LUTZ v. ARANETA GR No.
L-7859, SISON VS ANCHETA Equal Protection
December 22, 1955 98 PHIL 148
FACTS: Plaintiff Walter Lutz, in his capacity as
judicial administrator of the intestate estate of
Antionio Ledesma, sought to recover from the CIR
the sum of P14,666.40 paid by the estate as taxes,
under section 3 of the CA567 or the Sugar
Adjustment Act thereby assailing its constitutionality,
for it provided for an increase of the existing tax on
the manufacture of sugar, alleging that such
enactment is not being levied for a public purpose
but solely and exclusively for the aid and support of
the sugar industry thus making it void and
unconstitutional.
The sugar industry situation at the time of the
enactment was in an imminent threat of loss and
needed to be stabilized by imposition of emergency
measures.
ISSUE: Is CA 567 constitutional, despite its being
allegedly violative of the equal protection clause, the
purpose of which is not for the benefit of the general
public but for the rehabilitation only of the sugar
industry?
HELD: Yes. 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 to fully play,
subject only to the test of reasonableness; and it is
not contended that the means provided in the law
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.
Sison assails the validity of BP 135 w/c further
amended Sec 21 of the National Internal Revenue
Code of 1977. The law provides that thered be a
higher tax impost against income derived from
professional income as opposed to regular income
earners. Sison, as a professional businessman, and
as taxpayer alleges that by virtue thereof, he would
be unduly discriminated against by the imposition of
higher rates of tax upon his income arising from the
exercise of his profession vis-a-vis those which are
imposed upon fixed income or salaried individual
taxpayers. He characterizes the above section as
arbitrary amounting to class legislation, oppressive
and capricious in character. There is a transgression
of both the equal protection and due process
clauses of the Constitution as well as of the rule
requiring uniformity in taxation.
ISSUE: Whether the imposition of a higher tax rate
on taxable net income derived from business or
profession than on compensation is constitutionally
infirm.
HELD: The SC ruled against Sison. The power to tax,
an inherent prerogative, has to be availed of to
assure the performance of vital state functions. It is
the source of the bulk of public funds. Taxes, being
the lifeblood of the government, their prompt and
certain availability is of the essence. According to the
Constitution: The rule of taxation shall be uniform
and equitable. However, the rule of uniformity does
not call for perfect uniformity or perfect equality,
because this is hardly attainable. 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. Where the differentiation
complained of conforms to the practical dictates of
justice and equity it is not discriminatory within the
meaning of this clause and is therefore uniform.
There is quite a similarity then to the standard of
equal protection for all that is required is that the tax
applies equally to all persons, firms and
corporations placed in similar situation.
What misled Sison is his failure to take into
consideration the distinction between a tax rate and
a tax base. There is no legal objection to a broader
tax base or taxable income by eliminating all
deductible items and at the same time reducing the
applicable tax rate. Taxpayers may be classified into
different categories. In the case of the gross income
taxation embodied in BP 135, the discernible basis of
classification is the susceptibility of the income to the
application of generalized rules removing all
deductible items for all taxpayers within the class
and fixing a set of reduced tax rates to be applied to
all of them. Taxpayers who are recipients of
compensation income are set apart as a class. As
there is practically no overhead expense, these
taxpayers are not entitled to make deductions for
income tax purposes because they are in the same
situation more or less. On the other hand, in the
case of professionals in the practice of their calling
and businessmen, there is no uniformity in the costs
or expenses necessary to produce their income. It
would not be just then to disregard the disparities by
giving all of them zero deduction and indiscriminately
impose on all alike the same tax rates on the basis of
gross income. There is ample justification then for
the Batasang Pambansa to adopt the gross system of
income taxation to compensation income, while
continuing the system of net income taxation as
regards professional and business income.
Facts: On May 24, 2005, the President signed into
law Republic Act 9337 or the VAT Reform Act. Before
the law took effect on July 1, 2005, the
Court issued a TRO enjoining government from
implementing the law in response to a slew of
petitions for certiorari and prohibition questioning the
constitutionality of the new law.
