Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance
On the other hand, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is
the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns. The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the petitioner
assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and
1959. 1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was
stamp received on the same day in the office of the petitioner.2 On March 12, 1965, a warrant of distraint
and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who
refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the
case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon
Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the
BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint
and levy earlier sought to be served. 5 Sixteen days later, on April 23, 1965, Algue filed a petition for
review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals. 6
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of the decision or ruling challenged. 7 It is true
that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders
hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof and makes the
said request deemed rejected." 10 But there is a special circumstance in the case at bar that prevents
application of this accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the

petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January 18,
1965, when it was filed, the reglementary period which started on the date the assessment was received,
viz., January 14, 1965. The period started running again only on April 7, 1965, when the private
respondent was definitely informed of the implied rejection of the said protest and the warrant was finally
served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period
had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because
it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered. The payment was in the form of promotional fees.
These were collected by the Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees
to be personal holding company income 12 but later conformed to the decision of the respondent court
rejecting this assertion. 13 In fact, as the said court found, the amount was earned through the joint efforts
of the persons among whom it was distributed It has been established that the Philippine Sugar Estate
Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories
and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel
Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment
Corporation, inducing other persons to invest in it. 14 Ultimately, after its incorporation largely through the
promotion of the said persons, this new corporation purchased the PSEDC properties. 15 For this sale,
Algue received as agent a commission of P126,000.00, and it was from this commission that the
P75,000.00 promotional fees were paid to the aforenamed individuals. 16
There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made
in one lump sum but periodically and in different amounts as each payee's need arose. 19 It should be
remembered that this was a family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. Even so, at the end of the year, when the books were to
be closed, each payee made an accounting of all of the fees received by him or her, to make up the total

of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was understandable,

however, in view of the close relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent
was P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit
from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically everything, from the formation of the
Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. This
finding of the respondent court is in accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the
stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity
of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business

requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person who
is able to must contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

Footnotes
1 Rollo, pp. 28-29.
2 Ibid., pp. 29; 42.
3 Id., p. 29.
4 Respondent's Brief, p. 11.
5 Id., p. 29.
6 Id,
7 Sec. 11.

8 Phil. Planters Investment Co. Inc. v. Comm. of Internal Revenue, CTA Case No.
1266, Nov. 11, 1962; Rollo, p. 30.
9 Vicente Hilado v. Comm. of Internal Revenue, CTA Case No. 1266, Oct. 22,1962;
Rollo, p. 30.
10 Ibid.
11 Penned by Associate Judge Estanislao R. Alvarez, concurred by Presiding Judge
Ramon M. Umali and Associate Judge Ramon L. Avancea.
12 Rollo, p. 33.
13 Ibid., pp. 7-8; Petition, pp. 2-3. 11 Id., p. 37.
15 Id.
16 Id.
17 Id.
18 Id.
19 Respondents Brief, pp. 25-32.
20 Ibid., pp. 30-32.
21 Rollo, p. 37.
22 Now Sec. 30, (a)(1)-(A.), National Internal Revenue Code.
23 Respondent's Brief, p. 35.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 99886 March 31, 1993

JOHN H. OSMEA, petitioner,
vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity

as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of
Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.

NARVASA, C.J.:
The petitioner seeks the corrective, 1 prohibitive and coercive remedies provided by Rule 65 of the Rules
of Court, 2 upon the following posited grounds, viz.: 3
1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now,
the Office of Energy Affairs), created pursuant to 8, paragraph 1, of P.D. No. 1956, as amended,
"said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution; 4
2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order
No. 137, for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board;" 5
3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund, 6 because it contravenes 8, paragraph 2 (2) of
P. D. 1956, as amended; and
4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of
the pump prices and petroleum products to the levels prevailing prior to the said Order.
It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a
Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The
OPSF was designed to reimburse oil companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil.
Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024, 7 and
ordered released from the National Treasury to the Ministry of Energy. The same Executive Order also
authorized the investment of the fund in government securities, with the earnings from such placements
accruing to the fund.
President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the
amount of the underrecovery being left for determination by the Ministry of Finance.
Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion; 8 that to abate the worsening deficit, "the Energy Regulatory
Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the respondents Oscar
Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his

capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board "are poised to accept,
process and pay claims not authorized under P.D. 1956." 9

The petition further avers that the creation of the trust fund violates
29(3), Article VI of the Constitution, reading as follows:
(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government.
The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund'
to be used only for the purpose indicated, and not channeled to another government
objective." 10 Petitioner further points out that since "a 'special fund' consists of monies collected through
the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the
special purpose/objective for which it was created." 11
He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI
of the Constitution, viz.:
(2) The Congress may, by law, authorize the President to fix, within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government;
and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how to
tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how
much to tax." 12
The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general
fund for the reason that the Constitution so provides, and because they are, supposedly, taxes
levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a
portion thereof is taken from collections of ad valorem taxes and the increases thereon.
It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation
power of the State. The Solicitor General observes that the "argument rests on the assumption that
the OPSF is a form of revenue measure drawing from a special tax to be expended for a special
purpose." 13 The petitioner's perceptions are, in the Court's view, not quite correct.
To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding inValmonte v. Energy Regulatory Board, et al. 14
The foregoing arguments suggest the presence of misconceptions about the nature
and functions of the OPSF. The OPSF is a "Trust Account" which was established

