appointed not on the basis of competence and qualifications but out of political or personal considerations, it is not only the sense of personal responsibility to the electorate affected by legislation which is missing. The expertise and experience needed for the issuance of sound rules and regulations would also be sorely lacking. I believe that in the exercise of quasi-legislative powers, administrative agencies, much, much more than Congress, should hold hearings and should be given guidelines as to when notices and hearings are essential even in quasi-legislation.

An order of respondent NTC prescribing reduced rates, even for a temporary period, could be unjust, unreasonable or even confiscatory, especially if the rates are unreasonably low, since the utility permanently loses its just revenue during the prescribed period. In fact, such order is in effect final insofar as the revenue during the period covered by the order is concerned.

MANILA GAS CORPORATION, plaintiff-appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, defendantappellee. G.R. No. L-42780 January 17, 1936

ISSUES:

1) W/N the State can tax the Dividends though they were to be
paid to foreign corporations (SC: YES. See SITUS)

2) W/N the Dividends were taxable (SC: YES. See Doctrine

re: Dividends) HELD: ISSUE I: The approved doctrine is that no state may tax anything not within its jurisdiction without violating the due process clause of the constitution. The taxing power of a state does not extend beyond its territorial limits, but within such it may tax persons, property, income, or business. If an interest in property is taxed, the situs of either the property or interest must be found within the state. If an income is taxed, the recipient thereof must have a domicile within the state or the property or business out of which the income issues must be situated within the state so that the income may be said to have a situs therein. ISSUE II: The Manila Gas Corporation operates its business entirely within the Philippines. Its earnings, therefore come from local sources. The place of material delivery of the interest to the foreign corporations paid out of the revenue of the domestic corporation is of no particular moment. The place of payment even if conceded to be outside of the country cannot alter the fact that the income was derived from the Philippines. The word "source" conveys only one idea, that of origin, and the origin of the income was the Philippines. Therefore, the Collector of Internal Revenue was justified in withholding income taxes on interest on bonds and other indebtedness paid to non-resident corporations because this income was received from sources within the Philippine Islands as authorized by the Income Tax Law. (SIDE COMMENT NUNG PONENTE NA PARANG EWAN) Before concluding, it is but fair to state that the writer's opinion on the first subject and the first assigned error herein discussed is accurately set forth, but that his opinion on the second subject and the second assigned error is not accurately reflected, because on this last division his views coincide with those of the appellant. However, in the interest of the prompt disposition of this case, the decision has been written up in accordance with instructions received from the court. Judgment affirmed, with the cost of this instance assessed against the appellant.

Trial Court for CIR, Affirmed by SC Doctrine: RE: DIVIDENDS: Dividends of a domestic corporation which are paid and delivered in cash to foreign corporations as stockholders are subject to the payment of the income tax notwithstanding the exemption clause in the charter of the corporation. RE: SITUS: If an interest in property is taxed, the situs of either the property or interest must be found within the state. If an income is taxed, the recipient thereof must have a domicile within the state or the property or business out of which the income issues must be situated within the state so that the income may be said to have a situs therein. Facts: Manila Gas is a corporation organized under Philippine Laws. It operates a gas plant in Manila and furnishes gas service to the people of Manila and its surrounding areas via a franchise granted by the Philippine Government. Manila gas is associated with Islands Gas (from New York) and General Finance (from Zurich, Switzerland). Both of which are not Philippine residents. The terms of franchise of Manila Gas included an exemption clause which states: The grantee shall annually on the fifth day of January of each year pay to the City of Manila and the municipalities in the Province of Rizal in which gas is sold, two and one half per centum of the gross receipts within said city and municipalities, respectively, during the preceding year. Said payment shall be in lieu of all taxes, Insular, provincial and municipal, except taxes on the real estate, buildings, plant, machinery, and other personal property belonging to the grantee For 1930-32, Manila Gas paid dividends to their foreign partners (the partners were stockholders of MG). These dividends had income taxes withheld by the Philippine Government. Pursuant to the above stated exemption clause, MG filed a case with the TC of Manila against the CIR to recover P56,757.37 (the amount withheld). The TC dismissed the complaint and pronounced that the dividends were taxable. Not satisfied, MG filed the present appeal.

G.R. No. 153793 August 29, 2006 COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. JULIANE BAIER-NICKEL, as represented by Marina Q. Guzman (Attorney-in-fact) Respondent. FACTS: Respondent Juliane Baier-Nickel, a non-resident German citizen, is the President of JUBANITEX, Inc., a domestic corporation engaged in [m]anufacturing, marketing on wholesale only, buying or otherwise acquiring, holding, importing and exporting, selling and disposing embroidered textile products. Through JUBANITEXs General Manager, Marina Q. Guzman, the corporation appointed and engaged the services of respondent as commission agent. It was agreed that respondent will receive 10% sales commission on all sales actually concluded and collected through her efforts. In 1995, respondent received the amount of P1,707,772.64, representing her sales commission income from which JUBANITEX withheld the corresponding 10% withholding tax amounting to P170,777.26, and remitted the same to the Bureau of Internal Revenue (BIR). On October 17, 1997, respondent filed her 1995 income tax return reporting a taxable income of P1,707,772.64 and a tax due of P170,777.26. Respondent filed a claim to refund the amount of P170,777.26 alleged to have been mistakenly withheld and remitted by JUBANITEX to the BIR. Respondent contended that her sales commission income is not taxable in the Philippines because the same was a compensation for her services rendered in Germany and therefore considered as income from sources outside the Philippines. The CTA rendered a decision denying her claim. It held that the commissions received by respondent were actually her remuneration in the performance of her duties as President of JUBANITEX and not as a mere sales agent thereof. The income derived by respondent is therefore an income taxable in the Philippines because JUBANITEX is a domestic corporation. On petition with the Court of Appeals, the latter reversed the Decision of the CTA, holding that respondent received the commissions as sales agent of JUBANITEX and not as President thereof. And since the source of income means the activity or service that produce the income, the sales commission received by respondent is not taxable in the Philippines because it arose from the marketing activities performed by respondent in Germany. Petitioner maintains that the income earned by respondent is taxable in the Philippines because the source thereof is JUBANITEX, a domestic corporation located in the City of Makati. It further argued that since respondent is the President of JUBANITEX, any remuneration she received from said corporation should be construed as payment of her overall managerial services to the company and should not be interpreted as a compensation for a distinct and separate service as a sales commission agent. Respondent, on the other hand, claims that the income she received was payment for her marketing services. She contended that income of nonresident aliens like her is subject to tax only if the source of the income is within the Philippines. Source, according to respondent is the situs of the activity which produced the income. And since the source of her income were her marketing activities in Germany, the income she derived from said activities is not subject to Philippine income taxation. ISSUE: Whether respondents sales commission income is taxable in the Philippines. HELD: Yes. Section 25 of the NIRC provides that non-resident aliens, whether or not engaged in trade or business, are subject to Philippine income taxation on their income received from all sources within the Philippines. Thus, the keyword in determining the taxability of non-resident aliens is the incomes source. Source of income relates to the property, activity or service that produced the income. With respect to rendition of labor or personal service, as in the instant case, it is the place where the labor or service was performed that determines the source of the income. There is therefore no merit in petitioners interpretation which equates source of income in labor or personal service with the residence of the payor or the place of payment of the income. The decisive factual consideration here is not the capacity in which respondent received the income, but the sufficiency of evidence to prove that the services she rendered were performed in Germany. The settled rule is that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the taxpayer. The faxed documents presented by respondent did not constitute substantial evidence, or that relevant evidence that a reasonable mind might accept as adequate to support the conclusion that it was in Germany where she performed the income producing service which gave rise to the reported monthly sales in the months of March and May to September of 1995. She thus failed to discharge the burden of proving that her income was from sources outside the Philippines and exempt from the application of our income tax law. Petition GRANTED.

