Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 186242 December 23, 2009

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,

vs.
CITY TREASURER and CITY ASSESSOR of the CITY OF MANILA, Respondents.

DECISION

VELASCO, JR., J.:

The Case

For review under Rule 45 of the Rules of Court on pure question of law are the November 15, 2007
Decision1 and January 7, 2009 Order2 of the Regional Trial Court (RTC), Branch 49 in Manila, in Civil
Case No. 02-104827, a suit to nullify the assessment of real property taxes on certain properties
belonging to petitioner Government Service Insurance System (GSIS).

The Facts

Petitioner GSIS owns or used to own two (2) parcels of land, one located at Katigbak 25th St.,
Bonifacio Drive, Manila (Katigbak property), and the other, at Concepcion cor. Arroceros Sts., also in
Manila (Concepcion-Arroceros property). Title to the Concepcion-Arroceros property was transferred
to this Court in 2005 pursuant to Proclamation No. 835 3 dated April 27, 2005. Both the GSIS and the
Metropolitan Trial Court (MeTC) of Manila occupy the Concepcion-Arroceros property, while the
Katigbak property was under lease.

The controversy started when the City Treasurer of Manila addressed a letter4 dated September 13,
2002 to GSIS President and General Manager Winston F. Garcia informing him of the unpaid real
property taxes due on the aforementioned properties for years 1992 to 2002, broken down as follows:
(a) PhP 54,826,599.37 for the Katigbak property; and (b) PhP 48,498,917.01 for the Concepcion-
Arroceros property. The letter warned of the inclusion of the subject properties in the scheduled
October 30, 2002 public auction of all delinquent properties in Manila should the unpaid taxes remain
unsettled before that date.

On September 16, 2002, the City Treasurer of Manila issued separate Notices of Realty Tax
Delinquency5 for the subject properties, with the usual warning of seizure and/or sale. On October 8,
2002, GSIS, through its legal counsel, wrote back emphasizing the GSIS’ exemption from all kinds of
taxes, including realty taxes, under Republic Act No. (RA) 8291.6

Two days after, GSIS filed a petition for certiorari and prohibition 7 with prayer for a restraining and
injunctive relief before the Manila RTC. In it, GSIS prayed for the nullification of the assessments thus
made and that respondents City of Manila officials be permanently enjoined from proceedings against
GSIS’ property. GSIS would later amend its petition8 to include the fact that: (a) the Katigbak
property, covered by TCT Nos. 117685 and 119465 in the name of GSIS, has, since November 1991,
been leased to and occupied by the Manila Hotel Corporation (MHC), which has contractually bound
itself to pay any realty taxes that may be imposed on the subject property; and (b) the Concepcion-
Arroceros property is partly occupied by GSIS and partly occupied by the MeTC of Manila.

The Ruling of the RTC

By Decision of November 15, 2007, the RTC dismissed GSIS’ petition, as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered, DISMISSING the petition for
lack of merit, and declaring the assessment conducted by the respondents City of Manila on the
subject real properties of GSIS as valid pursuant to law.
SO ORDERED.9

GSIS sought but was denied reconsideration per the assailed Order dated January 7, 2009.

Thus, the instant petition for review on pure question of law.

The Issues

1. Whether petitioner is exempt from the payment of real property taxes from 1992 to 2002;

2. Whether petitioner is exempt from the payment of real property taxes on the property it
leased to a taxable entity; and

3. Whether petitioner’s real properties are exempt from warrants of levy and from tax sale for
non-payment of real property taxes.10

The Court’s Ruling

The issues raised may be formulated in the following wise: first, whether GSIS under its charter is
exempt from real property taxation; second, assuming that it is so exempt, whether GSIS is liable for
real property taxes for its properties leased to a taxable entity; and third, whether the properties of
GSIS are exempt from levy.

In the main, it is petitioner’s posture that both its old charter, Presidential Decree No. (PD) 1146, and
present charter, RA 8291 or the GSIS Act of 1997, exempt the agency and its properties from all
forms of taxes and assessments, inclusive of realty tax. Excepting, respondents counter that GSIS
may not successfully resist the city’s notices and warrants of levy on the basis of its exemption under
RA 8291, real property taxation being governed by RA 7160 or the Local Government Code of
1991 (LGC, hereinafter).

The petition is meritorious.

First Core Issue: GSIS Exempt from Real Property Tax

Full tax exemption granted through PD 1146

In 1936, Commonwealth Act No. (CA) 18611 was enacted abolishing the then pension systems under
Act No. 1638, as amended, and establishing the GSIS to manage the pension system, life and
retirement insurance, and other benefits of all government employees. Under what may be
considered as its first charter, the GSIS was set up as a non-stock corporation managed by a board
of trustees. Notably, Section 26 of CA 186 provided exemption from any legal process and liens but
only for insurance policies and their proceeds, thus:

Section 26. Exemption from legal process and liens. — No policy of life insurance issued under this
Act, or the proceeds thereof, when paid to any member thereunder, nor any other benefit granted
under this Act, shall be liable to attachment, garnishment, or other process, or to be seized, taken,
appropriated, or applied by any legal or equitable process or operation of law to pay any debt or
liability of such member, or his beneficiary, or any other person who may have a right thereunder,
either before or after payment; nor shall the proceeds thereof, when not made payable to a named
beneficiary, constitute a part of the estate of the member for payment of his debt. x x x

In 1977, PD 1146,12 otherwise known as the Revised Government Service Insurance Act of 1977,
was issued, providing for an expanded insurance system for government employees. Sec. 33 of PD
1146 provided for a new tax treatment for GSIS, thus:

Section 33. Exemption from Tax, Legal Process and Lien. It is hereby declared to be the policy of the
State that the actuarial solvency of the funds of the System shall be preserved and maintained at all
times and that the contribution rates necessary to sustain the benefits under this Act shall be kept as
low as possible in order not to burden the members of the System and/or their employees. Taxes
imposed on the System tend to impair the actuarial solvency of its funds and increase the contribution
rate necessary to sustain the benefits under this Act. Accordingly, notwithstanding any laws to the
contrary, the System, its assets, revenues including all accruals thereto, and benefits paid,
shall be exempt from all taxes, assessments, fees, charges or duties of all kinds. These
exemptions shall continue unless expressly and specifically revoked and any assessment against the
System as of the approval of this Act are hereby considered paid.

The benefits granted under this Act shall not be subject, among others, to attachment, garnishment,
levy or other processes. This, however, shall not apply to obligations of the member to the System, or
to the employer, or when the benefits granted herein are assigned by the member with the authority
of the System. (Emphasis ours.)