"for the purpose of minimizing the frequent price changes brought about by
exchange rate adjustment and/or changes in world market prices of crude oil and
imported petroleum products." 15 Under P.D. No. 1956, as amended by Executive Order
No. 137 dated 27 February 1987, this Trust Account may be funded from any of the
following sources:
a) Any increase in the tax collection from ad valorem tax or customs
duty imposed on petroleum products subject to tax under this
Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board
of Energy;
b) Any increase in the tax collection as a result of the lifting of tax
exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy:
c) Any additional amount to be imposed on petroleum products to
augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons
or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.
xxx xxx xxx
The fact that the world market prices of oil, measured by the spot market in
Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling crude
oil and petroleum products from sources of supply to the Philippines may also vary
from time to time. The exchange rate of the peso vis-a-vis the U.S. dollar and other
convertible foreign currencies also changes from day to day. These fluctuations in
world market prices and in tanker rates and foreign exchange rates would in a
completely free market translate into corresponding adjustments in domestic prices
of oil and petroleum products with sympathetic frequency. But domestic prices which
vary from day to day or even only from week to week would result in a chaotic market
with unpredictable effects upon the country's economy in general. The OPSF was
established precisely to protect local consumers from the adverse consequences
that such frequent oil price adjustments may have upon the economy. Thus, the
OPSF serves as a pocket, as it were, into which a portion of the purchase price of oil
and petroleum products paid by consumers as well as some tax revenues are
inputted and from which amounts are drawn from time to time to reimburse oil
companies, when appropriate situations arise, for increases in, as well as
underrecovery of, costs of crude importation. The OPSF is thus a buffer mechanism
through which the domestic consumer prices of oil and petroleum products are
stabilized, instead of fluctuating every so often, and oil companies are allowed to
recover those portions of their costs which they would not otherwise recover given

the level of domestic prices existing at any given time. To the extent that some tax
revenues are also put into it, the OPSF is in effect a device through which the
domestic prices of petroleum products are subsidized in part. It appears to the Court
that the establishment and maintenance of the OPSF is well within that pervasive
and non-waivable power and responsibility of the government to secure the physical
and economic survival and well-being of the community, that comprehensive
sovereign authority we designate as the police power of the State. The stabilization,
and subsidy of domestic prices of petroleum products and fuel oil clearly critical in
importance considering, among other things, the continuing high level of dependence
of the country on imported crude oil are appropriately regarded as public
purposes.
Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is
not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality of
the sugar stabilization fees and explained their nature and character, viz.:
The stabilization fees collected are in the nature of a tax, which is within the power of
the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil.
148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied
with a regulatory purpose, to provide a means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State (Lutz v.
Araneta, supra).
xxx xxx xxx
The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose that of "financing the growth and
development of the sugar industry and all its components, stabilization of the
domestic market including the foreign market." The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co.
263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied
for a special purpose, the revenues collected are to be treated as a special fund, to
be, in the language of the statute, "administered in trust" for the purpose intended.
Once the purpose has been fulfilled or abandoned, the balance if any, is to be
transferred to the general funds of the Government. That is the essence of the trust
intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(1).17
The character of the Stabilization Fund as a special kind of fund is emphasized by the
fact that the funds are deposited in the Philippine National Bank and not in the Philippine
Treasury, moneys from which may be paid out only in pursuance of an appropriation
made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution,
Article VI, Sec. 23(1). (Emphasis supplied).

Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from
the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is
placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to

the scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed, the practice is not without precedent.
With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products provides
a sufficient standard by which the authority must be exercised. In addition to the general policy of the
law to protect the local consumer by stabilizing and subsidizing domestic pump rates, 8(c) of P.D.
1956 18 expressly authorizes the ERB to impose additional amounts to augment the resources of the
Fund.
What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on
how much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that what is
involved here is the power of taxation; but as already discussed, this is not the case. What is here
involved is not so much the power of taxation as police power. Although the provision authorizing the ERB
to impose additional amounts could be construed to refer to the power of taxation, it cannot be overlooked
that the overriding consideration is to enable the delegate to act with expediency in carrying out the
objectives of the law which are embraced by the police power of the State.
The interplay and constant fluctuation of the various factors involved in the determination of the price
of oil and petroleum products, and the frequently shifting need to either augment or exhaust the
Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed by
the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or avoid
the undesirable consequences of such fluidity. As such, the standard as it is expressed, suffices to
guide the delegate in the exercise of the delegated power, taking account of the circumstances
under which it is to be exercised.
For a valid delegation of power, it is essential that the law delegating the power must be (1) complete
in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix a
standard limits of which
are sufficiently determinate or determinable to which the delegate must conform. 20
. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself
determines matters of principle and lays down fundamental policy. Otherwise, the
charge of complete abdication may be hard to repel. A standard thus defines
legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may be
carried out. Thereafter, the executive or administrative office designated may in
pursuance of the above guidelines promulgate supplemental rules and regulations.
The standard may either be express or implied. If the former, the non-delegation
objection is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act considered as
a whole. 21
It would seem that from the above-quoted ruling, the petition for prohibition should fail.
The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable

standard which guides the exercise of the power granted to the ERB. By the same token, the proper
exercise of the delegated power may be tested with ease. It seems obvious that what the law
intended was to permit the additional imposts for as long as there exists a need to protect the
general public and the petroleum industry from the adverse consequences of pump rate fluctuations.
"Where the standards set up for the guidance of an administrative officer and the action taken are in
fact recorded in the orders of such officer, so that Congress, the courts and the public are assured
that the orders in the judgment of such officer conform to the legislative standard, there is no failure
in the performance of the legislative functions." 22
This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon which the delegation of power may
be justified.
In relation to the third question respecting the illegality of the reimbursements to oil companies,
paid out of the Oil Price Stabilization Fund, because allegedly in contravention of 8, paragraph 2
(2) of P.D. 1956, amended 23 the Court finds for the petitioner.
The petition assails the payment of certain items or accounts in favor of the petroleum companies
(i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.)
because not authorized by law. Petitioner contends that "these claims are not embraced in the
enumeration in 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of
domestic prices of petroleum products,'" 24 and since these items are reimbursements for which the
OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by
P5,277.2 million." 25 It is argued "that under the principle of ejusdem generis . . . the term 'other factors'
(as used in 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result in the
reduction of domestic prices of petroleum products." 26
The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines
of the rule ofejusdem generis would reduce (E.O. 137) to a meaningless provision."
This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed upon
the application of ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:
The rule of ejusdem generis states that "[w]here words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words
are not to be construed in their widest extent, but are held to be as applying only to
persons or things of the same kind or class as those specifically mentioned." 28 A
reading of subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy while
the second refers to reduction in internal ad valorem taxes. Therefore, subparagraph (iii)
cannot be limited by the enumeration in these subparagraphs. What should be
considered for purposes of determining the "other factors" in subparagraph (iii) is the first
sentence of paragraph (2) of the Section which explicitly allows the cost underrecovery
only if such were incurred as a result of the reduction of domestic prices of petroleum
products.
The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2
of 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of domestic
prices of petroleum products. Under the same provision, however, the payment of inventory losses is

upheld as valid, being clearly a result of domestic price reduction, when oil companies incur a cost
underrecovery for yet unsold stocks of oil in inventory acquired at a higher price.
Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is
equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and
regulations as held inCaltex 29 and which have been pointed to by the Solicitor General. At any rate,
doubts about the propriety of such reimbursements have been dispelled by the enactment of R.A. 6952,
establishing the Petroleum Price Standby Fund, 2 of which specifically authorizes the reimbursement of
"cost underrecovery incurred as a result of fuel oil sales to the National Power Corporation."
Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been
presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort
to defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the
so-called overpayment refunds. To be sure, the absence of any argument for or against the validity
of the refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis upon which to
nullify the same.
Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered
moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels
below even those prayed for in the petition.
WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement
of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.
SO ORDERED.
Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo,
Melo, Campos, Jr., and Quiason, JJ., concur.
Gutierrez, Jr., J., is on leave.

# Footnotes
1 The writ of certiorari is, of course, available only as against tribunals, boards or
officers exercisingjudicial or quasi-judicial functions.
2 The petition alleges separate causes or grounds for each extraordinary writ sought.
3 Rollo, pp. 1 to 4.
4 Rollo, p. 2.
5 Id.
6 When this petition was filed, the amount involved was P5,277.4 million.

7 Issued on 9 May 1985.

8 Rollo, pp. 8-9.
9 Rollo, p. 11; emphasis supplied.
10 Id., pp. 13-4.
11 Id., p. 15.
12 Rollo, p. 17.
13 Comment of the Respondents; Rollo, p. 63.
14 G.R. Nos. L-79501-03 [23 June 1988] 162 SCRA 521; Decided jointly with
Citizen's Alliance for Consumer Protection v. Energy Regulatory Board et al., G.R.
Nos. L-78888-90, and Kilusang Mayo Uno Labor Center v. Energy Regulatory Board,
et al., G.R. Nos. L-79590-92; emphasis supplied.
15 Citing E.O. No. 137, Sec. 1 (amending 8 of P.D. 1956).
16 158 SCRA 626, emphasis supplied.
17 "(3) All money collected on any tax levied for a special purpose shall be treated as
a special fund and paid out for such purpose only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the government." (1987 Constitution, Art. VI, Sec.
28[3]).
18 Supra; see footnote 14 and related text.
19 Rollo, p. 17.
20 SEE Vigan Electric Light Co., Inc. v. Public Service Commission, G.R. No.
L-19850, 30 January 1964 and Pelaez v. Auditor General, G.R. No. L-23825, 24
December 1965; see also Gonzales, N. Administrative Law A Text, (1979) at 29.
21 De La Llana v. Alba, 112 SCRA 294, citing Edu v. Ericta, 35 SCRA
481: Cf. Agustin v. Edu, 88 SCRA 195.
22 Hirabayashi v. U.S., 390 U.S. 99.
23 When this petition was filed, the amount involved was P5,277.4 million.
24 Rollo, p. 20.
25 Id., p. 21.

26 Id., p. 20.
27 Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., G.R. No.
92585, 8 May 1992, En Banc. N.B. The Solicitor General seems to have taken a
different position in this case, with respect to the application of ejusdem generis.
28 Smith Bell and Co., Ltd. v. Register of Deeds of Davao, 96 Phil. 53
[1954], citing BLACK on Interpretation of Law, 2nd ed. at 203: see also Republic v.
Migrio 189 SCRA 289 [1990].
29 Supra at note 25; SEE also Maceda v. Hon. Catalino Macaraig, Jr., et al., G.R.
No. 88291, 197 SCRA 771 (1991).