CIR v. Marubeni Corporation Marubeni was a Japanese corporation engaged in the import and export, trading, and construction business. It completed two contracts in 1984, the income from which it did not declare. One of the contracts was with NDC in connection with the construction of a wharf/port complex in Leyte. The other contract was with the Philippine Phosphate Fertilizer Corp (Philfos) for the construction of an ammonia storage complex also in Leyte. The CIR then made an assessment on Marubeni's deficiency taxes. It found that the NDC and Philpos contracts were made on a turn-key basis (a job in which the contractor agrees to complete the work of building and installation to the point of readiness or occupancy; in other words, the products are brought to the client complete and ready for use) amounting to about P960M+. The two contracts were divided into two parts the offshore portion and the onshore portion. All materials and equipment in the contract under the offshore portion were manufactured and completed in Japan. After manufacture, these were transported to Leyte and installed to the pier with the use of bolts. CIR found that Marubeni was liable for contractor's tax on the offshore portion. Marubeni filed a petition with the CTA, arguing that the income derived from the offshore portion should be exempt from tax since it was derived outside of the Philippine jurisdiction. I: W/N income of Marubeni is taxable even if it claims that it was earned outside of the Philippines. NO, Marubeni is NOT liable for the contractors tax. R: A contractors tax is in the nature of an excise tax on the exercise of a privilege of selling services or labor rather than a sale of products. It is directly collectible from the person exercising the privilege. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or business are done or performed within the jurisdiction of said authority. Like property taxes, it cannot be imposed on an occupation or privilege outside the taxing district.

In this case, the ship loaders, boats and mobile equipment used in the construction projects were all designed, engineered and fabricated in Japan. They were merely shipped to Leyte and assembled there. While the construction and installation work were completed within the Philippines, some pieces of equipment and supplies were completely designed and engineered in Japan. Since these services were rendered outside the taxing jurisdiction of the Philippines, they are therefore not subject to the contractors tax.

G.R. No. L-46720

June 28, 1940

WELLS FARGO BANK & UNION TRUST COMPANY, Petitioner-Appellant, vs. CIR, Respondent-Appellee. DOCTRINE: Section 1536 of the Administrative Code, as amended, provides that every transmission by virtue of inheritance of any share issued by any corporation of sociedad anonima organized or constituted in the Philippines, is subject to the tax therein provided. The maxim MOBILIA SEQUUNTUR PERSONAM, upon which the rule that intangibles have only one situs for the purpose of inheritance tax, and that such situs is in the domicile of the decedent at the time of his death, has been described as a mere fiction of law having its origin in consideration of general convenience and public policy, and cannot be applied to limit or control the right of the state to tax property within its jurisdiction and must yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so result in inescapable and patent injustice. FACTS: MORAN, J.:

It is contended that as to intangibles, like the shares of stock in question, their situs is in the domicile of the owner, transmission by death necessarily takes place under his domiciliary laws.

ISSUE: May the CIR imposed an inheritance tax on the shares of stock of a decedent who is domiciled in California? YES. HELD:

The question involved is essentially not one of due-process, but of the power of the Philippine Government to tax. If that power be conceded, the guaranty of due process cannot certainly be invoked to frustrate it, unless the law involved is challenged on considerations repugnant to such guaranty of due process or that of the equal protection of the laws: as when the law is alleged to be arbitrary, oppressive or discriminatory. The relaxation of the original rule rests on either of two fundamental considerations:

Birdie Lillian Eye died (1932) in LA, California, her alleged last residence and domicile. She left her one-half conjugal share in 70,000 shares of stock in the Benguet Consolidated Mining Company, an anonymous partnership (sociedad anonima), organized under the laws of the Philippines. She left a will which was admitted to probate in California where her estate was administered and settled. Petitioner-appellant, Wells Fargo Bank & Union Trust Company, was appointed trustee by the said will. The Federal and State of California's inheritance taxes due on said shares have been duly paid. Respondent CIR sought to subject anew the aforesaid shares of stock to the Philippine inheritance tax. Petitioner-appellant objected. Wherefore, a petition for a declaratory judgment was filed in the lower court. CFI-Manila held that the transmission by will of the said 35,000 shares of stock is subject to Philippine inheritance tax. Hence, this appeal by the petitioner. Petitioner concedes:(1) Philippine inheritance tax is not a tax property, but upon transmission by inheritance, and (2) that as to real and tangible personal property of a non-resident decedent, located in the Philippines, the Philippine inheritance tax may be imposed upon their transmission by death, for the self-evident reason that, being a property situated in this country, its transfer is upon Philippine laws.

(1) upon the recognition of the inherent power of each government to tax persons, properties and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto.

In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. And besides, the certificates of stock have remained in this country up to the time when the deceased died in California, and they were in possession of the secretary of the Benguet Consolidated, to whom they have been delivered and indorsed in blank. This indorsement gave the secretary the right to vote the certificates at the general meetings of the stockholders, to collect dividends, and dispose of the shares in the manner she may deem fit, without prejudice to her liability to the owner for violation of instructions. For all practical purposes, the secretary had the legal title to the certificates of stock held in trust for the true owner thereof. The owner residing in California has extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld. Judgment is AFFIRMED.