The challenged section of R.A. No. 9337 is
the common proviso in Sections 4, 5 and 6: That
the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to 12%, after
any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of
Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%);
or (ii) National government deficit as a percentage of
GDP of the previous year exceeds one and one-half
percent (1%)
Petitioners allege that the grant of stand-
by authority to the President to increase the VAT rate
is an abdication by Congress of its exclusive power to
tax because such delegation is not covered by
Section 28 (2), Article VI Consti. They argue that
VAT is a tax levied on the sale or exchange of goods
and services which cant be included within the
purview of tariffs under the exemption delegation
since this refers to customs duties, tolls or tribute
payable upon merchandise to the government and
usually imposed on imported/exported goods. They
also said that the President has powers to cause,
influence or create the conditions provided by law to
bring about the conditions precedent. Moreover, they
allege that no guiding standards are made by law as
to how the Secretary of Finance will make the
recommendation.
Issue: Whether or not the RA 9337's stand-
by authority to the Executive to increase the VAT
rate, especially on account of the recommendatory
power granted to the Secretary of Finance,
constitutes undue delegation of legislative power?
NO
Held: The powers which Congress is prohibited from
delegating are those which are strictly, or inherently
and exclusively, legislative. Purely legislative power
which can never be delegated is the authority to
make a complete law- complete as to the time when
it shall take effect and as to whom it shall be
applicable, and to determine the expediency of its
enactment. It is the nature of the power and not the
liability of its use or the manner of its exercise which
determines the validity of its delegation.
The exceptions are:
(a) delegation of tariff powers to President under
Constitution
(b) delegation of emergency powers to President
under Constitution
(c) delegation to the people at large
(d) delegation to local governments
(e) delegation to administrative bodies
For the delegation to be valid, it must
be complete and it must fix a standard. A sufficient
standard is one which defines legislative policy,
marks its limits, maps out its boundaries and
specifies the public agency to apply it.
In this case, it is not a delegation of legislative power
BUT a delegation of ascertainment of facts upon
which enforcement and administration of the
increased rate under the law is contingent. The
legislature has made the operation of the 12% rate
effective January 1, 2006, contingent upon a
specified fact or condition. It leaves the entire
operation or non-operation of the 12% rate upon
factual matters outside of the control of the
executive. No discretion would be exercised by the
President. Highlighting the absence of discretion is
the fact that the word SHALL is used in
the common proviso. The use of the word SHALL
connote a mandatory order. Its use in a statute
denotes an imperative obligation and is inconsistent
with the idea of discretion.
Thus, it is the ministerial duty of the President to
immediately impose the 12% rate upon the
existence of any of the conditions specified by
Congress. This is a duty, which cannot be evaded by
the President. It is a clear directive to impose the
12% VAT rate when the specified conditions are
present.
Congress just granted the Secretary of Finance
the authority to ascertain the existence of a fact---
whether by December 31, 2005, the VAT collection
as a percentage of GDP of the previous year exceeds
2 4/5 % or the national government deficit as a
percentage of GDP of the previous year exceeds one
and 1%. If either of these two instances has
occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the
President.
In making his recommendation to the President on
the existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of
the President or even her subordinate. He is acting
as the agent of the legislative department, to
determine and declare the event upon which its
expressed will is to take effect. The Secretary of
Finance becomes the means or tool by which
legislative policy is determined and implemented,
considering that he possesses all the facilities to
gather data and information and has a much broader
perspective to properly evaluate them. His function is
to gather and collate statistical data and other
pertinent information and verify if any of the two
conditions laid out by Congress is present.
Congress does not abdicate its functions or unduly
delegate power when it describes what job must be
done, who must do it, and what is the scope of
his authority; in our complex economy that is
frequently the only way in which the legislative
process can go forward.
There is no undue delegation of legislative power but
only of the discretion as to the execution of a law.
This is constitutionally permissible. Congress did not
delegate the power to tax but the mere
implementation of the law.
REPUBLIC OF THE PHILIPPINES et al. v.
HONORABLE RAMON S. CAGUIOA et al.
536 SCRA 193 (2007), EN BANC
Congress enacted Republic Act (R.A) No. 7227 or the
Bases Conversion and Development Act of 1992
which created the Subic Special Economic and
Freeport Zone (SBF) and the Subic Bay
Metropolitan Authority (SBMA). Section 12 of R.A No.
7227 of the law provides that no taxes, local and
national, shall be imposed within the Subic Special
Economic Zone. Pursuant to the law, Indigo
Distribution Corporation, et al., which are all
domestic corporations doing business at the SBF,
applied for and were granted Certificates of
Registration and Tax Exemption by the SBMA.