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. Nos. L-19824, L-19825 and 19826

July 9, 1966

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC., and TALISAYSILAY MILLING COMPANY, defendants-appellants.
Meer, Meer and Meer, Enrique M. Fernando and Emma Quisumbing-Fernando for defendantsappellants.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio Torres and
Solicitor Ceferino Padua, for plaintiff-appellee.
REGALA, J.:
This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao Sugar Central
Co., Inc., and Talisay-Silay Milling Co., sister companies under one controlling ownership and
management, from a decision of the Court of First Instance of Manila finding them liable for special
assessments under Section 15 of Republic Act No. 632.
Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short, a semi-public
corporation created for the following purposes and objectives:
(a) To conduct research work for the sugar industry in all its phases, either agricultural or
industrial, for the purpose of introducing into the sugar industry such practices or processes
that will reduce the cost of production, increase and improve the industrialization of the byproducts of sugar cane, and achieve greater efficiency in the industry;
(b) To improve existing methods of raising sugar cane and of sugar manufacturing;

(c) To insure a permanent, sufficient and balanced production of sugar and its by-products
for local consumption and exportation;
(d) To establish and maintain such balanced relation between production and consumption of
sugar and its by-products, and such marketing conditions therefor, as well insure stabilized
prices at a level sufficient to cover the cost of production plus a reasonable profit;
(e) To promote the effective merchandising of sugar and its by-products in the domestic and
foreign markets so that those engaged in the sugar industry will be placed on a basis of
economic security; and
(f) To improve the living and economic conditions of laborers engaged in the sugar industry
by the gradual and effective correction of the inequalities existing in the industry. (Section 2,
Rep. Act 632)
To realize and achieve these ends, Sections 15 and 16 of the aforementioned law provide:
Sec. 15. Capitalization. To raise the necessary funds to carry out the provisions of this Act
and the purposes of the corporation, there shall be levied on the annual sugar production a
tax of TEN CENTAVOS [P0.10] per picul of sugar to be collected for a period of five (5) years
beginning the crop year 1951-1952. The amount shall be borne by the sugar cane planters
and the sugar centrals in the proportion of their corresponding milling share, and said levy
shall constitute a lien on their sugar quedans and/or warehouse receipts.
Sec. 16. Special Fund. The proceeds of the foregoing levy shall be set aside to constitute
a special fund to be known as the "Sugar Research and Stabilization Fund," which shall be
available exclusively for the use of the corporation. All the income and receipts derived from
the special fund herein created shall accrue to, and form part of the said fund to be available
solely for the use of the corporation.
The specific and general powers of the Philsugin are set forth in Section 8 of the same law, to wit:
Sec. 3. Specific and General Powers. For carrying out the purposes mentioned in the
preceding section, the PHILSUGIN shall have the following powers:
(a) To establish, keep, maintain and operate, or help establish, keep, maintain, and operate
one central experiment station and such number of regional experiment stations in any part
of the Philippines as may be necessary to undertake extensive research in sugar cane
culture and manufacture, including studies as to the feasibility of merchandising sugar cane
farms, the control and eradication of pests, the selected and propagation of high-yielding
varieties of sugar cane suited to Philippine climatic conditions, and such other pertinent
studies as will be useful in adjusting the sugar industry to a position independent of existing
trade preference in the American market;
(b) To purchase such machinery, materials, equipment and supplies as may be necessary to
prosecute successfully such researches and experimental work;
(c) To explore and expand the domestic and foreign markets for sugar and its by-products to
assure mutual benefits to consumers and producers, and to promote and maintain a

sufficient general production of sugar and its by-products by an efficient coordination of the
component elements of the sugar industry of the country;
(d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws, machineries,
equipment, materials, merchant vessels, rails, railroad lines, and any other means of
transportation, warehouses, buildings, and any other equipment and material to the
production, manufacture, handling, transportation and warehousing of sugar and its byproducts;
(e) To grant loans, on reasonable terms, to planters when it deems such loans advisable;
(f) To enter, make and execute contracts of any kind as may be necessary or incidental to the
attainment of its purposes with any person, firm, or public or private corporation, with the
Government of the Philippines or of the United States, or any state, territory, or persons
therefor, or with any foreign government and, in general, to do everything directly or indirectly
necessary or incidental to, or in furtherance of, the purposes of the corporation;
(g) To do all such other things, transact all such business and perform such functions directly
or indirectly necessary, incidental or conducive to the attainment of the purposes of the
corporation; and
(h) Generally, to exercise all the powers of a Corporation under the Corporation Law insofar
as they are not inconsistent with the provisions of this Act.
The facts of this case bearing relevance to the issue under consideration, as recited by the lower
court and accepted by the appellants, are the following:
x x x during the 5 crop years mentioned in the law, namely 1951-1952, 1952-1953, 19531954, 1954-1955 and 1955-1956, defendant Bacolod-Murcia Milling Co., Inc., has paid
P267,468.00 but left an unpaid balance of P216,070.50; defendant Ma-ao Sugar Central
Co., Inc., has paid P117,613.44 but left unpaid balance of P235,800.20; defendant TalisaySilay Milling Company has paid P251,812.43 but left unpaid balance of P208,193.74; and
defendant Central Azucarera del Danao made a payment of P49,897.78 but left unpaid
balance of P48,059.77. There is no question regarding the correctness of the amounts paid
and the amounts that remain unpaid.
From the evidence presented, on which there is no controversy, it was disclosed that on
September 3, 1951, the Philippine Sugar Institute, known as the PHILSUGIN for short,
acquired the Insular Sugar Refinery for a total consideration of P3,070,909.60 payable, in
accordance with the deed of sale Exhibit A, in 3 installments from the process of the sugar
tax to be collected, under Republic Act 632. The evidence further discloses that the operation
of the Insular Sugar Refinery for the years, 1954, 1955, 1956 and 1957 was disastrous in the
sense that PHILSUGIN incurred tremendous losses as shown by an examination of the
statements of income and expenses marked Exhibits 5, 6, 7 and 8. Through the testimony of
Mr. Cenon Flor Cruz, former acting general manager of PHILSUGIN and at present technical
consultant of said entity, presented by the defendants as witnesses, it has been shown that
the operation of the Insular Sugar Refinery has consumed 70% of the thinking time and effort
of the PHILSUGIN management. x x x .