A scrutiny of PD 1146 reveals that the non-stock corporate structure of GSIS, as established under
CA 186, remained unchanged. Sec. 3413 of PD 1146 pertinently provides that the GSIS, as created
by CA 186, shall implement the provisions of PD 1146.

RA 7160 lifted GSIS tax exemption

Then came the enactment in 1991 of the LGC or RA 7160, providing the exercise of local government
units (LGUs) of their power to tax, the scope and limitations thereof,14 and the exemptions from
taxations. Of particular pertinence is the general provision on withdrawal of tax exemption privileges
in Sec. 193 of the LGC, and the special provision on withdrawal of exemption from payment of real
property taxes in the last paragraph of the succeeding Sec. 234, thus:

SEC. 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or -controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions,
are hereby withdrawn upon the effectivity of this Code.

SEC. 234. Exemption from Real Property Tax. – x x x Except as provided herein, any exemption from
payment of real property tax previously granted to, or presently enjoyed by, all persons, whether
natural or juridical, including all government-owned or controlled corporation are hereby withdrawn
upon the effectivity of this Code.

From the foregoing provisos, there can be no serious doubt about the Congress’ intention to
withdraw, subject to certain defined exceptions, tax exemptions granted prior to the passage of RA
7160. The question that easily comes to mind then is whether or not the full tax exemption heretofore
granted to GSIS under PD 1146, particular insofar as realty tax is concerned, was deemed
withdrawn. We answer in the affirmative.

In Mactan Cebu International Airport Authority v. Marcos,[15] the Court held that the express
withdrawal by the LGC of previously granted exemptions from realty taxes applied to instrumentalities
and government-owned and controlled corporations (GOCCs), such as the Mactan-Cebu
International Airport Authority. In City of Davao v. RTC, Branch XII, Davao City,16 the Court,
citing Mactan Cebu International Airport Authority, declared the GSIS liable for real property taxes for
the years 1992 to 1994 (contested real estate tax assessment therein), its previous exemption under
PD 1146 being considered withdrawn with the enactment of the LGC in 1991.

Significantly, the Court, in City of Davao, stated the observation that the GSIS’ tax-exempt status
withdrawn in 1992 by the LGC was restored in 1997 by RA 8291. 17

Full tax exemption reenacted through RA 8291

Indeed, almost 20 years to the day after the issuance of the GSIS charter, i.e., PD 1146, it was further
amended and expanded by RA 8291 which took effect on June 24, 1997. 18 Under it, the full tax
exemption privilege of GSIS was restored, the operative provision being Sec. 39 thereof, a virtual
replication of the earlier quoted Sec. 33 of PD 1146. Sec. 39 of RA 8291 reads:

SEC. 39. Exemption from Tax, Legal Process and Lien. – It is hereby declared to be the policy of the
State that the actuarial solvency of the funds of the GSIS shall be preserved and maintained at all
times and that contribution rates necessary to sustain the benefits under this Act shall be kept as low
as possible in order not to burden the members of the GSIS and their employers. Taxes imposed on
the GSIS tend to impair the actuarial solvency of its funds and increase the contribution rate
necessary to sustain the benefits of this Act. Accordingly, notwithstanding, any laws to the contrary,
the GSIS, its assets, revenues including all accruals thereto, and benefits paid, shall be
exempt from all taxes, assessments, fees, charges or duties of all kinds. These exemptions
shall continue unless expressly and specifically revoked and any assessment against the
GSIS as of the approval of this Act are hereby considered paid. Consequently, all laws,
ordinances, regulations, issuances, opinions or jurisprudence contrary to or in derogation of this
provision are hereby deemed repealed, superseded and rendered ineffective and without legal force
and effect.

Moreover, these exemptions shall not be affected by subsequent laws to the contrary unless
this section is expressly, specifically and categorically revoked or repealed by law and a
provision is enacted to substitute or replace the exemption referred to herein as an essential
factor to maintain or protect the solvency of the fund, notwithstanding and independently of the
guaranty of the national government to secure such solvency or liability.

The funds and/or the properties referred to herein as well as the benefits, sums or monies
corresponding to the benefits under this Act shall be exempt from attachment, garnishment,
execution, levy or other processes issued by the courts, quasi-judicial agencies or
administrative bodies including Commission on Audit (COA) disallowances and from all financial
obligations of the members, including his pecuniary accountability arising from or caused or
occasioned by his exercise or performance of his official functions or duties, or incurred relative to or
in connection with his position or work except when his monetary liability, contractual or otherwise, is
in favor of the GSIS. (Emphasis ours.)

The foregoing exempting proviso, couched as it were in an encompassing manner, brooks no other
construction but that GSIS is exempt from all forms of taxes. While not determinative of this case, it is
to be noted that prominently added in GSIS’ present charter is a paragraph precluding any implied
repeal of the tax-exempt clause so as to protect the solvency of GSIS funds. Moreover, an express
repeal by a subsequent law would not suffice to affect the full exemption benefits granted the GSIS,
unless the following conditionalities are met: (1) The repealing clause must expressly, specifically,
and categorically revoke or repeal Sec. 39; and (2) a provision is enacted to substitute or replace the
exemption referred to herein as an essential factor to maintain or protect the solvency of the fund.
These restrictions for a future express repeal, notwithstanding, do not make the proviso an
irrepealable law, for such restrictions do not impinge or limit the carte blanche legislative authority of
the legislature to so amend it. The restrictions merely enhance other provisos in the law ensuring the
solvency of the GSIS fund.1avvphi1

Given the foregoing perspectives, the following may be assumed: (1) Pursuant to Sec. 33 of PD
1146, GSIS enjoyed tax exemption from real estate taxes, among other tax burdens, until January 1,
1992 when the LGC took effect and withdrew exemptions from payment of real estate taxes privileges
granted under PD 1146; (2) RA 8291 restored in 1997 the tax exempt status of GSIS by reenacting
under its Sec. 39 what was once Sec. 33 of P.D. 1146;19 and (3) If any real estate tax is due to the
City of Manila, it is, following City of Davao, only for the interim period, or from 1992 to 1996, to be
precise.