Congress subsequently passed R.A. No. 9334, which
provides that all applicable taxes, duties, charges,
including excise taxes due thereon shall be applied
to cigars and cigarettes, distilled spirits, fermented
liquors and wines brought directly into the
duly chartered or legislated freeports of the Subic
Economic Freeport Zone. On the basis of Section 6 of
R.A. No. 9334, SBMA issued a Memorandum
declaring that, all importations of cigars, cigarettes,
distilled spirits, fermented liquors and wines into the
SBF, shall be treated as ordinary importations
subject to all applicable taxes, duties and charges,
including excise taxes.
Upon its implementation, Indigo et al., sought for a
reconsideration of the directives on the imposition of
duties and taxes, particularly excise taxes by the
Collector of Customs and the SBMA Administrator.
Their request was subsequently denied prompting
them to file with the RTC of Olongapo City a
special civil action for declaratory relief to have
certain provisions of R.A. No. 9334 declared as
unconstitutional. They prayed for the issuance of a
writ of preliminary injunction and/or Temporary
Restraining Order (TRO) and preliminary mandatory
injunction. The same was subsequently granted by
Judge Ramon Caguioa. The injunction bond was
approved at One Million pesos (P1,000,000).
ISSUES: Whether or not public respondent judge
committed grave abuse of discretion amounting to
lack or excess in jurisdiction in peremptorily and
unjustly issuing the injunctive writ in favor of private
respondents despite the absence of the legal
requisites for its issuance
HELD: One such case of grave abuse obtained in this
case when Judge Caguioa issued his Order of May 4,
2005 and the Writ of Preliminary Injunction on May
11, 2005 despite the absence of a clear and
unquestioned legal right of private respondents. In
holding that the presumption of constitutionality and
validity of R.A. No. 9334 was overcome by private
respondents for the reasons public respondent cited
in his May 4, 2005 Order, he disregarded the fact
that as a condition sine qua non to the issuance of a
writ of preliminary injunction, private respondents
needed also to show a clear legal right that ought to
be protected. That requirement is not satisfied in this
case. To stress, the possibility of irreparable damage
without proof of an actual existing right would not
justify an injunctive relief.
Indeed, Sections 204 and 229 of the NIRC provide
for the recovery of erroneously or illegally collected
taxes which would be the nature of the excise taxes
paid by private respondents should Section 6 of R.A.
No. 9334 be declared unconstitutional or invalid.
The Court finds that public respondent had also
ventured into the delicate area which courts are
cautioned from taking when deciding applications for
the issuance of the writ of preliminary injunction.
Having ruled preliminarily against the prima facie
validity of R.A. No. 9334, he assumed in effect the
proposition that private respondents in their petition
for declaratory relief were duty bound to prove,
thereby shifting to petitioners the burden of proving
that R.A. No. 9334 is not unconstitutional or invalid.
In the same vein, the Court finds Judge Caguioa to
have overstepped his discretion when he arbitrarily
fixed the injunction bond of the SBF enterprises at
only P1million. Rule 58, Section 4(b) provides that a
bond is executed in favor of the party enjoined to
answer for all damages which it may sustain by
reason of the injunction. The purpose of the
injunction bond is to protect the defendant against
loss or damage by reason of the injunction in case
the court finally decides that the plaintiff was not
entitled to it, and the bond is
usually conditioned accordingly.
Whether this Court must issue the writ of prohibition,
suffice it to stress that being possessed of the power
to act on the petition for declaratory relief, public
respondent can proceed to determine the merits of
the main case. Moreover, lacking the requisite proof
of public respondents alleged partiality, this Court
has no ground to prohibit him from proceeding with
the case for declaratory relief. For these reasons,
prohibition does not lie.
Cagayan Electric Power & Light Co. Inc. v CIR
(1985)
Cagayan Electric Power & Light Co. Inc. v CIR GR No.
L-60126, September 25, 1985
FACTS: Cagayan Electric is a holder of a legislative
franchise under RA 3247 where payment of 3% tax
on gross earning is in lieu of all taxes and
assessments upon privileges. In 1968, RA 5431
amended the franchise by making all corporate
taxpayers liable for income tax. In 1969, through RA
6020, its franchise was extended to two other towns
and the tax exemption was reenacted. The
commissioner required the company to pay
deficiency income taxes for the intervening period
(1968-1969).