Contending that the purchase of the Insular Sugar Refinery with money from the Philsugin Fund was
not authorized by Republic Act 632 and that the continued operation of the said refinery was inimical
to their interests, the appellants refused to continue with their contributions to the said fund. They
maintained that their obligation to contribute or pay to the said Fund subsists only to the limit and
extent that they are benefited by such contributions since Republic Act 632 is not a revenue
measure but an Act which establishes a "Special assessments." Adverting to the finding of the lower
court that proceeds of the said Fund had been used or applied to absorb the "tremendous losses"
incurred by Philsugin in its "disastrous operation" of the said refinery, the appellants herein argue
that they should not only be released from their obligation to pay the said assessment but be
refunded, besides, of all that they might have previously paid thereunder.
The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar" authorized to
be collected under Sec. 15 of Republic 632 is a special assessment. As such, the proceeds thereof
may be devoted only to the specific purpose for which the assessment was authorized, a special
assessment being a levy upon property predicated on the doctrine that the property against which it
is levied derives some special benefit from the improvement. It is not a tax measure intended to
raise revenues for the Government. Consequently, once it has been determined that no benefit
accrues or inures to the property owners paying the assessment, or that the proceeds from the said
assessment are being misapplied to the prejudice of those against whom it has been levied, then the
authority to insist on the payment of the said assessment ceases.
On the other hand, the lower court adjudged the appellants herein liable under the aforementioned
law, Republic Act 632, upon the following considerations:
First, Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin to buy and operate
machineries, equipment, merchant vessels, etc., and any other equipment and material for the
production, manufacture, handling, transportation and warehousing of sugar and its by-products. It
was, therefore, authorized to purchase and operate a sugar refinery.
Secondly, the corporate powers of the Philsugin are vested in and exercised by a board of directors
composed of 5 members, 3 of whom shall be appointed upon recommendation of the National
Federation of Sugar Cane Planters and 2 upon recommendation of the Philippine Sugar Association.
(Sec. 4, Rep. Act 632). It has not been shown that this particular provision was not observed in this
case. Therefore, the appellants herein may not rightly claim that there had been a misapplication of
the Philsugin funds when the same was used to procure the Insular Sugar Refinery because the
decision to purchase the said refinery was made by a board in which the applicants were fully and
duly represented, the appellants being members of the Philippine Sugar Association.
Thirdly, all financial transactions of the Philsugin are audited by the General Auditing Office, which
must be presumed to have passed upon the legality and prudence of the disbursements of the Fund.
Additionally, other offices of the Government review such transactions as reflected in the annual
report obliged of the Philsugin to prepare. Among those offices are the Office of the President of the
Philippines, the Administrator of Economic Coordination and the Presiding Officers of the two
chambers of Congress. With all these safeguards against any imprudent or unauthorized
expenditure of Philsugin Funds, the acquisition of the Insular Sugar Refinery must be upheld in its
legality and propriety.
Fourthly, it would be dangerous to sanction the unilateral refusal of the appellants herein to continue
with their contribution to the Fund for that conduct is no different "from the case of an ordinary

taxpayer who refuses to pay his taxes on the ground that the money is being misappropriated by
Government officials." This is taking the law into their own hands.
Against the above ruling of the trial court, the appellants contend:
First. It is fallacious to argue that no mismanagement or abuse of corporate power could have been
committed by Philsugin solely because its charter incorporates so many devices or safeguards to
preclude such abuse. This reasoning of the lower court does not reconcile with that actually
happened in this case.
Besides, the appellants contend that the issue on hand is not whether Philsugin abused or not its
powers when it purchased the Insular Sugar Refinery. The issue, rather, is whether Philsugin had
any power or authority at all to acquire the said refinery. The appellants deny that Philsugin is
possessed of any such authority because what it is empowered to purchase is not a "sugar refinery
but a central experiment station or perhaps at the most a sugar central to be used for that purpose."
(Sec. 3[a], Rep. Act 632) For this distinction, the appellants cite the case ofCollector vs. Ledesma,
G.R. No. L-12158, May 27, 1959, in which this Court ruled that
We are of the opinion that a "sugar central," as that term is used in Section 189, applies to "a
large mill that makes sugar out of the cane brought from a wide surrounding territory," or a
sugar mill which manufactures sugar for a number of plantations. The term "sugar central"
could not have been intended by Congress to refer to all sugar mills or sugar factories as
contended by respondent. If respondent's interpretation is to be followed, even sugar mills
run by animal power (trapiche) would be considered sugar central. We do not think Congress
ever intended to place owners of (trapiches) in the same category as operators of sugar
centrals.
That sugar mills are not the same as sugar centrals may also be gleaned from
Commonwealth Act No. 470 (Assessment Law). In prescribing the principle governing
valuation and assessment of real property. Section 4 of said Act provides
"Machinery permanently used or in stalled in sugar centrals, mills, or refineries shall be
assessed."
This clearly indicates that "Sugar centrals" are not the same as "sugar mills" or "sugar
refineries."
Second. The appellants' refusal to continue paying the assessment under Republic Act 632 may not
rightly be equated with a taxpayer's refusal to pay his ordinary taxes precisely because there is a
substantial distinction between a "special assessment" and an ordinary tax. The purpose of the
former is to finance the improvement of particular properties, with the benefits of the improvement
accruing or inuring to the owners thereof who, after all, pay the assessment. The purpose of an
ordinary tax, on the other hand, is to provide the Government with revenues needed for the financing
of state affairs. Thus, while the refusal of a citizen to pay his ordinary taxes may not indeed be
sanctioned because it would impair government functions, the same would not hold true in the case
of a refusal to comply with a special assessment.
Third. Upon a host of decisions of the United States Supreme Court, the imposition or collection of a
special assessment upon property owners who receive no benefit from such assessment amounts to