Real property taxes assessed and due from GSIS considered paid

While recognizing the exempt status of GSIS owing to the reenactment of the full tax exemption
clause under Sec. 39 of RA 8291 in 1997, the ponencia in City of Davao appeared to have failed to
take stock of and fully appreciate the all-embracing condoning proviso in the very same Sec. 39
which, for all intents and purposes, considered as paid "any assessment against the GSIS as of the
approval of this Act." If only to stress the point, we hereby reproduce the pertinent portion of said Sec.
39:

SEC. 39. Exemption from Tax, Legal Process and Lien. – x x x Taxes imposed on the GSIS tend to
impair the actuarial solvency of its funds and increase the contribution rate necessary to sustain the
benefits of this Act. Accordingly, notwithstanding, any laws to the contrary, the GSIS, its
assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes,
assessments, fees, charges or duties of all kinds. These exemptions shall continue unless
expressly and specifically revoked and any assessment against the GSIS as of the approval of
this Act are hereby considered paid. Consequently, all laws, ordinances, regulations, issuances,
opinions or jurisprudence contrary to or in derogation of this provision are hereby deemed repealed,
superseded and rendered ineffective and without legal force and effect. (Emphasis added.)
GSIS an instrumentality of the National Government

Apart from the foregoing consideration, the Court’s fairly recent ruling in Manila International Airport
Authority v. Court of Appeals,20 a case likewise involving real estate tax assessments by a Metro
Manila city on the real properties administered by MIAA, argues for the non-tax liability of GSIS for
real estate taxes. There, the Court held that MIAA does not qualify as a GOCC, not having been
organized either as a stock corporation, its capital not being divided into shares, or as a non-stock
corporation because it has no members. MIAA is rather aninstrumentality of the National
Government and, hence, outside the purview of local taxation by force of Sec. 133 of the LGC
providing in context that "unless otherwise provided," local governments cannot tax national
government instrumentalities. And as the Court pronounced in Manila International Airport Authority,
the airport lands and buildings MIAA administers belong to the Republic of the Philippines, which
makes MIAA a mere trustee of such assets. No less than the Administrative Code of 1987 recognizes
a scenario where a piece of land owned by the Republic is titled in the name of a department,
agency, or instrumentality. The following provision of the said Code suggests as much:

Sec. 48. Official Authorized to Convey Real Property.––Whenever real property of the Government is
authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the
government by the following: x x x x

(2) For property belonging to the Republic of the Philippines, but titled in the name of x x x any
corporate agency or instrumentality, by the executive head of the agency or instrumentality.21

While perhaps not of governing sway in all fours inasmuch as what were involved in Manila
International Airport Authority, e.g., airfields and runways, are properties of the public dominion and,
hence, outside the commerce of man, the rationale underpinning the disposition in that case is
squarely applicable to GSIS, both MIAA and GSIS being similarly situated. First, while created under
CA 186 as a non-stock corporation, a status that has remained unchanged even when it operated
under PD 1146 and RA 8291, GSIS is not, in the context of the afore quoted Sec. 193 of the LGC, a
GOCC following the teaching of Manila International Airport Authority, for, like MIAA, GSIS’ capital is
not divided into unit shares. Also, GSIS has no members to speak of. And by members, the reference
is to those who, under Sec. 87 of the Corporation Code, make up the non-stock corporation, and not
to the compulsory members of the system who are government employees. Its management is
entrusted to a Board of Trustees whose members are appointed by the President.

Second, the subject properties under GSIS’s name are likewise owned by the Republic. The GSIS is
but a mere trustee of the subject properties which have either been ceded to it by the Government or
acquired for the enhancement of the system. This particular property arrangement is clearly shown by
the fact that the disposal or conveyance of said subject properties are either done by or through the
authority of the President of the Philippines. Specifically, in the case of the Concepcion-Arroceros
property, it was transferred, conveyed, and ceded to this Court on April 27, 2005 through a
presidential proclamation, Proclamation No. 835. Pertinently, the text of the proclamation announces
that the Concepcion-Arroceros property was earlier ceded to the GSIS on October 13, 1954 pursuant
to Proclamation No. 78 for office purposes and had since been titled to GSIS which constructed an
office building thereon. Thus, the transfer on April 27, 2005 of the Concepcion-Arroceros property to
this Court by the President through Proclamation No. 835. This illustrates the nature of the
government ownership of the subject GSIS properties, as indubitably shown in the last clause of
Presidential Proclamation No. 835:

WHEREAS, by virtue of the Public Land Act (Commonwealth Act No. 141, as amended), Presidential
Decree No. 1455, and the Administrative Code of 1987, the President is authorized to transfer any
government property that is no longer needed by the agency to which it belongs to other
branches or agencies of the government. (Emphasis ours.)

Third, GSIS manages the funds for the life insurance, retirement, survivorship, and disability benefits
of all government employees and their beneficiaries. This undertaking, to be sure, constitutes an
essential and vital function which the government, through one of its agencies or instrumentalities,
ought to perform if social security services to civil service employees are to be delivered with
reasonable dispatch. It is no wonder, therefore, that the Republic guarantees the fulfillment of the
obligations of the GSIS to its members (government employees and their beneficiaries) when and as
they become due. This guarantee was first formalized under Sec. 2422 of CA 186, then Sec. 823 of PD
1146, and finally in Sec. 824 of RA 8291.
 Second Core Issue: Beneficial Use Doctrine Applicable

The foregoing notwithstanding, the leased Katigbak property shall be taxable pursuant to the
"beneficial use" principle under Sec. 234(a) of the LGC.

It is true that said Sec. 234(a), quoted below, exempts from real estate taxes real property owned by
the Republic, unless the beneficial use of the property is, for consideration, transferred to a taxable
person.

SEC. 234. Exemptions from Real Property Tax. – The following are exempted from payment of the
real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when thebeneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

This exemption, however, must be read in relation with Sec. 133(o) of the LGC, which prohibits LGUs
from imposing taxes or fees of any kind on the national government, its agencies, and
instrumentalities:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies
and instrumentalities, and local government units. (Emphasis supplied.)

Thus read together, the provisions allow the Republic to grant the beneficial use of its property to an
agency or instrumentality of the national government. Such grant does not necessarily result in the
loss of the tax exemption. The tax exemption the property of the Republic or its instrumentality carries
ceases only if, as stated in Sec. 234(a) of the LGC of 1991, "beneficial use thereof has been granted,
for a consideration or otherwise, to a taxable person." GSIS, as a government instrumentality, is not a
taxable juridical person under Sec. 133(o) of the LGC. GSIS, however, lost in a sense that status with
respect to the Katigbak property when it contracted its beneficial use to MHC, doubtless a taxable
person. Thus, the real estate tax assessment of PhP 54,826,599.37 covering 1992 to 2002 over the
subject Katigbak property is valid insofar as said tax delinquency is concerned as assessed over said
property.

Taxable entity having beneficial use of leased

property liable for real property taxes thereon

The next query as to which between GSIS, as the owner of the Katigbak property, or MHC, as the
lessee thereof, is liable to pay the accrued real estate tax, need not detain us long. MHC ought to
pay.