ISSUE: Is CEPALCO liable for the tax?
RULING: Yes. Congress could impair the companys
legislative franchise by making it liable for income
tax. The Constitution provides that a franchise is
subject to amendment, alteration or repeal by the
Congress when the public interest so requires.
However, it cannot be denied that the said 1969
assessment appears to be highly controversial. It
had reason not to pay income tax because of the tax
exemption its franchise. For this reason, it should be
liable only for tax proper and should not be held
liable for surcharge and interest.
American Tobacco v. Camacho (2008)
G.R. No. 163583 August 20, 2008
YNARES-SANTIAGO, J.
Lessons Applicable: Court of Tax Appeals
Jurisdiction, Regional Trial Court Jurisdiction, Equal
Protection and Uniformity of Taxation (constitutional
issue), BIR Power to Conduct Resurvey and
Reclassification (delegated by express legislation)
FACTS:
June 2001, petitioner British American
Tobacco introduced and sold Lucky Strike,
Lucky Strike Lights and Lucky Strike
Menthol Lights cigarettes w/ SRP P
9.90/pack - Initial assessed excise tax: P
8.96/pack (Sec. 145 [c])
February 17, 2003: RR 9-2003: Periodic
review every 2 years or earlier of the
current net retail price of new brands and
variants thereof for the purpose of the
establishing and updating their tax
classification
March 11, 2003: RMO 6-2003: Guidelines
and procedures in establishing current net
retail prices of new brands of cigarettes and
alcohol products
August 8, 2003: RR 22-2003: Implement
the revised tax classification of certain new
brands introduced in the market after
January 1, 1997 based on the survey of
their current net retail prices. This
increased the excise tax to P13.44 since the
 average net retail price is above P
10/pack. This cause petitioner to file before
the RTC of Makati a petition for injunction
with prayer for issuance of a Temporary
Restraining Order and/or Writ of Preliminary
Injunction sought to enjoin the
implementation of Sec. 145 of the NIRC, RR
No. 1-97, 9-2003, 22-2003 and 6-2003 on
the ground that they discriminate against
new brands of cigarettes in violation of the
equal protection and uniformity
provisions of the Constitution
RTC: Dismissed
While petitioner's appeal was pending, RA
9334 amending Sec. 145 of the 1997 NIRC
among other took effect on January 1, 2005
which in effect increased petitioners excise
tax to P25/pack
Petitioner filed a Motion to Admit attached
supplement and a supplement to the
petition for review assailing the
constitutionality of RA 9334 and praying a
downward classification of Lucky Strike
products at the bracket taxable at P
8.96/pack since existing brands are still
taxed based on their price as of October
1996 eventhough they are equal or higher
than petitioner's product price.
Philip Morris Philippines Manufacturing
Incorporated, Fortune Tobacco Corp.,
Mighty Corp. and JT International
Intervened.
Fortune Tobacco claimed that the CTA
should have the exclusive appellate
jurisdiction over the decision of the BIR in
tax disputes
ISSUE:
1. W/N the RTC rather than the CTA has
jurisdiction.
2. W/N RA 9334 of the classification freeze
provision is unconstitutional for violating
the equal protection and uniformity
provisions of the Constitution
3. W/N RR Nos. 1-97, 9-2003, 22-2003 and RA
8243 even prior to its amendment by RA
9334 can authorize the BIR to conduct
resurvey and reclassification.
HELD:
1. Yes. The jurisdiction of the CTA id defined in RA
1125 which confers on the CTA jurisdiction to resolve
tax disputes in general. BUT does NOT include cases
where the constitutionality of a law or rule is
challenged which is a judicial power belonging to
regular courts.