GR No. L-23794 February 17, 1968 ORMOC SUGAR COMPANY, INC., Plaintiff-Appellant, vs. THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC CITY, HON. ESTEBAN C. CONEJOS as Mayor of Ormoc City and ORMOC CITY, Defendants-Appellees. FACTS: In 1964, Ormoc City passed a bill which read: There shall be paid to the City Treasurer on any and all productions of centrifugal sugar milled at the Ormoc Sugar Company Incorporated, in Ormoc City a municipal tax equivalent to one per centum (1%) per export sale to the United States of America and other foreign countries. Though referred to as a production tax, the imposition actually amounts to a tax on the export of centrifugal sugar produced at Ormoc Sugar Company, Inc. For production of sugar alone is not taxable; the only time the tax applies is when the sugar produced is exported. Ormoc Sugar paid the tax (P7,087.50) in protest averring that the same is violative of Sec 2287 of the Revised Administrative Code which provides: It shall not be in the power of the municipal council to impose a tax in any form whatever, upon goods and merchandise carried into the municipality, or out of the same, and any attempt to impose an import or export tax upon such goods in the guise of an unreasonable charge for wharfage, use of bridges or otherwise, shall be void. And that the ordinance is violative to equal protection as it singled out Ormoc Sugar As being liable for such tax impost for no other sugar mill is found in the city. ISSUE: Whether there has been a violation of equal protection. HELD: The SC held in favor of Ormoc Sugar. The SC noted that even if Sec 2287 of the RAC had already been repealed by a latter statute (Sec 2 RA 2264) which effectively authorized LGUs to tax goods and merchandise carried in and out of their turf, the act of Ormoc City is still violative of equal protection. The ordinance is discriminatory for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none other. At the time of the taxing ordinances enactment, Ormoc Sugar Company, Inc., it is true, was the only sugar central in the city of Ormoc. Still, the classification, to be reasonable, should be in terms applicable to future conditions as well. Yes. Equal protection clause applies only to persons or things identically situated and does not bar a reasonable classification of the subject of legislation, and a classification is reasonable where 1) it is based upon substantial distinctions; 2) these are germane to thepurpose of the law; 3) the classification applies not only to present conditions, but also to future conditions substantially identical to those present; and 4) the classification applies only to those who belong to the same class. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff, from the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to Ormoc Sugar Company, Inc. as the entity to be levied upon

Tiu v. CA: Equal Protection of the Laws Congress passed RA 7227 which created the Subic Special Economic Zone, granting tax and duty incentives (tax and duty-free importations of raw materials, capital and equipment) to businesses and residents within the area encompassed by the zone. The law provides that no local and national taxes shall be imposed within the zone. In lieu of taxes, 3% of the gross income of enterprises operating within the zone shall be remitted to the National Government, 1% to the local government units, and 1% to a development fund to be utilized for the development of municipalities outside Olangapo and Subic. Pres. Ramos later issued an EO specifying a secured area area within the zone in which the privileges were operative. o EO97 tax and duty-free importations will only apply to raw materials, capital goods and equipment brought in by business enterprises into the SSEZ. Except for import tax and duties, all business are required to pay the specified taxes in Section 12(c) of RA7227. o EO97-A the tax incentives are only applicable to business enterprises and individuals residing within the secured area. Petitioners outside the secured area challenged the constitutionality of this EO for allegedly being violative of their right to equal protection of the laws. They assert that the SSEZ encompasses (1) the City of Olongapo, (2) the Municipality of Subic in Zambales, and (3) the area formerly occupied by the Subic Naval Base. However, EO 97-A, according to them, narrowed down the area within which the special privileges granted to the entire zone would apply to the present fenced-in former Subic Naval Base only. It has hereby excluded the residents of the first two components of the zone from enjoying the benefits granted by the law. I: W/N the EO confining the application of the privileges under RA 7227 within the secured area and excluding the residents of the zone outside the secured area violates the equal protection clause. NO. R: There are real and substantive distinctions between the circumstances obtaining inside and outside the Subic Naval base, thereby justifying avalid and reasonable classification. For a valid classification, the following requisites must be present: 1. it must rest on substantial differences; 2. must be germane to the purpose of the law; 3. must not be limited to existing conditions only; and 4. must apply equally to all members of the same class. In this case, the purpose of the law is to accelerate the conversion of military reservations into productive areas (economic or industrial areas) . Thus, the lands covered under the Military Bases Agreement are its object. To achieve purpose, Congress deemed it necessary to extend economic incentives to attract and encourage investors. It was thus reasonable for the President to have delimited the application of some incentives to the confines of the former Subic military base, since it is this specific area which the government intends to transform and develop into a self-sustaining industrial and economic zone, particularly for the use of big foreign and local investors to use as operational bases for their businesses and industries. These big investors possess the capital necessary to spur economic growth and generate employment opportunities. There are substantial differences between the big investors who are being lured to establish and operate their industries in the so-called secured area and the present business operators outside the area.

Big investors lured into secured areas -billion-peso investments & thousand of new jobs -national economic impact -

Present biz operators outside the are -no such magnitude -only local economic impact -biz activities outside secured areas are not likely to have any impact in achieving purpose of law which is to turn former military base to productive use for the benefit of the Phil economy

There is, then, hardly any reasonable basis to extend to them the benefits and incentives accorded in RA 7227

CITY OF BAGUIO, plaintiff-appellee, vs. FORTUNATO DE LEON, defendant-appellant. G.R. No. L-24756 October 31, 1968 DOCTRINE: Equality and uniformity in taxation means that all taxable articles or kind or property of the same class shall be taxed at the same rate. A tax in considered uniform when it operates with the same force and effect in every place where the subject may be found. Where the statute or ordinance in question applies equally to all persons, firms and corporations placed in a similar situation, there is no infringement of the rule on equality. Inequalities which result from a singling out of one particular class for taxation or exemption, infringe no constitutional limitation. Facts: De Leon is a real estate dealer in Baguio and was "engaged in the rental of his property in Baguio" deriving income therefrom. Empowered by the amendment (by the Congress via RA329) to its charter which allowed it to fix the license fee and regulate "businesses, trades and occupations as may be established or practiced in the City," Baguio issued Ordinance No. 218 wherein it imposed an annual license fee of P50 for his business. Despite such an ordinance and several demands from the City Govt, de Leon failed to pay the license fees. Hence, the City of Baguio filed a case against him to compel him to pay the amount of P300 as license fee covering the period from the first quarter of 1958 to the fourth quarter of 1962. De Leon did not agree with the ordinance and said that such was unconstitutional because allows double taxation. As such, it was violative of his right to due process. The City court of Baguio upheld the validity of the ordinance and held de Leon liable for the license fees. Unsatisfied, de Leon filed the current appeal. ISSUES: W/N the Ordinance was valid (SC: YES) W/N it the Ordinance favored double taxation and inequality (SC: NO) HELD: ISSUE I: on July 15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding to its power to license the power to tax and to regulate. And it is precisely having in view this amendment that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the amendment above adverted to empowers the city council not only to impose a license fee but also to levy a tax for purposes of revenue, more so when in amending section 2553 (b), the phrase 'as provided by law' has been removed by

section 2 of Republic Act No. 329. The city council of Baguio, therefore, has now the power to tax, to license and to regulate provided that the subjects affected be one of those included in the charter. In this sense, the ordinance under consideration cannot be considered ultra vires whether its purpose be to levy a tax or impose a license fee. The terminology used is of no consequence." It would be an undue and unwarranted emasculation of the above power thus granted if defendant-appellant were to be sustained in his contention that no such statutory authority for the enactment of the challenged ordinance could be discerned from the language used in the amendatory act. That is about all that needs to be said in upholding the lower court, considering that the City of Baguio was not devoid of authority in enacting this particular ordinance. ISSUE II: Justice Holmes made clear in this language: "The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the due process clause] no more forbids double taxation than it does doubling the amount of a tax, short of confiscation or proceedings unconstitutional on other grounds." With that decision rendered at a time when American sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered the coup de grace to the bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as with us, its ghost as noted by an eminent critic, still stalks the juridical state. In a 1947 decision, however, we quoted with approval this excerpt from a leading American decision: "Where, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results." At any rate, it has been expressly affirmed by us that such an "argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city ..., it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof." The above would clearly indicate how lacking in merit is this argument based on double taxation. Now, as to the claim that there was a violation of the rule of uniformity established by the constitution. According to the challenged ordinance, a real estate dealer who leases property worth P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not over P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face, therefore, the above ordinance cannot be assailed as violative of the constitutional requirement of uniformity. In Philippine Trust Company v. Yatco, Justice Laurel, speaking for the Court, stated: "A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found." WHEREFORE, the lower court decision is hereby affirmed. Costs against defendant-appellant.