As we declared in Testate Estate of Concordia T. Lim, "the unpaid tax attaches to the property and is
chargeable against the taxable person who had actual or beneficial use and possession of it
regardless of whether or not he is the owner." Of the same tenor is the Court’s holding in the
subsequent Manila Electric Company v. Barlis25 and later in Republic v. City of Kidapawan.26 Actual
use refers to the purpose for which the property is principally or predominantly utilized by the person
in possession thereof.27

Being in possession and having actual use of the Katigbak property since November 1991, MHC is
liable for the realty taxes assessed over the Katigbak property from 1992 to 2002.

The foregoing is not all. As it were, MHC has obligated itself under the GSIS-MHC Contract of Lease
to shoulder such assessment. Stipulation l8 of the contract pertinently reads:

18. By law, the Lessor, [GSIS], is exempt from taxes, assessments and levies. Should there be any
change in the law or the interpretation thereof or any other circumstances which would subject the
Leased Property to any kind of tax, assessment or levy which would constitute a charge against the
Lessor or create a lien against the Leased Property, the Lessee agrees and obligates itself to
shoulder and pay such tax, assessment or levy as it becomes due.28 (Emphasis ours.)

As a matter of law and contract, therefore, MHC stands liable to pay the realty taxes due on the
Katigbak property. Considering, however, that MHC has not been impleaded in the instant case, the
remedy of the City of Manila is to serve the realty tax assessment covering the subject Katigbak
property to MHC and to pursue other available remedies in case of nonpayment, for said property
cannot be levied upon as shall be explained below.

Third Core Issue: GSIS Properties Exempt from Levy

In light of the foregoing disquisition, the issue of the propriety of the threatened levy of subject
properties by the City of Manila to answer for the demanded realty tax deficiency is now moot and
academic. A valid tax levy presupposes a corresponding tax liability. Nonetheless, it will not be remiss
to note that it is without doubt that the subject GSIS properties are exempt from any attachment,
garnishment, execution, levy, or other legal processes. This is the clear import of the third paragraph
of Sec. 39, RA 8291, which we quote anew for clarity:

SEC. 39. Exemption from Tax, Legal Process and Lien. – x x x.

xxxx

The funds and/or the properties referred to herein as well as the benefits, sums or monies
corresponding to the benefits under this Act shall be exempt from attachment, garnishment,
execution, levy or other processes issued by the courts, quasi-judicial agencies or
administrative bodies including Commission on Audit (COA) disallowances and from all financial
obligations of the members, including his pecuniary accountability arising from or caused or
occasioned by his exercise or performance of his official functions or duties, or incurred relative to or
in connection with his position or work except when his monetary liability, contractual or otherwise, is
in favor of the GSIS. (Emphasis ours.)

The Court would not be indulging in pure speculative exercise to say that the underlying legislative
intent behind the above exempting proviso cannot be other than to isolate GSIS funds and properties
from legal processes that will either impair the solvency of its fund or hamper its operation that would
ultimately require an increase in the contribution rate necessary to sustain the benefits of the system.
Throughout GSIS’ life under three different charters, the need to ensure the solvency of GSIS fund
has always been a legislative concern, a concern expressed in the tax-exempting provisions.

Thus, even granting arguendo that GSIS’ liability for realty taxes attached from 1992, when RA 7160
effectively lifted its tax exemption under PD 1146, to 1996, when RA 8291 restored the tax incentive,
the levy on the subject properties to answer for the assessed realty tax delinquencies cannot still be
sustained. The simple reason: The governing law, RA 8291, in force at the time of the levy prohibits it.
And in the final analysis, the proscription against the levy extends to the leased Katigbak property, the
beneficial use doctrine, notwithstanding.

Summary

In sum, the Court finds that GSIS enjoys under its charter full tax exemption. Moreover, as an
instrumentality of the national government, it is itself not liable to pay real estate taxes assessed by
the City of Manila against its Katigbak and Concepcion-Arroceros properties. Following the "beneficial
use" rule, however, accrued real property taxes are due from the Katigbak property, leased as it is to
a taxable entity. But the corresponding liability for the payment thereof devolves on the taxable
beneficial user. The Katigbak property cannot in any event be subject of a public auction sale,
notwithstanding its realty tax delinquency. This means that the City of Manila has to satisfy its tax
claim by serving the accrued realty tax assessment on MHC, as the taxable beneficial user of the
Katigbak property and, in case of nonpayment, through means other than the sale at public auction of
the leased property.

WHEREFORE, the instant petition is hereby GRANTED. The November 15, 2007 Decision and
January 7, 2009 Order of the Regional Trial Court, Branch 49, Manila are REVERSED and SET
ASIDE. Accordingly, the real property tax assessments issued by the City of Manila to the
Government Service Insurance System on the subject properties are declared VOID, except that the
real property tax assessment pertaining to the leased Katigbak property shall be valid if served on the
Manila Hotel Corporation, as lessee which has actual and beneficial use thereof. The City of Manila is
permanently restrained from levying on or selling at public auction the subject properties to satisfy the
payment of the real property tax delinquency.

No pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 161748 July 3, 2009

Spouses FRANCISCO and BETTY WONG and Spouses JOAQUIN and LOLITA
WONG, Petitioners,
vs.
CITY OF ILOILO, ROMEO MANIKAN as City Treasurer of Iloilo, MELANIE UY and the ESTATE
OF FELIPE UY, Respondents.

RESOLUTION

CORONA, J.:

At the center of this controversy is a 184-square meter property covered by TCT No. T-73731 on
Valeria Street, Iloilo City owned by Charles Newton and Jane Linnie Hodges.

On November 3, 1966, the respective estates of the Hodges spouses sold the property to Vicente
Chan. For some reason, however, Chan was not able to register the property in his name.