2. No. In Sison Jr. v. Ancheta, the court held that
"xxx It suffices then that the laws operate equally
and uniformly on all persons under similar
circumstances or that all persons must be treated in
the same manner, the conditions not being different,
both in the privileges conferred and the liabilities
imposed. If the law be looked upon in tems of
burden on charges, those that fall within a class
should be treated in the same fashion, whatever
restrictions cast on some in the group equally
binding on the rest. xxx" Thus, classification if
rational in character is allowable. In Lutz v. Araneta:
"it is inherent in the power to tax that a state be free
to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a
singling out of one particular class for taxation, or
exemption infringe no constitutional limitation" SC
previously held: "Equality and uniformity in taxation
means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate. The
taxing power has the authority to make reasonable
and natural classifications for purposes of taxation"
Under the the rational basis test, a legislative
classification, to survive an equal protection
challenge, must be shown to rationally further a
legitimate state interest. The classifications must be
reasonable and rest upon some ground of difference HELD:
having a fair and substantial relation to the object of
The court having jurisdiction of the Estate had found
the legislation
that the claim of the Estate against the Government
has been recognized and an amount of P262,200 has
A legislative classification that is reasonable does not
already been appropriated by a corresponding law
offend the constitutional guaranty of the equal
(RA 2700). Under the circumstances, both the claim
protection of the laws. The classification is
of the Government for inheritance taxes and the
considered valid and reasonable provided that: (1) it
claim of the intestate for services rendered have
rests on substantial distinctions; (2) it is germane to
already become overdue and demandable as well as
the purpose of the law; (3) it applies, all things being
fully liquidated. Compensation, therefore, takes place
equal, to both present and future conditions; and (4)
by operation of law, in accordance with Article 1279
it applies equally to all those belonging to the same
and 1290 of the Civil Code, and both debts are
class.
extinguished to the concurrent amount.

Moreover, petitioner failed to clearly demonstrate the CIR VS ESSO STANDARD EASTERN
exact extent of such impact as the price is not the
FACTS:
only factor that affects competition.
ESSO deducted from its gross income for 1959, as
part of its ordinary and necessary business
3. NO. Unless expressly granted to the BIR, the
expenses, the amount it had spent for drilling and
power to reclassify cigarette brands remains a
exploration of its petroleum concessions. The
prerogative of the legislature which cannot be
Commissioner disallowed the claim on the ground
usurped by the former. These are however modified
that the expenses should be capitalized and might be
by RA 9334.
written off as a loss only when a dry hole should
result. Hence, ESSO filed an amended return where
it asked for the refund of P323,270 by reason of its
Domingo vs. Garlitos GR L-18993 29 June 1963
abandonment, as dry holes, of several of its oil wells.
FACTS: It also claimed as ordinary and necessary expenses
in the same return amount representing margin fees
In Domingo vs. Moscoso (106 PHIL 1138), the
it had paid to the Central Bank on its profit
Supreme Court declared as final and executory the
remittances to its New York Office.
order of the Court of First Instance of Leyte for the
payment of estate and inheritance taxes, charges
and penalties amounting to P40,058.55 by the Estate ISSUE: Whether the margin fees may be considered
of the late Walter Scott Price. The petition for ordinary and necessary expenses when paid.
execution filed by the fiscal, however, was denied by
the lower court. The Court held that the execution is
HELD:
unjustified as the Government itself is indebted to
For an item to be deductible as a business expense,
the Estate for 262,200; and ordered the amount of
the expense must be ordinary and necessary; it must
inheritance taxes be deducted from the
be paid or incurred within the taxable year; and it
Governments indebtedness to the Estate.
must be paid or incurred in carrying on a trade or
ISSUE: business. In addition, the taxpayer must
substantially prove by evidence or records the
Whether a tax and a debt may be compensated.
deductions claimed under law, otherwise, the same
will be disallowed. There has been no attempt to
define ordinary and necessary with precision.
However, as guiding principle in the proper
adjudication of conflicting claims, an expenses is
considered necessary where the expenditure is
appropriate and helpful in the development of the
taxpayers business. It is ordinary when it connotes a
payment which is normal in relation to the business
of the taxpayer and the surrounding circumstances.
Assuming that the expenditure is ordinary and
necessary in the operation of the taxpayers
business; the expenditure, to be an allowable
deduction as a business expense, must be
determined from the nature of the expenditure itself,
and on the extent and permanency of the work
accomplished by the expenditure. Herein, ESSO has
not shown that the remittance to the head office of
part of its profits was made in furtherance of its own
trade or business. The petitioner merely presumed
that all corporate expenses are necessary and
appropriate in the absence of a showing that they
are illegal or ultra vires; which is erroneous. Claims
for deductions are a matter of legislative grace and
do not turn on mere equitable considerations.