Eastern Theatrical Co. Inc v. Alfonso: Equality and Uniformity The City of Manila enacted an ordinance imposing a fee on the price of every admission ticket sold by cinematographers, theatres, vaudeville companies and boxing exhibitions. These fees shall be delivered by the operator 2 days after the performance. Otherwise, a violation should result to imprisonment and fine. Thus, 12 corporations engaged in motion picture business filed a complaint assailing the said ordinance for violating the principle of equality and uniformity of taxation because it did NOT tax other places of amusement, such as racetracks, cabarets, circuses, etc. I: W/n the ordinance violates the rule on equality and uniformity of taxation. R: Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate.

The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. Thus, the fact that some places of amusement are taxed while others like theatres and cinematographs are not does not violate uniformity and equality in taxation. Petitioners argued that the Revised Administrative Code confers upon the City of Manila the power to impose a tax on business but NOT on amusement and, consequently, the ordinance was beyond the City's power to enact. HOWEVER, the assumption is based on an arbitrary labeling of the kind of tax authorized by the said Code. The very fact that the said Code includes includes theaters, cinematographs, etc. will show conclusively that the power to tax amusement is expressly included within the power granted by the said Code.

G.R. No. L-22421

March 18, 1967

IMUS ELECTRIC CO., INC., Petitioner, vs. CTA and CIR, Respondents. DOCTRINE: The status of petitioner's municipal franchises as property and property right is dependent upon or qualified by the nature and limitations of the authority under which said franchises were granted by the municipal corporations concerned. Such authority shall be `subject to the power of Congress to alter, modify or repeal the same'. In effecting such alteration, our legislative department has merely exercised a power expressly reserved thereto by said franchises, and has acted in conformity therewith, not in violation of the provisions thereof or to the detriment of the rights thereby vested in petitioner herein. FACTS: BENGZON, J.P., J.:

The Municipal Council of Imus granted (1930) the petitioner Imus Electric Co., Inc. the franchise to operate in that municipality an electric plant, imposing a franchise tax of 1% of its gross receipts for the first 20 years and 2% for the next fifteen (15) years. RA 39 amended (1949) Sec. 259 of the Tax Code imposing a tax of 5% upon which such franchises are conferred. Imus Electric paid franchise tax at the rate of 5% of its gross receipts until 1953 when it filed a claim for refund of payments made at the aforesaid rate of 5% for the period 1948-1951. Said claim for refund was granted as to period from 1950 -1951. Nonetheless, CIR assessed Imus Electric demanding payment of deficiency tax and surcharge. Upon refusal of the Commissioner to reconsider the assessment, Imus Electric petitioned the CTA for the review of the Commissioner's ruling alleging that: o o (1) The franchise is a private contract which would be impaired by the application of Section 259 and this would be in violation of the non-impairment clause of the Constitution; and (2) Section 259 of the Tax Code is a general law which has not repealed the franchise and as such applies only to charter provisions which do not specify the rate of franchise tax to be paid.

CTA affirmed the CIRs decision declaring petitioner subject to the franchise tax of 5%. Hence this petition

ISSUE: Has Section 259 of the Tax Code repealed the corresponding provision in petitioner's franchise violating the non-impairment clause? YES it was repealed, but no violation since the right is expressly reserved. HELD: As held in Lealda case: As amended by RA 39, Section 259 of the Tax Code became the basic tax law not only because it was entitled "Tax on Corporate Franchises" but also because it "fixed the rate of franchise tax to be paid by holders of all existing and future franchises." The status of petitioner's municipal franchises as property and property right is dependent upon or qualified by the nature and limitations of the authority under which said franchises were granted by the municipal corporations concerned. Such authority shall be `subject to the power of Congress to alter, modify or repeal the same'. For all intents and purposes, said legal provision alters the pertinent provisions of said franchises. In effecting such alteration, our legislative department has merely exercised, however, a power expressly reserved thereto by said franchises, and has acted, therefore, in conformity therewith, not in violation of the provisions thereof or to the detriment of the rights thereby vested in petitioner herein. Wherefore, the judgment appealed from is AFFIRMED with the modification that the 25% surcharge imposed on petitioner should be, and is, eliminated, thereby reducing the tax from a total of P30,940.33 (with surcharge) to P24,752.26.

Philippine Rural Electric Cooperatives Association, Inc.; Agusan del Norte Electric Cooperative, Inc.; Iloilo I Electric Cooperative, Inc.; and Isabela I Electric Cooperative, Inc., petitioners, v. The Secretary, DILG, and The Secretary, Department of Finance, respondents. FACTS: A class suit was filed by petitioners in their own behalf and for other electric cooperatives organized and existing under P.D. No. 269 who are members of petitioner PHILRECA. PHILRECA is an association of 119 electric cooperatives throughout the country. Petitioners ANECO, ILECO I and ISELCO I are non-stock, nonprofit electric cooperatives organized and existing under P.D. No. 269 and registered with the National Electrification Administration (NEA). Under P.D. No. 269, as amended (NEA Decree), it is the declared policy of the State to provide the total electrification of the Philippines on an area coverage basis the same being vital to the people and the sound development of the nation. Pursuant to this policy, P.D. No. 269 aims to promote, encourage and assist all public service entities engaged in supplying electric service, particularly electric cooperatives by giving every tenable support and assistance to the electric cooperatives coming within the purview of the law. Section 39 of P.D. No. 269 exempts them from the payment of all National Government, local government, and municipal taxes and fee, including franchise, fling recordation, license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative proceedings in which it may be party. From 1971 to 1978, in order to finance the electrification projects envisioned by P.D. No. 269, the Philippine Government, acting through the National Economic Council (now NEDA) and the NEA, entered into 6 loan agreements with the United States Agency for International Development (USAID) with electric cooperatives, including petitioners ANECO, ILECO I and ISELCO I, as beneficiaries. The loan agreements contain similarly worded provisions on the tax application of the loan and any property or commodity acquired through the proceeds of the loan. Petitioners contend that pursuant to the provisions of P.D. No. 269 and provision in the loan agreements, they are exempt from payment of local taxes, including payment of real property tax. With the passage of the LGC, they allege that their tax exemptions have been invalidly withdrawn. Petitioners assail Sections 193 and 234 of the LGC, on the ground that the provisions discriminate against them, in violation of the equal protection clause. Further, they submit that the said provisions are unconstitutional because they impair the obligation of contracts between the Philippine Government and the United States Government.