Subsequently, Chan passed away and his estate sold the same property to petitioners Francisco and
Joaquin Wong on September 29, 1967. Because the estate of Chan was unable to produce the
estate tax clearance and the owner’s duplicate of title, petitioners were only allowed to annotate a
notice of adverse claim on TCT No. T-7373 stating:2

Entry No. 40286—Notice of Adverse Claim filed by [petitioners] to protect [their] rights and interest in
the parcel of land described herein in view that the same [was] acquired by Vicente Chan from C.N.
Hodges and the same [was] also acquired by Joaquin Wong from Adelfa Remaylon vda. de Chan by
purchase for the sum of ₱38,500… .3

On January 3, 1991, respondent Iloilo City Treasurer Romeo Manikan issued a general notice of
delinquency in the payment of real estate taxes.4 It was published in the Visayan Tribune from
January 8 to 14, 1991, January 15 to 21, 1991 and January 22 to 28, 1991.5

Because no one contested the said notice or settled the tax delinquency of the subject property, the
City Treasurer sent the notice of sale to the last known judicial administrator of the estates of the
Hodges. However, the said notice was returned with the annotation "cannot be located." 6

On September 26, 1991, the property was sold at public auction wherein respondent Melanie Uy was
the highest bidder. On November 27, 1992, a final bill of sale was issued to her. Consequently, TCT
No. T-7373 was cancelled and TCT No. T-97308 was issued to "Melanie Laserna Uy married to
Felipe G. Uy."

On November 8, 1993, petitioners Francisco and Betty Wong filed a complaint for the annulment of
the September 26, 1991 auction sale and TCT No. T-97308 against respondents the City
Government of Iloilo, City Treasurer Romeo Manikan and the spouses Felipe and Melanie Uy in the
Regional Trial Court (RTC) of Iloilo City, Branch 27.7 They asserted that the tax sale was void since
the City Treasurer failed to inform them of the tax sale as required by Section 73 of PD8 4649 which
provided:

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

The notice, publication, and announcement by crier shall state the amount of the taxes, penalties and
costs of sale; the date, hour, and place of sale, the name of the taxpayer against whom the tax was
assessed; and the kind or nature of property and, if land, its approximate areas, lot number, and
location stating the street and block number, district or barrio, municipality and the province or city
where the property to be sold is situated. Copy of the notice shall forthwith be sent either by
registered mail or by messenger, or through the barrio captain, to the delinquent taxpayer, at
his address as shown in the tax rolls or property tax record cards of the municipality or city
where the property is located, or at his residence, if known to said treasurer or barrio
captain: Provided, however, That a return of the proof of service under oath shall be filed by
the person making the service with the provincial or city treasurer concerned. (emphasis
supplied)

On September 7, 1994, petitioners Joaquin and Lolita Wong filed a similar complaint with the RTC of
Iloilo City, Branch 31.10

In a decision dated March 6, 1998, the RTC upheld the validity of the tax sale and dismissed the
complaints. It reasoned that because petitioners were not the registered owners of the property, they
were not real parties-in-interest who could assail the validity of the said sale.

Aggrieved, petitioners moved for reconsideration. In a resolution dated July 24, 1998 the RTC
granted the motion and set aside the March 6, 1998 decision.11 It noted that no notice of sale was
sent to petitioners who were the legitimate owners of the property.

Respondents City Government of Iloilo and City Treasurer Manikan moved for reconsideration but it
was denied in a resolution dated September 22, 1998.12

Thereafter, respondents appealed the July 24, 1998 and September 22, 1998 resolutions of the RTC
to the Court of Appeals (CA).13 They argued that the RTC erred in taking cognizance of the
complaints since petitioners failed to observe the requirements of Section 83 of PD 464 which
provided:

Section 83. Suits assailing validity of tax sale. — No court shall entertain any suit assailing the
validity of a tax sale of real estate under this Chapter until the taxpayer shall have paid into
court the amount for which the real property was sold, together with interests of twenty per
centum per annum upon that sum from the date of sale to the time of instituting suit. The
money so paid into court shall belong to the purchaser at the tax sale if the deed is declared invalid,
but shall be returned to the depositor if the action fails.

Neither shall any court declare a sale invalid by reason of irregularities or informalities in the
proceedings committed by the officer charged with the duty of making sale, or by reason of failure by
him to perform his duties within the time herein specified for their performance, unless it shall have
been proven that such irregularities, informalities or failure have impaired the substantial rights of the
taxpayer. (emphasis supplied)14

In a decision dated October 9, 2002,15 the CA reversed and set aside the assailed resolutions of the
RTC. It reasoned that Section 83 of PD 464 was inapplicable since the complaints did not protest the
assessment made by the local government unit. Thus, such failure did not deprive the RTC of
jurisdiction. However, the CA upheld the validity of the tax sale. Under the law, only registered owners
are entitled to a notice of tax sale. Inasmuch as the property remained registered in the names of the
Hodges spouses in TCT No. T-7373, said spouses were the only ones entitled to such notice.

Petitioners moved for reconsideration but it was denied.16 Hence, this recourse,17 petitioners insisting
that the CA erred in upholding the validity of the tax sale.

We deny the petition.

Section 83 of PD 464 states that the RTC shall not entertain any complaint assailing the validity of a
tax sale of real property unless the complainant deposits with the court the amount for which the said
property was sold plus interest equivalent to 20% per annum from the date of sale until the institution
of the complaint. This provision was adopted in Section 267 of the Local Government Code, albeit the
increase in the prescribed rate of interest to 2% per month.18

In this regard, National Housing Authority v. Iloilo City19 holds that the deposit required under Section
267 of the Local Government Code is a jurisdictional requirement, the nonpayment of which
warrants the dismissal of the action. Because petitioners in this case did not make such deposit, the
RTC never acquired jurisdiction over the complaints.

Consequently, inasmuch as the tax sale was never validly challenged, it remains legally binding.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 167260 February 27, 2009

The CITY OF ILOILO, Mr. ROMEO V. MANIKAN, in his capacity as the Treasurer of Iloilo
City, Petitioners,
vs.
SMART COMMUNICATIONS, INC. (SMART) Respondent.

DECISION

BRION, J.:

Before this Court is the appeal by certiorari filed by the City of Iloilo (petitioner) under Rule 45 of the
Rules of Court seeking to set aside the decision of the Regional Trial Court (RTC) of Iloilo City,
Branch 28, which declared that respondent SMART Communications, Inc. (SMART) is exempt from
the payment of local franchise and business taxes.

BACKGROUND FACTS

The facts of the case are not in dispute. SMART received a letter of assessment dated February 12,
2002 from petitioner requiring it to pay deficiency local franchise and business taxes (in the amount of
₱764,545.29, plus interests and surcharges) which it incurred for the years 1997 to 2001. SMART
protested the assessment by sending a letter dated February 15, 2002 to the City Treasurer. It
claimed exemption from payment of local franchise and business taxes based on Section 9 of its
legislative franchise under Republic Act (R.A.) No. 7294 (SMART’s franchise). Under SMART’s
franchise, it was required to pay a franchise tax equivalent to 3% of all gross receipts, which amount
shall be in lieu of all taxes. SMART contends that the "in lieu of all taxes" clause covers local
franchise and business taxes.