a denial of due process. Thus, in the case of Norwood vs. Baer, 172 US 269, the ruling was laid
down that
As already indicated, the principle underlying special assessments to meet the cost of public
improvements is that the property upon which they are imposed is peculiarly benefited, and
therefore, the panels do not, in fact, pay anything in excess of what they received by reason
of such improvement.
unless a corresponding benefit is realized by the property owner, the exaction of a special
assessment would be "manifestly unfair" (Seattle vs. Kelleher 195 U.S. 351) and "palpably arbitrary
or plain abuse" (Gast Realty Investment Co. vs. Schneider Granite Co., 240 U.S. 57). In other words,
the assessment is violative of the due process guarantee of the constitution (Memphis vs.
Charleston Ry v. Pace, 282 U.S. 241).
We find for the appellee.
The nature of a "special assessment" similar to the case at bar has already been discussed and
explained by this Court in the case of Lutz vs. Araneta, 98 Phil. 148. For in this Lutz case,
Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, levies on owners or persons
in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration,
on lease or otherwise
a tax equivalent to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed value of such land.
(Sec. 3).
1wph1.t

Under Section 6 of the said law, Commonwealth Act 567, all collections made thereunder "shall
accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and
Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any
or all of the following objectives, as may be provided by law." It then proceeds to enumerate the said
purposes, among which are "to place the sugar industry in a position to maintain itself; ... to readjust
the benefits derived from the sugar industry ... so that all might continue profitably to engage therein;
to limit the production of sugar to areas more economically suited to the production thereof; and to
afford laborers employed in the industry a living wage and to improve their living and working
conditions.
The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or special
assessment was unconstitutional because it was being "levied for the aid and support of the sugar
industry exclusively," and therefore, not for a public purpose. In rejecting the theory advanced by the
said plaintiff, this Court said:
The basic defect in the plaintiff's position in his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and
particularly Section 6, will show that the tax is levied with a regulatory purpose, to provide
means for the rehabilitation and stabilization of the threatened sugar industry. In other words,
the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great
industries of our nation, sugar occupying a leading position among its export products; that it

gives employment to thousands of laborers in fields and factories; that it is a great source of
the state's wealth, is one, of the important sources to foreign exchange needed by our
government, and is thus pivotal in the plans of a regime committed to a policy of currency
stability. Its promotion, protection and advancement, therefore redounds greatly to the
general welfare. Hence, it was competent for the Legislature to find that the general welfare
demanded that the sugar industry should be stabilized in turn; and in the wide field of its
police power, the law-making body could provide that the distribution of benefits therefrom be
readjusted among its components, to enable it to resist the added strain of the increase in
taxes that it had to sustain (Sligh vs. Kirkwood, 237 U.S. 52, 59 L. Ed. 835; Johnson vs.
State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Marcy Inc. vs. Mayo, 103 Fla. 552, 139 So.
121)
As stated in Johnson vs. State ex rel. Marcy, with reference to the citrus industry in Florida
"The protection of a large industry constituting one of the great source of the state's
wealth and therefore directly or indirectly affecting the welfare of so great a portion of
the population of the State is affected to such an extent by public interests as to be
within the police power of the sovereign." (128 So. 857).
Once it is conceded, as it must that the protection and promotion of the sugar industry is a
matter of public concern, it follows that the Legislature may determine within reasonable
bounds what is necessary for its protection and expedient for its promotion. Here, the
legislative discretion must be allowed full play, subject only to the test of reasonableness;
and it is not contended that the means provided in Section 6 of the law (above quoted) bear
no relation to the objective pursued or are oppressive in character. If objective and methods
are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise
funds for their prosecution and attainment. Taxation may be made the implement of the
state's police power. (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193;
U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477; M'cullock vs. Maryland, 4 Wheat. 316, 4 L. Ed.
579).
On the authority of the above case, then, We hold that the special assessment at bar may be
considered as similarly as the above, that is, that the levy for the Philsugin Fund is not so much an
exercise of the power of taxation, nor the imposition of a special assessment, but, the exercise of the
police power for the general welfare of the entire country. It is, therefore, an exercise of a sovereign
power which no private citizen may lawfully resist.
Besides, under Section 2(a) of the charter, the Philsugin is authorized "to conduct research work for
the sugar industry in all its phases, either agricultural or industrial, for the purpose of introducing into
the sugar industry such practices or processes that will reduce the cost of production, ..., and
achieve greater efficiency in the industry." This provision, first of all, more than justifies the
acquisition of the refinery in question. The case dispute that the operation of a sugar refinery is a
phase of sugar production and that from such operation may be learned methods of reducing the
cost of sugar manufactured no less than it may afford the opportunity to discover the more effective
means of achieving progress in the industry. Philsugin's experience alone of running a refinery is a
gain to the entire industry. That the operation resulted in a financial loss is by no means an index that
the industry did not profit therefrom, as other farms of a different nature may have been realized.
Thus, from its financially unsuccessful venture, the Philsugin could very well have advanced in its
appreciation of the problems of management faced by sugar centrals. It could have understood more