ISSUES:

(1) Does the LGC violate the equal protection clause since the provisions unduly discriminate against petitioners who are duly registered
cooperatives under PD 269, as amended, and no under RA 6938 or the Cooperatives Code of the Philippines? NO

(2) Is there an impairment of the obligations of contract under the loan entered into between the Philippine and the US Governments? NO
HELD: (1) THERE IS NO VIOLATION OF THE EQUAL PROTECTION CLAUSE The pertinent parts of Sections 193 and 234 of the LGC provide: Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned and controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. Section 234. Exemptions from real property tax. The following are exempted from payment of the real property tax: (d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons whether natural or juridical, including all government-owned and controlled corporations are hereby withdrawn upon effectivity of this Code. Petitioners argue that the provisions are unconstitutional for violating the equal protection clause, being unduly discriminating against petitioners who are duly registered cooperatives under P.D. No. 269 and not under R.A. No. 6938 or the Cooperative Code of the Philippines. They maintain that electric cooperatives registered with the NEA under P.D. No. 269 and electric cooperatives registered with the Cooperative Development Authority (CDA) under R.A. No. 6938 are similarly situated because: o Petitioners are: a) registered with the NEA which is a government agency like the CDA; b) like CDA-registered cooperatives, operate for service to their member-consumers; and c) prior to the enactment of the LGC, were already tax-exempt. The equal protection clause under the Constitution means that no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances. Thus, the guaranty of the equal protection of the laws is not violated by a law based on reasonable classification.

Classification, to be reasonable, must (1) rest on substantial distinctions; (2) be germane to the purposes of the law; (3) not be limited to existing conditions only; and (4) apply equally to all members of the same class. There is reasonable classification under the LGC to justify the different tax treatment between electric cooperatives covered by P.D. No. 269 and electric cooperatives under R.A. No. 6938. First, substantial distinctions exist between cooperatives under P.D. No. 269 and cooperatives under R.A. No. 6938. These distinctions are manifest in at least two material respects which go into the nature of cooperatives envisioned by R.A. No. 6938 and which characteristics are not present in the type of cooperative associations created under P.D. No. 269. a. Capital Contributions by Members A COOPERATIVE under R.A. No. 6938 is defined as: A duly registered association of persons with a common bond of interest, who have voluntarily joined together to achieve a lawful common or social economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.

The above definition provides for the following elements of a cooperative: a) association of persons; b) common bond of interest; c) voluntary association; d) lawful common social or economic end; e) capital contributions; f) fair share of risks and benefits; g) adherence to cooperative values; and g) registration with the appropriate government authority. The importance of capital contributions by members of a cooperative under R.A. No. 6938 was one of the key factors which distinguished electric cooperatives under P.D. No. 269 from electric cooperatives under the Cooperative Code. Senate deliberations: o Electric cooperatives as they exist today would not fall under the term cooperative as used in this bill because the concept of a cooperative is that which adheres and practices certain cooperative principles. o One of the most important requirements is the principle where members bind themselves to help themselves. It is because of their collectivity that they can have some economic benefits. In this particular case [cooperatives under P.D. No. 269], the government is the one that funds these so-called electric cooperatives. o Cooperatives under P.D. No. 269, do not make substantial contribution to the capital required. It is the government that puts in the capital, in most cases. o Making equitable contributions to the capital required would exclude electric cooperatives (P.D. No. 269). Because the membership does not make equitable contributions. o The measure of their qualifying as a cooperative would be the requirement that a member of the electric cooperative must contribute a pro rata share of the capital of the cooperative in cash to be a cooperative. Under P.D. No. 269, cooperatives are not required to make equitable contributions to capital and to qualify as a member (under P.D. No. 269), only the payment of a P5.00 membership fee is required (refundable the moment the member is no longer interested). Under the Cooperative Code, the articles of cooperation of a cooperative applying for registration must be accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least 25% of the authorized share capital has been subscribed and at least 25% of the total subscription has been paid and in no case shall the paid-up share capital be less than Two thousand pesos (P2,000.00). b. Extent of Government Control over Cooperatives

The Cooperative Code adhered to the principle of subsidiarity. Pursuant to this principle, the government may only engage in development activities where cooperatives do not possess the capability nor the resources to do so and only upon the request of such cooperatives Accordingly, the CDA is the primary government agency tasked to promote and regulate the institutional development of cooperatives. In contrast, P.D. No. 269 is replete with provisions which grant the NEA, the power to control and take over the management and operations of cooperatives registered under it. The extent of government control over electric cooperatives covered by P.D. No. 269 is largely a function of the role of the NEA as a primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to finance the development and operations of the electric cooperatives. Consequently, amendments were primarily geared to expand the powers of the NEA over the electric cooperatives to ensure that loans granted to them would be repaid to the government. In contrast, cooperatives under R.A. No. 6938 are envisioned to be self-sufficient and independent organizations with minimal government intervention or regulation. The classification of tax-exempt entities in the LGC is germane to the purpose of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that the exercise of power by local governments, is beyond regulation by Congress. While each government unit is granted the power to create its own sources of revenue, Congress, in light of its broad power to tax, has the discretion to determine the extent of the taxing powers of local government units consistent with the policy of local autonomy. Section 193 of the LGC is indicative of the legislative intent to vest broad taxing powers upon local government units and to limit exemptions from local taxation to entities specifically provided therein. (2) THERE IS NO VIOLATION OF THE NON-IMPAIRMENT CLAUSE

It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the obligation of contracts does not prohibit every change in existing laws. To fall within the prohibition, the change must not only impair the obligation of the existing contract, but the impairment must be substantial. Substantial impairment pertains to: o A law which changes the terms of a legal contract between parties, either in the time or mode of performance, or imposes new conditions, or dispenses with those expressed, or authorizes for its satisfaction something different from that provided in its terms, is law which impairs the obligation of a contract and is therefore null and void. Moreover, to constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties. The provisions under the loan agreements, do not grant any tax exemption in favor of the borrower or the beneficiary either on the proceeds of the loan itself or the properties acquired through the said loan. It simply states that the loan proceeds and the principal and interest of the loan, upon repayment by the borrower, shall be without deduction of any tax or fee that may be payable under Philippine law as such tax or fee will be absorbed by the borrower with funds other than the loan proceeds. Further, the provision states that with respect to any payment made by the borrower to (1) any contractor or any personnel of such contractor or any property transaction and (2) any commodity transaction using the proceeds of the loan, the tax to be paid, if any, on such transactions shall be absorbed by the borrower and/or beneficiary through funds other than the loan proceeds. The import of the tax provision in the loan agreements cited by petitioners is twofold:(1) the borrower is entitled to receive from and is obliged to pay the lender the principal amount of the loan and the interest thereon in full, without any deduction of the tax component thereof imposed under applicable Philippine law and any tax imposed shall be paid by the borrower with funds other than the loan proceeds and (2) with respect to payments made to any contractor, its personnel or any property or commodity transaction entered into pursuant to the loan agreement and with the use of the proceeds thereof, taxes payable under the said transactions shall be paid by the borrower and/or beneficiary with the use of funds other than the loan proceeds. The quoted provision does not purport to grant any tax exemption in favor of any party to the contract, including the beneficiaries thereof. The provisions simply shift the tax burden, if any, on the transactions under the loan agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by the LGC under Sections 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair the obligation of the borrower, the lender or the beneficiary under the loan agreements as in fact, no tax exemption is granted therein.