SMART similarly invoked R.A. No. 7925 or the Public Telecommunications Policy Act (Public
Telecoms Act) whose Section 23 declares that any existing privilege, incentive, advantage, or
exemption granted under existing franchises shall ipso facto become part of previously granted-
telecommunications franchise. SMART contends that by virtue of Section 23, tax exemptions granted
by the legislature to other holders of telecommunications franchise may be extended to and availed of
by SMART.

Through a letter dated April 4, 2002, petitioner denied SMART’s protest, citing the failure of SMART
to comply with Section 252 of R.A. No. 7160 or the Local Government Code (LGC) before filing the
protest against the assessment. Section 252 of the LGC requires payment of the tax before any
protest against the tax assessment can be made.

SMART objected to the petitioner’s denial of its protest by instituting a case against petitioner before
the RTC of Iloilo City.1 The trial court ruled in favour of SMART and declared the telecommunications
firm exempt from the payment of local franchise and business taxes;2 it agreed with SMART’s claim
of exemption under Section 9 of its franchise and Section 23 of the Public Telecoms Act. 3

From this judgment, petitioner files this petition for review on certiorari raising the sole issue of
whether SMART is exempt from the payment of local franchise and business taxes.

THE COURT’S RULING

SMART relies on two provisions of law to support its claim for tax exemption: Section 9 of SMART’s
franchise and Section 23 of the Public Telecoms Act. After a review of pertinent laws and
jurisprudence – particularly of SMART Communications, Inc. v. City of Davao,4 a case which, except
for the respondent, involves the same set of facts and issues – we find SMART’s claim for exemption
to be unfounded. Consequently, we find the petition meritorious.1awphi1

The basic principle in the construction of laws granting tax exemptions has been very stable. As early
as 1916, in the case of Government of the Philippine Islands v. Monte de Piedad, 5 this Court has
declared that he who claims an exemption from his share of the common burden of taxation must
justify his claim by showing that the Legislature intended to exempt him by words too plain to be
beyond doubt or mistake. This doctrine was repeated in the 1926 case of Asiatic Petroleum v.
Llanes,6 as well as in the case of Borja v. Commissioner of Internal Revenue (CIR)7 decided in 1961.
Citing American jurisprudence, the Court stated in E. Rodriguez, Inc. v. CIR: 8

The right of taxation is inherent in the State. It is a prerogative essential to the perpetuity of the
government; and he who claims an exemption from the common burden, must justify his claim by the
clearest grant of organic or statute law xxx When exemption is claimed, it must be shown indubitably
to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim; it is
only when the terms of the concession are too explicit to admit fairly of any other construction that the
proposition can be supported.

In the recent case of Digital Telecommunications, Inc. v. City Government of Batangas, et al.,9 we
adhered to the same principle when we said:

A tax exemption cannot arise from vague inference...Tax exemptions must be clear and unequivocal.
A taxpayer claiming a tax exemption must point to a specific provision of law conferring on the
taxpayer, in clear and plain terms, exemption from a common burden. Any doubt whether a tax
exemption exists is resolved against the taxpayer.

The burden therefore is on SMART to prove that, based on its franchise and the Public Telecoms Act,
it is entitled to exemption from the local franchise and business taxes being collected by the
petitioner.

Claim for Exemption under

SMART’s franchise
Section 9 of SMART’s franchise states:

Section 9. Tax provisions. — The grantee, its successors or assigns shall be liable to pay the same
taxes on their real estate buildings and personal property, exclusive of' this franchise, as other
persons or corporations which are now or hereafter may be required by law to pay. In addition
thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent
(3%) of all gross receipts of the business transacted under this franchise by the grantee, its
successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or
earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for
income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of
Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the
amendment or repeal shall be applicable thereto.

The grantee shall file the return with and pay the tax due thereon to the Commissioner of Internal
Revenue or his duly authorized representative in accordance with the National Internal Revenue
Code and the return shall be subject to audit by the Bureau of Internal Revenue. [Emphasis supplied.]

The petitioner posits that SMART’s claim for exemption under its franchise is not equivocal enough to
prevail over the specific grant of power to local government units to exact taxes from businesses
operating within its territorial jurisdiction under Section 137 in relation to Section 151 of the LGC.
More importantly, it claimed that exemptions from taxation have already been removed by Section
193 of the LGC:

Section 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under RA No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code. [Emphasis supplied.]

The petitioner argues, too, that SMART’s claim for exemption from taxes under Section 9 of its
franchise is not couched in plain and unequivocal language such that it restored the withdrawal of tax
exemptions under Section 193 above. It claims that "if Congress intended that the tax exemption
privileges withdrawn by Section 193 of RA 7160 [LGC] were to be restored in respondent’s
[SMART’s] franchise, it would have so expressly provided therein and not merely [restored the
exemption] by the simple expedient of including the ‘in lieu of all taxes’ provision in said franchise." 10

We have indeed ruled that by virtue of Section 193 of the LGC, all tax exemption privileges then
enjoyed by all persons, save those expressly mentioned, have been withdrawn effective January 1,
1992 – the date of effectivity of the LGC.11 The first clause of Section 137 of the LGC states the same
rule.12 However, the withdrawal of exemptions, whether under Section 193 or 137 of the LGC,
pertains only to those already existing when the LGC was enacted. The intention of the legislature
was to remove all tax exemptions or incentives granted prior to the LGC. 13 As SMART’s franchise
was made effective on March 27, 1992 – after the effectivity of the LGC – Section 193 will therefore
not apply in this case.

But while Section 193 of the LGC will not affect the claimed tax exemption under SMART’s franchise,
we fail to find a categorical and encompassing grant of tax exemption to SMART covering exemption
from both national and local taxes:

R.A. No 7294 does not expressly provide what kind of taxes SMART is exempted from. It is not clear
whether the "in lieu of all taxes" provision in the franchise of SMART would include exemption from
local or national taxation. What is clear is that SMART shall pay franchise tax equivalent to three
percent (3%) of all gross receipts of the business transacted under its franchise. But whether the
franchise tax exemption would include exemption from exactions by both the local and the national
government is not unequivocal.

The uncertainty in the "in lieu of all taxes" clause in R.A. No. 7294 on whether SMART is exempted
from both local and national franchise tax must be construed strictly against SMART which claims the
exemption. [Emphasis supplied.]14

Justice Carpio, in his Separate Opinion in PLDT v. City of Davao,15 explains why:
The proviso in the first paragraph of Section 9 of Smart’s franchise states that the grantee shall
"continue to be liable for income taxes payable under Title II of the National Internal Revenue Code."
Also, the second paragraph of Section 9 speaks of tax returns filed and taxes paid to the
"Commissioner of Internal Revenue or his duly authorized representative in accordance with the
National Internal Revenue Code." Moreover, the same paragraph declares that the tax returns "shall
be subject to audit by the Bureau of Internal Revenue." Nothing is mentioned in Section 9 about local
taxes. The clear intent is for the "in lieu of all taxes" clause to apply only to taxes under the National
Internal Revenue Code and not to local taxes.