clearly the difficulties of marketing sugar products. It could have known with better intimacy the
precise area of the industry in need of the more help from the government. The view of the
appellants herein, therefore, that they were not benefited by the unsuccessful operation of the
refinery in question is not entirely accurate.
Furthermore, Section 2(a) specifies a field of research which, indeed, would be difficult to carry out
save through the actual operation of a refinery. Quite obviously, the most practical or realistic
approach to the problem of what "practices or processes" might most effectively cut the cost of
production is to experiment on production itself. And yet, how can such an experiment be carried out
without the tools, which is all that a refinery is?
In view of all the foregoing, the decision appealed from is hereby affirmed, with costs.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.
Makalintal, J., took no part.
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

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
they are not inconsistent with or foreign to the general subject and title.

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 theaterowners pay to the government, but which is passed on to the entire cost of the admission ticket, thus
shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all
videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was also
an objective of the DECREE to protect the movie industry, the tax remains a valid imposition.
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 theprima 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.
Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla,
Bidin, Sarmiento and Cortes, JJ., concur.

Footnotes
1 Section 19[1], Article VIII, 1973 Constitution; Section 26[l] Article VI, 1987
Constitution.
2 Sumulong vs. COMELEC, No. 48609, October 10, 1941, 73 Phil. 288; Cordero vs.
Hon. Jose Cabatuando, et al., L-14542, Oct. 31, 1962,6 SCRA 418.
3 Public Service Co., Recktenwald, 290 III. 314, 8 ALR 466, 470.
4 Government vs. Hongkong & Shanghai Banking Corporation, No. 44257,
November 22, 1938, 66 Phil. 483; Cordero vs. Cabatuando, et al., supra.
5 Sumulong vs. Commission on Elections, supra.
6 United States vs. Sanchez, 340 U.S. 42, 44, 1950, cited in Bernas, Philippines
Constitutional Law, p. 594.
7 People vs. Carlos, L-239, June 30, 1947, 78 Phil. 535.
8 U.S. vs. Sanchez, supra.
9 II Cooley, A Treatise on the Constitutional Limitations, p. 986.
10 ibid., p. 987.
11 Magnano Co. vs. Hamilton, 292, U.S. 40.
12 Lutz vs. Araneta, L-7859, December 22, 1955, 98 Phil. 148, citing Carmichael vs.
Southern Coal and Coke Co., 301 U.S. 495, 81 L. Ed. 1245.

13 ibid., citing Great Atl. and Pacific Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed.
1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat,
316,4 L. Ed. 579.
14 Cincinnati, W & Z.R. Co. vs. Clinton County Comrs (1852) 1 Ohio St. 88.
15 G. R. No. L-40195, May 29, 1987.
16 ibid., citing People vs. Mingoa, supra, See also U.S. vs. Luling No. 11162, August
12, 1916,34 Phil. 725.
17 Solicitor General's Comments, p. 102, Rollo.
18 Morfe vs. Mutuc, L-20387, January 31, 1968, 22 SCRA 424, 450-451.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-22356

July 21, 1967

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
PEDRO B. PATANAO, defendant-appellee.
Office of the Solicitor General Arturo A. Alafriz, Solicitor A. B. Afurong and L. O. Gal-lang for plaintiffappellant.
Tranquilino O. Calo, Jr. for defendant-appellee.
ANGELES, J.:
This is an appeal from an order of the Court of First Instance of Agusan in civil case No. 925,
dismissing plaintiff's complaint so far as concerns the collection of deficiency income taxes for the
years 1951, 1953 and 1954 and additional residence taxes for 1951 and 1952, and requiring the
defendant to file his answer with respect to deficiency income tax for 1955 and residence taxes for
1953-1955.
In the complaint filed by the Republic of the Philippines, through the Solicitor General, against Pedro
B. Patanao, it is alleged that defendant was the holder of an ordinary timber license with concession
at Esperanza, Agusan, and as such was engaged in the business of producing logs and lumber for
sale during the years 1951-1955; that defendant failed to file income tax returns for 1953 and 1954,
and although he filed income tax returns for 1951, 1952 and 1955, the same were false and
fraudulent because he did not report substantial income earned by him from his business; that in an
examination conducted by the Bureau of Internal Revenue on defendant's income and expenses for
1951-1955, it was ascertained that the sum of P79,892.75, representing deficiency; income taxes
and additional residence taxes for the aforesaid years, is due from defendant; that on February 14,
1958, plaintiff, through the Deputy Commissioner of Internal Revenue, sent a letter of demand with