WHEREFORE, the petition is DENIED and the TRO issued is LIFTED.

ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs. HON. JUAN P. AQUINO, Judge, CFI, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE, respondents.

Petition for review on certiorari of the CFIs decision decreeing the valid the seizure and sale of the Municipal Treasurer of Bangued, Abra, the Provincial Treasurer of the lot and building of the Abra Valley Junior College, Inc.

FACTS:

ABRA VALLEY COLLEGE, an educational corporation and institution of higher learning incorporated with the SEC in 1948, filed a complaint to annul and declare void the "Notice of Seizure and the "Notice of Sale" of its lot and building at Banguet, Abra, for nonpayment of real estate taxes (RET) and penalties amounting to P5,140.31. The "Notice of Seizure" by respondents Municipal Treasurer and Provincial Treasurer was issued for the satisfaction of the said taxes. The "Notice of Sale" was served to the petitioner on 7/8/1972 for the sale at public auction of the college lot and building, which sale was held on the same date. Dr. Paterno Millare (then Municipal Mayor) offered the highest bid of P6,000.00 which was accepted. The certificate of sale was correspondingly issued to him. [Subsequently, filed a motion to dismiss the complaint] [Treasurers Answer to the Complaint Amender Answer Millares Answer] On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge ordered the respondents provincial and municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, petitioner, through Director Borgonia, deposited with the trial court the sum of P6,000.00. On April 12, 1973, the parties entered into a STIPULATION OF FACTS adopted and embodied by the trial court in its questioned decision. Aside from the Stipulation of Facts, the trial court found the following: o (a) that the school is recognized by the government and is offering Primary, High School and College Courses, and has a school population of more than one thousand students all in all; o (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and about 120 meters from the CFI building; o (c) that the elementary pupils are housed in a two-storey building across the street; o (d) that the high school and college students are housed in the main building; o (e) that the Director with his family is in the second floor of the main building; and o (f) that the annual gross income of the school reaches more than one hundred thousand pesos. The succeeding Provincial Fiscal filed a Memorandum for the Government and a Supplemental Memorandum, wherein they opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school building and school lot used for educational purposes of the Abra Valley College, Inc., are exempted from the payment of taxes." Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school for residential purposes. He thus ruled for the government and rendered the assailed decision. Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. On the other hand, private respondents maintain that the college lot and building which were subjected to seizure and sale to answer for the unpaid tax are used: o (1) for the educational purposes of the college; o (2) as the permanent residence of the President and Director thereof, Mr. Borgonia and his family including the in-laws and grandchildren; and o (3) for commercial purposes because the ground floor of the college building is being used and rented by a commercial establishment, the Northern Marketing Corporation.

ISSUES:

(1) (2)

Was there a valid seizure and sale of the college lot and building? YES Was petitioner exempted from paying property taxes and realty taxes? NO

HELD:

PERTINENT LAWS which grants exemption for "cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes:

o o

The Constitutional provision (Sec. 22, par. 3, Article VI, 1935 Constitution) which expressly grants exemption from realty taxes Assessment Law which exempts from real property tax

Petitioner argues that the primary use of the school lot and building is the basic and controlling guide, norm and standard to determine tax exemption, and not the mere incidental use thereof. In YMCA of Manila vs. Collector of lnternal Revenue (1916), this Court ruled that while it may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still these do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for religious, charitable and educational purposes, and as such, it is entitled to be exempted from taxation. In Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte (1972), the Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. o Clarifying that the term "used exclusively" considers incidental use also.

Thus, the exemption from payment of land tax in favor of the convent includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes incidental use in religious functions.

The phrase "EXCLUSIVELY USED FOR EDUCATIONAL PURPOSES " in the cases of Herrera vs. Quezon City Board of assessment Appeals (1961) and Commissioner of Internal Revenue vs. Bishop of the Missionary District (1965): o The exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property actually indispensable' therefor , but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes, such as in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns, and residents', such as "Athletic fields" including "a firm used for the inmates of the institution. The TEST OF EXEMPTION from taxation is the use of the property for purposes mentioned in the Constitution. It must be stressed that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes", reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purposeeducational, the lease of the first floor thereof to the Northern Marketing Corporation CANNOT by any stretch of the imagination be considered incidental to the purpose of education. However, it should be noted that the lease appears to have been raised for the first time in this Court. The matter was not taken up in the to court is really apparent in the decision of respondent Judge. It was not made in the stipulation of facts, not even in the description of the school building by the trial judge, both embodied in the decision nor as one of the issues to resolve in order to determine whether or not said properly may be exempted from payment of real estate taxes. On the other hand, it is noteworthy that such fact was not disputed even after it was raised in this Court. It is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal. Nonetheless, as an exception to the rule, this Court has held that in the interest of substantial justice, although a factual issue is not squarely raised below, the Court is not prevented from considering a pivotal factual matter. Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved.

PREMISES CONSIDERED, the decision is hereby AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner.

Lung Center of the Phils v QC The Lung Center of the Philippines, a non-stock and non-profit entity established by virtue of PD 1823, was the owner of a parcel of land in QC. In the middle of the lot was a hospital known as the Lung Center of the Philippines. A big space at the ground floor was being leased to private parties, for canteen and small store spaces, and to medical practitioners who use the same as their private clinics for their patients whom they charge for their professional services. Almost of the entire area on the left side of the building along Q Ave was vacant and idle, while a big portion on the right side, at the corner of Q Ave and Elliptical Road, was being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center. The Lung Center accepts paying and non-paying patients. It also renders medical services to out-patients, both paying and non-paying. Aside from its income from paying patients, it also received gov subsidies. The City Assessor of QC assessed both the land and the hospital building for real property taxes amounting to about P4M. Lung Center filed a Claim for exemption from real property taxes saying it was a charitable institution. The Lung Centers request was denied, and a petition was, thereafter, filed before the Local Board of Assessment Appeals of Quezon City (QC-LBAA) for the reversal of the resolution of the City Assessor. The Lung Center alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity patients. However, the Local Board held Lung Center liable for real property taxes. Decision was affirmed by QC Central Board. Petition was elevated to SC. I: 1)W/n Lung Center is a charitable institution within the context of PD 1823 and under the Consti - YES 2) W/n the real properties of the Lung Center are exempt from real property taxes- NO R: 1) YES, the Lung Center is a charitable institution. To determine whether an enterprise is a charitable institution, the elements which should be considered include the statute creating it, its purpose, by-laws, services and nature/ use of properties. Under PD 1823, the Lung Center is a non-profit and non-stock corporation which, subject to the provisions of the decree, is to be administered by the Office of the President of the Philippines with the Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in the Philippines. The Articles of Incorporation of LC provide that its medical services are to be rendered to the public in general in any and all walks of life including those who are poor and the needy without discrimination. A charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is used for the CHARITABLE objective it is intended for, and no money inures to the private benefit of the persons managing or operating the institution. In this case, the money received by the Lung Center becomes a part of the trust fund and must be devoted to public trust purposes and cannot be diverted to private profit or benefit. Under PD 1823, the Lung Center is entitled to receive donations. The Lung Center does not lose its character as a charitable institution simply because of gov subsidies (donation). 2) NO, not all are exempt from real property tax. The portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. Since taxation is the rule and exemption is the exception, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Under PD 1823, the Lung Center does NOT enjoy any property tax exemption privileges for its real properties and buildings. If the intentions were otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2 thereof. Under the 1973 and 1987 Constitutions and RA 7160 in order to be entitled to the exemption of property tax, the Lung Center should prove that a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. o If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. THUS, exclusively means SOLELY.