Nonetheless, even if Section 9 of SMART’s franchise can be construed as covering local taxes as
well, reliance thereon would now be unavailing. The "in lieu of all taxes" clause basically exempts
SMART from paying all other kinds of taxes for as long as it pays the 3% franchise tax; it is the
franchise tax that shall be in lieu of all taxes, and not any other form of tax. 16 Franchise taxes on
telecommunications companies, however, have been abolished by R.A. No. 7716 or the Expanded
Value-Added Tax Law (E-VAT Law), which was enacted by Congress on January 1, 1996.17 To
replace the franchise tax, the E-VAT Law imposed a 10%18 value-added tax on telecommunications
companies under Section 108 of the National Internal Revenue Code. 19 The "in lieu of all taxes"
clause in the legislative franchise of SMART has thus become functus officio, made inoperative for
lack of a franchise tax.20

SMART’s claim for exemption from local business and franchise taxes based on Section 9 of its
franchise is therefore unfounded.

Claim for Exemption

Under Public Telecoms Act

SMART additionally invokes the "equality clause" under Section 23 of the Public Telecoms Act:

SECTION 23. Equality of Treatment in the Telecommunications Industry. — Any advantage, favor,
privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted,
shall ipso facto become part of previously granted telecommunications franchise and shall be
accorded immediately and unconditionally to the grantees of such franchises: Provided, however,
That the foregoing shall neither apply to nor affect provisions of telecommunications franchises
concerning territory covered by the franchise, the life span of the franchise, or the type of service
authorized by the franchise. [Emphasis supplied.]

As in the case of SMART v. City of Davao,21 SMART posits that since the franchise of
telecommunications companies granted after the enactment of its franchise contained provisions
exempting these companies from both national and local taxes, these privileges should extend to and
benefit SMART, applying the "equality clause" above. The petitioner, on the other hand, believes that
the claimed exemption under Section 23 of the Public Telecoms Act is similarly unfounded.

We agree with the petitioner.

Whether Section 23 of the cited law extends tax exemptions granted by Congress to new franchise
holders to existing ones has been answered in the negative in the case of PLDT v. City of
Davao.22 The term "exemption" in Section 23 of the Public Telecoms Act does not mean tax
exemption; rather, it refers to exemption from certain regulatory or reporting requirements imposed by
government agencies such as the National Telecommunications Commission. The thrust of the Public
Telecoms Act is to promote the gradual deregulation of entry, pricing, and operations of all public
telecommunications entities, and thus to level the playing field in the telecommunications industry.
The language of Section 23 and the proceedings of both Houses of Congress are bereft of anything
that would signify the grant of tax exemptions to all telecommunications entities.23 Intent to grant tax
exemption cannot therefore be discerned from the law; the term "exemption" is too general to include
tax exemption and runs counter to the requirement that the grant of tax exemption should be stated in
clear and unequivocal language too plain to be beyond doubt or mistake.

Surcharge and Interests

Since SMART cannot validly claim any tax exemption based either on Section 9 of its franchise or
Section 23 of the Public Telecoms Act, it follows that petitioner can impose and collect the local
franchise and business taxes amounting to ₱764,545.29 it assessed against SMART. Aside from
these, SMART should also be made to pay surcharge and interests on the taxes due.lawphil.net

The settled rule is that good faith and honest belief that one is not subject to tax on the basis of
previous interpretation of government agencies tasked to implement the tax laws are sufficient
justification to delete the imposition of surcharges and interest.24 In refuting liability for the local
franchise and business taxes, we do not believe SMART relied in good faith in the findings and
conclusion of the Bureau of Local Government and Finance (BLGF).

In a letter dated August 13, 1998, the BLGF opined that SMART should be considered exempt from
the franchise tax that the local government may impose under Section 137 of the LGC. 25 SMART,
relying on the letter-opinion of the BLGF, invoked the same in the administrative protest it filed
against petitioner on February 15, 2002, as well as in the petition for prohibition that it filed before the
RTC of Iloilo on April 30, 2002. However, in the 2001 case of PLDT v. City of Davao, 26 we declared
that we do not find BLGF’s interpretation of local tax laws to be authoritative and persuasive. The
BLGF’s function is merely to provide consultative services and technical assistance to the local
governments and the general public on local taxation, real property assessment, and other related
matters.27Unlike the Commissioner of Internal Revenue who has been given the express power to
interpret the Tax Code and other national tax laws,28 no such power is given to the BLGF. SMART’s
dependence on BLGF’s interpretation was thus misplaced.

WHEREFORE, we hereby GRANT the petition and REVERSE the decision of the RTC dated
January 19, 2005 in Civil Case No. 02-27144 and find SMART liable to pay the local franchise and
business taxes amounting to ₱764,545.29, assessed against it by petitioner, plus the surcharges and
interest due thereon.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 170901 January 20, 2009

DAVAO ORIENTAL ELECTRIC COOPERATIVE, INC., Petitioner,

vs.
THE PROVINCE OF DAVAO ORIENTAL, Respondent.

DECISION

PUNO, C.J.:

On appeal is the Court of Appeals’ (CA’s) November 15, 2005 Decision 1 in CA-G.R. CV No. 67188
setting aside the March 15, 2000 Decision2 of the Regional Trial Court (RTC) of Mati, Davao Oriental
in Civil Case No. 1550 that dismissed the complaint for collection of delinquent real property taxes
filed by the Province of Davao Oriental against the Davao Oriental Electric Cooperative, Inc.

The facts are as follows:

Petitioner Davao Oriental Electric Cooperative, Inc. was organized under Presidential Decree (PD)
No. 269 which granted a number of tax and duty exemption privileges to electric cooperatives. 3 In
1984, PD No. 19554 was enacted by then President Ferdinand E. Marcos. It withdrew all exemptions
from or any preferential treatment in the payment of duties, taxes, fees, imposts, and other charges
granted to private business enterprises and/or persons engaged in any economic activity.