enclosed income tax assessment to the defendant requiring him to pay the said amount; that
notwithstanding repeated demands the defendant refused, failed and neglected to pay said taxes;
and that the assessment for the payment of the taxes in question has become final, executory and
demandable, because it was not contested before the Court of Tax Appeals in accordance with the
provisions of section 11 of Republic Act No. 1125.
Defendant moved to dismiss the complaint on two grounds, namely: (1) that the action is barred by
prior judgment, defendant having been acquitted in criminal cases Nos. 2089 and 2090 of the same
court, which were prosecutions for failure to file income tax returns and for non-payment of income
taxes; and (2) that the action has prescribed.
After considering the motion to dismiss, the opposition thereto and the rejoinder to the opposition,
the lower court entered the order appealed from, holding that the only cause of action left to the
plaintiff in its complaint is the collection of the income tax due for the taxable year 1955 and the
residence tax (Class B) for 1953, 1954 and 1955. A motion to reconsider said order was denied,
whereupon plaintiff interposed the instant appeal, which was brought directly to this Court, the
questions involved being purely legal.
The conclusion of the trial court, that the present action is barred by prior judgment, is anchored on
the following rationale:
There is no question that the defendant herein has been accused in Criminal Cases Nos.
2089 and 2090 of this Court for not filing his income tax returns and for non-payment of
income taxes for the years 1953 and 1954. In both cases, he was acquitted. The rule in this
jurisdiction is that the accused once acquitted is exempt from both criminal and civil
responsibility because when a criminal action is instituted, civil action arising from the same
offense is impliedly instituted unless the offended party expressly waives the civil action or
reserves the right to file it separately. In the criminal cases abovementioned wherein the
defendant was completely exonerated, there was no waiver or reservation to file a separate
civil case so that the failure to obtain conviction on a charge of non-payment of income taxes
is fatal to any civil action to collect the payment of said taxes.
1wph1.t

Plaintiff-appellant assails the ruling as erroneous. Defendant-appellee on his part urges that it should
be maintained.
In applying the principle underlying the civil liability of an offender under the Penal Code to a case
involving the collection of taxes, the court a quo fell into error. The two cases are circumscribed by
factual premises which are diametrically opposed to each either, and are founded on entirely
different philosophies. Under the Penal Code the civil liability is incurred by reason of the offender's
criminal act. Stated differently, the criminal liability gives birth to the civil obligation such that
generally, if one is not criminally liable under the Penal Code, he cannot become civilly liable
thereunder. The situation under the income tax law is the exact opposite. Civil liability to pay taxes
arises from the fact, for instance, that one has engaged himself in business, and not because of any
criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil
obligation. The incongruity of the factual premises and foundation principles of the two cases is one
of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. Another
reason, of course, is found in the fact that while section 73 of the National Internal Revenue Code
has provided the imposition of the penalty of imprisonment or fine, or both, for refusal or neglect to
pay income tax or to make a return thereof, it failed to provide the collection of said tax in criminal

proceedings. The only civil remedies provided, for the collection of income tax, in Chapters I and II,
Title IX of the Code and section 316 thereof, are distraint of goods, chattels, etc. or by judicial action,
which remedies are generally exclusive in the absence of a contrary intent from the legislator.
(People vs. Arnault, G.R. No. L-4288, November 20, 1952; People vs. Tierra, G.R. Nos. L-1717717180, December 28, 1964) Considering that the Government cannot seek satisfaction of the
taxpayer's civil liability in a criminal proceeding under the tax law or, otherwise stated, since the said
civil liability is not deemed included in the criminal action, acquittal of the taxpayer in the criminal
proceeding does not necessarily entail exoneration from his liability to pay the taxes. It is error to
hold, as the lower court has held, that the judgment in the criminal cases Nos. 2089 and 2090 bars
the action in the present case. The acquittal in the said criminal cases cannot operate to discharge
defendant appellee from the duty of paying the taxes which the law requires to be paid, since that
duty is imposed by statute prior to and independently of any attempts by the taxpayer to evade
payment. Said obligation is not a consequence of the felonious acts charged in the criminal
proceeding, nor is it a mere civil liability arising from crime that could be wiped out by the judicial
declaration of non-existence of the criminal acts charged. (Castro vs. The Collector of Internal
Revenue, G.R. No. L-12174, April 20, 1962).
Regarding prescription of action, the lower court held that the cause of action on the deficiency
income tax and residence tax for 1951 is barred because appellee's income tax return for 1951 was
assessed by the Bureau of Internal Revenue only on February 14, 1958, or beyond the five year
period of limitation for assessment as provided in section 331 of the National Internal Revenue
Code. Appellant contends that the applicable law is section 332 (a) of the same Code under which a
proceeding in court for the collection of the tax may be commenced without assessment at any time
within 10 years from the discovery of the falsity, fraud or omission.
The complaint filed on December 7, 1962, alleges that the fraud in the appellee's income tax return
for 1951, was discovered on February 14, 1958. By filing a motion to dismiss, appellee hypothetically
admitted this allegation as all the other averments in the complaint were so admitted. Hence, section
332 (a) and not section 331 of the National Internal Revenue Code should determine whether or not
the cause of action of deficiency income tax and residence tax for 1951 has prescribed. Applying the
provision of section 332 (a), the appellant's action instituted in court on December 7, 1962 has not
prescribed.
Wherefore, the order appealed from is hereby set aside. Let the records of this case be remanded to
the court of origin for further proceedings. No pronouncement as to costs.
Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and Fernando, JJ., concur.
Concepcion, C.J. and Dizon, J., are on leave.