What is meant by actual, direct and exclusive use of the property for charitable purposes is the DIRECT, IMMEDIATE, ACTUAL application of the PROPERTY itself to the purposes for which the charitable institution is organized. It is NOT the use of INCOME of the property w/c is the controlling factor (to exempt). In this case, while portions of the hospital are used for the treatment of patients, other parts are being leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a private individual for her business enterprise under the business name "Elliptical Orchids and Garden Center." Thus, portions of the land leased to private entities and individuals are NOT tax exempt, while those used for patients, paying and non-paying, are exempt. o

CIR v CA and YMCA YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. In 1980, YMCA, among others, an amount of income (about P700k+) from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and from parking fees collected from non-members. The CIR thus issued an assessment to YMCA totaling about P415k+ including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA protested the assessment and filed a letter. In reply, the CIR denied the claims of YMCA. YMCA thus filed a petition to the CTA to take out the taxes and CTA ruled in favor of YMCA. CIR filed a petition with the CA to reverse, but CA affirmed CTA's decision. I: W/n the income derived from rentals of real property owned by YMCA (established as "a welfare, educational and charitable non-profit corporation") is subject to income tax under the NIRC and Constitution R: YES, the income derived by YMCA from rentals of its real property is subject to income tax. Under the NIRC: While Section 27 of the NIRC provides that non-profit organizations and clubs shall not be taxed on their income, it also provides that this exemption will NOT apply to income derived from 1) properties, real or personal, and 2) any other activities conducted for profit shall be subject to tax (amended by PD 1457). Applying the doctrine of strict interpretation of tax exemptions, the phrase "any of their activities conducted for profit does NOT qualify the word properties. This makes income from the property of the organization taxable, regardless of how that income is used -- whether for profit or for lofty non-profit purposes. Under the Constitution: Article VI, Section 28 of the Constitution exempts charitable institutions from the payment not only of taxes. HOWEVER, acdg to consti framers, the exemption does NOT pertain to income tax but only property taxes. For the YMCA to be granted the exemption as an educational institution under the Consti (Art 14 Sec 4), it must prove with substantial evidence that: a. it falls under the classification non-stock, non-profit educational institution; and b. the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes However, no evidence was submitted by YMCA to prove that they met the requisites. The term educational institution or institution of learning has acquired a well-known technical meaning, of which the members of the Constitutional Commission are deemed cognizant. Under the Education Act of 1982, such term refers to schools, which is synonymous with formal education OR a school seminary, college, or educational establishment. The Court, upon examining the Amended Articles of Incorporation and By-Laws of the YMCA, but found nothing in them that even hints that it is a school or an educational institution. Even if YMCA is an educational institution, the Court also notes that YMCA did not submit proof of the proportionate amount of the subject income that was actually, directly and exclusively used for educational purposes. NOTE (if Sir asks about how this differs with OTHER cases): The cases relied on by YMCA do not support its cause. YMCA of Manila v. CIR and Abra Valley College, Inc. v. Aquino are not applicable, because the controversy in both cases involved exemption from the payment of property tax, not income tax. Hospital de San Juan de Dios, Inc. v. Pasay City is not in point either, because it involves a claim for exemption from the payment of regulatory fees, specifically electrical inspection fees, imposed by an ordinance of Pasay City -- an issue not at all related to that involved in a claimed exemption from the payment if income taxes imposed on property leases. In Jesus Sacred Heart College v. Com. Of Internal Revenue, the party therein, which claimed an exemption from the payment of income tax, was an educational institution which submitted substantial evidence that the income subject of the controversy had been devoted or used solely for educational purposes. On the other hand, YMCA in the present case had not given any proof that it is an educational institution, or that of its rent income is actually, directly and exclusively used for educational purposes.

CIR v CA and Ateneo de Manila Ateneo de Manila University, is a non-stock, non-profit educational institution, was conducting research through an auxiliary unit, the Institute of Philippine Culture. In 1983, Ateneo received from CIR a demand letter assessing Ateneo of the the sum of about P170k+ for alleged deficiency contractors tax, and an assessment in the sum of about P1M+ for alleged deficiency income tax for the fiscal year of March 1978. Denying said tax liabilities, Ateneo sent CIR a letter-protest contesting the validity of the assessments. CIR rendered a letter-decision canceling the assessment for deficiency income tax but modified the assessment for deficiency contractors tax by increasing the amount due to P190k+. Ateneo requested for a reconsideration or reinvestigation of the modified assessment. At the same time, it filed in the CTA a petition for review of the said letter-decision. While the petition was pending before the CTA, CIR issued a final decision reducing the assessment for deficiency contractors tax from P190k+ to P46k+, exclusive of surcharge and interest. CTA canceled the deficiency contractors tax assessment, w/c was affirmed by the CA. CIR filed a petition for review before the SC. I: W/n Ateneo should pay the 3% contractors tax under Sec 205 of the Tax Code R: NO. 1) In case of doubt, statutes on tax imposition are to be construed strongly against the GOV and in favor of citizens, because burdens are NOT to be imposed nor presumed beyond what is expressed. Ateneos IPC NEVER sold its services for a fee to anyone or was ever engaged in a business apart from and independently of the academic purposes of the university. Funds received by Ateneo are technically not a fee. They may however fall as gifts or donations which are tax-exempt as shown by Ateneos compliance w/ the NIRC requirement providing for the exemption of such gifts to an educational institution. 2) The term independent contractors include persons whose activity consists essentially of the sale of all kinds of services for a fee. The term gross receipts means all amounts received by the prime or principal contractor as the total contract price, undiminished by amount paid to the subcontractor, shall be excluded from the taxable gross receipts of the subcontractor. Ateneos IPC cannot be deemed either as a contract of sale or a contract for a piece of work. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. In the case of a contract for a piece of work, the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. HOWEVER, it is clear in from the evidence on record that there was no sale either of objects or services because there was no transfer of ownership over the research data obtained or the results of research projects undertaken by the IPC. TO SUM: Ateneo is NOT a contractor selling its services for a fee but an academic institution conducting these researches pursuant to its commitments to education and, ultimately, to public service. Education is and NOT profit is the motive for undertaking the research projects.

PASSAGE OF TAX BILLS Tolentino v. Sec. of Finance Several parties filed complaints in the SC questioning the legality of Expanded VAT law (RA 7716), which sought to widen the tax base of the existing VAT system (*VAT: a tax levied on the sale, barter or exchange of goods and properties AS WELL AS as on the sale or exchange of services; or SIMPLY tax on spending / consumption):

1) The Philippine Press Institute contends that by removing VAT exemption from the press while maintaining those granted to others, the EVAT Law discriminates against the press and violates the freedom of the press. R: Since the law granted the press a privilege, the law could take back the privilege anytime WITHOUT offense to the Constitution. The State, by granting exemptions, does NOT forever waive the exercise of its sovereign prerogative. In withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have already been subject. The case of Grosjean v. American Press Co. cited by the PPI is different because in that case, the tax was found to be discriminatory because it was imposed only on newspapers whose weekly circulation was over P20k. These papers were critical of a certain senator who controlled the state legislature. The censorial motivation of the law was thus evident. HOWEVER, in this case, the motivation was not to censor but merely to raise revenues. What the legislature cannot impose upon the press is a license tax, which is mainly for regulation AND is unconstitutional because it lays PRIOR RESTRAINT on the exercise of a right. In this case, the VAT is not a license tax because it is not a tax on the exercise of a privilege or of a constitutional right. It is imposed on the sale of goods purely for revenue purposes. 2) Philippine Bible Society claims that the imposition of VAT on the sales of its bibles INFRINGES on religious freedom because the tax INCREASES the price of the bibles, while REDUCING the volume of sales. It also claims exemption from the registration fee of P1k. R: The resulting burden on the exercise of religious freedom is so INCIDENTAL as to make it difficult to differentiate it from any other economic imposition that might make the right to disseminate religious doctrines costly. To follow PBS argument of increasing the tax on the sale of vestments would be to lay an impermissible burden on the right of the preacher to make a sermon. The registration fee is really just to pay for the expenses of registration and enforcement of the provisions of the law. Even if PBS is excused from paying taxes on those bibles that it distributes for free, it still has to pay the registration fee since it also engages in the sale of bibles. 3. CREBA claims that the law: a) impairs the obligations of contracts because the application of the tax to existing contracts of the sale of real property by installment would result in substantial increases in monthly amortizations, which the buyer did not anticipate at the time he entered into the contract. b) violates equal protection since the law exempts low-cost housing from VAT but NOT middle-class housing. c) Being an indirect, regressive tax, VAT violates the constitutional mandate to provide a progressive system of taxation. R: a) VAT does NOT violate the non-impairment clause because the obligation of contracts CANNOT defeat the authority of the government to tax by virtue of its sovereignty. b) Neither did it violate EPC because there was a substantial distinction between the homeless poor and the middle class. The middle class can afford to rent houses while the homeless poor cannot. c) As to it being a regressive tax, the Constitution does not prohibit regressive taxes. What it simply provides is that Congress shall evolve a progressive system of taxation, which means that direct taxes are to be preferred and indirect taxes minimized. VAT provides exemptions in favor of basic goods utilized by the lower income brackets and its burden actually falls more on those goods that consumers from the higher income bracket buy. Therefore, the tax is not repugnant to the Constitution.

Granting of tax exemption

John Hay Peoples Alternative Coalition v. Lim RA No. 7227 created the Bases Conversion and Development Authority (BCDA), which also created the Subic Special Economic Zone (Subic SEZ). Aside from granting incentives to Subic SEZ, RA 7227 also granted the President is an express authority to create other SEZs in the areas covered respectively by the Clark military reservation, the Wallace Air Station in San Fernando, La Union, and Camp John Hay through executive proclamations. BCDA entered into a MOA and Escrow Agreement with TUNTEX and ASIAWORLD, private corporations under the laws of the British Virgin Islands, preparatory to the formation of a joint venture for the development of Poro Point La Union and Camp John Hay as premier tourist destinations and recreation centers. BCDA, TUNTEX and ASIAWORLD executed a JVA to put up the Baguio International Development and Management Corporation which would lease areas within Camp John Hay and Poro Point for the attainment of the tourist and recreation spots in La Union and Camp John Hay. President Ramos issued Proclamation No. 420 which established a SEZ on a portion of Camp John Hay. 2 nd sentence of Section 3 of said Proclamation provided for national and local tax exemption within and graned other economic incentives to the John Hay Special Economic Zone. Section 3: Investment Climate in John Hay Special Economic Zone.- Pursuant to Section 5(m) and Section 15 of RA No. 7227, the John Hay Poro Point Development Corporation shall implement all necessary policies, rules, and regulations governing the zone, including investment incentives, in consultation with pertinent government departments. Among others, the zone shall have all the applicable incentives of the Special Economic Zone under Section 12 of Republic Act No. 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investment Code of 1987, the Foreign Investment Act of 1991, and new investment laws that may hereinafter be enacted. Petitioners filed this case to enjoin the respondents from implementing Proc. 420. is unconstitutional on grounds of: o For being illegal and invalid in so far as it grants tax exemptions thus amounting to unconstitutional exercise of by the President of power granted only to legislature o Limits powers and interferes with the autonomy of the city o Violates rule that all taxes should be uniform and equitable I: W/N Proclamation No. 420 is constitutional by providing for national and local tax exemption within and granting other economic incentives to the John Hay Special Economic Zone. NO, 2nd sentence, Section 3 of said proclamation is unconstitutional. W/N Proclamation No. 420 is constitutional for limiting or interfering with the local autonomy of Baguio City. YES R: The 2nd Sentence of SECTION 3 of Proclamation No. 420 is hereby declared NULL and VOID and is accordingly declared of no legal force and effect. Public respondents are hereby enjoined from implementing the aforesaid void provision. Proclamation No. 420, without the invalidated portion, remains valid and effective. Under Section 12 of RA No. 7227 it is clear that ONLY THE SUBIC SEZ which was granted by Congress with tax exemption, investment incentives and the like. THERE IS NO EXPRESS EXTENSION OF THE SAID PROVISION IN PRESIDENTIAL PROCLAMATION No. 420. (Section 12 kept mentioning Subic Special Economic Zone, specifically) Also found in the deliberations of the Senate, a confirmation of the exclusivity of the tax and investment privileges to Subic SEZ. Senator Angara: The Gentleman is absolutely correct. Mr. President. SO WE MUST CONFINE THESE POLICIES ONLY TO SUBIC. It is the legislature, unless limited by a provision of the state constitution that has full power to exempt any person, corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Other than the Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes. The challenged grant of tax exemption must have concurrence of a majority of all members of Congress. In same vein, the other kinds of privileges extended to the John Hay SEZ are by tradition and usage for Congress to legislate upon. Tax exemption cannot be implied as it must be categorically and un mistakably expressed if it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and incentives given to Subic SEZ, it would have so expressly provided in RA 7227.

BCDA, under R.A 7227, is expressly entrusted with broad rights of ownership and administration over Camp John Hay, as the governing agency of the John Hay SEZ.