Due to the failure of petitioner to declare the value of its properties, the Office of the Provincial
Assessor assessed its properties.5 On October 8, 1985, the Provincial Assessor sent the Notice of
Assessment to petitioner which duly received it.
During the same year of 1985, the Fiscal Incentive Review Board (FIRB) issued FIRB Resolution No.
13-85, the Ministry of Finance issued Local Tax Regulation No. 3-85, and the Office of the Local
Government Finance, Region XI, Davao City issued Regional Office Memorandum Circular No. 42-
85, all of which reiterated the withdrawal of tax exemptions previously granted to business entities
including electric cooperatives.

On January 8, 1986, then Pres. Marcos issued PD No. 2008,6 requiring the Minister of Finance to
immediately restore the tax exemption of all electric cooperatives. However, in December 1986, then
Pres. Corazon C. Aquino issued Executive Order (EO) No. 93 which withdrew all tax and duty
exemptions granted to private entities effective March 10, 1987. But Memorandum Order No. 65,
dated January 23, 1987, suspended the implementation of the said EO until June 30, 1987 for
cooperatives. Effective July 1, 1987, FIRB No. 24-87 restored the tax and duty exemption privileges
of electric cooperatives under PD No. 269. FIRB Resolution No. 24-87 reads:

BE IT RESOLVED, as it is hereby resolved, That the tax and duty exemption privileges of electric
cooperatives granted under the terms and conditions of Presidential Decree No. 269 (creating the
National Electrification Administration as a corporation, prescribing its powers and activities,
appropriating the necessary funds therefore and declaring a national policy objective for the total
electrification of the Philippines on an area coverage basis; the organization, promotion and
development of electric cooperatives to attain the said objective, prescribing terms and conditions for
their operations, the repeal of Republic Act No. 6038, and for other purposes), as amended, are
restored effective July 1, 1987: Provided, however, That income from their electric service operations
and other sources including the interest income from bank deposits and yield or any other monetary
benefit from bank deposits and yield or any other similar arrangements shall remain taxable:
Provided, further, That the electric cooperatives shall furnish the FIRB on an annual basis or as often
as the FIRB may require them to do so, statistical and financial statements of their operations and
other information as may be required, for purposes of effective and efficient tax and duty exemption
availment.

(SGD.) JAIME V. ONGPIN

Secretary of Finance
Chairman, FIRB

In May 1990, respondent filed a complaint for collection of delinquent real property taxes against
petitioner for the years 1984 until 1989, amounting to one million eight hundred twenty-five thousand
nine hundred twenty-eight pesos and twelve centavos (₱1,825,928.12).

Petitioner contends that it was exempt from the payment of real estate taxes from 1984 to 1989
because the restoration of tax exemptions under FIRB Resolution No. 24-87 retroacts to the date of
withdrawal of said exemptions. Further, petitioner questions the classification made by respondent of
some of its properties as real properties when it believes them to be personal properties, hence, not
subject to realty tax.

On March 15, 2000, the RTC rendered its decision in favor of petitioner. It ruled, thus:

Inasmuch as the Fiscal Incentive Review Board (FIRB) Resolution No. 24-87 issued on June 14,
1987, RESTORED the duty and tax exemptions enjoyed by Electric Cooperatives established
pursuant to PD 269 (Sec. 39) which were previously withdrawn, and that the said Resolution No. 24-
87 was issued in compliance with the mandate of Executive Order No. 93 which has been declared
as a valid delegation of legislative power pursuant to the Maceda 7 case, there is no question that the
herein defendant as an electric cooperative established under PD 269 is exempt from the payment of
its realty taxes during the period covered by the herein complaint – 1985 to December 31, 1987.

xxx

The dispositive portion of the decision reads as follows:

WHEREFORE, in view of the foregoing, judgment is rendered dismissing the complaint.

Counterclaim is likewise dismissed.

No pronouncement as to costs.
SO ORDERED.8

Respondent appealed to the CA which set aside the ruling of the RTC. It held that:

A cursory reading of the aforecited resolution fails to indicate any semblance of retroactivity of the
restoration of tax exemptions, in contrast to the ruling of the court a quo and to the contention of the
Appellee that such restoration is retroactive from the date of withdrawal of exemption. The FIRB
Resolution No. 24-87 is very specific and clear that the tax and duty exemption privileges of electric
cooperatives are restored effective 1 July 1987. Besides, it is settled that laws have no retroactive
effect. It is settled that a "sound statutory construction is that a statute operates prospectively, unless
the legislative intent to the contrary is made manifest either by the express terms of the statute or by
necessary implication." . . .

The dispositive portion of the decision of the CA reads as follows:

WHEREFORE, premises considered, herein Appeal is GRANTED and the assailed Decision of the
court a quo is hereby SET ASIDE. Plaintiff-Appellee Davao Oriental Electric Cooperative is hereby
ordered to PAY Plaintiff-Appellant Province of Davao Oriental delinquent real property taxes from 1
January 1985 up to 31 December 1989 plus the corresponding penalties and surcharges imposed by
law.

SO ORDERED.9

Hence, this appeal.10

Petitioner raises the following issues:

(1) WHETHER OR NOT THE HONORABLE COURT OF APPEALS HAD GRAVELY ERRED
IN RULING THAT THE RESTORATION OF THE TAX EXEMPTION UNDER FIRB
RESOLUTION NO. 24-87 WAS NOT RETROACTIVE TO THE DATE OF EFFECTIVITY OF
PD 1955.

(2) WHETHER OR NOT THE HONORABLE COURT OF APPEALS WAS CORRECT IN

HOLDING THAT NOTWITHSTANDING THE RESTORATION OF SUCH TAX EXEMPTIONS
UNDER FIRB RESOLUTION NO. 24-87, THE PETITIONER SHOULD STILL BE LIABLE FOR
UNPAID TAXES FOR THE SUPPOSED FAILURE TO SUBMIT TO THE FIRB FINANCIAL
STATEMENTS OF ITS OPERATIONS.

(3) WITHOUT CONCEDING ON THE FOREGOING, WHETHER OR NOT THE PETITIONER

COULD BE MADE TO PAY TAXES BASED ON A WIDE-SWEEPING AND ERRONEOUS
ASSESSMENT OF ITS REAL PROPERTIES.11

First, we resolve the issue of retroactivity of FIRB Resolution No. 24-87. We affirm the ruling of the
CA. Indeed, even a cursory reading of the resolution, quoted above, bares no indicia of retroactivity of
its application. FIRB Resolution No. 24-87 is crystal clear in stating that "the tax and duty exemption
privileges of electric cooperatives granted under the terms and conditions of Presidential Decree No.
269 . . . are restored effective July 1, 1987." There is no other way to construe it. The language of the
law is plain and unambiguous. When the language of the law is clear and unequivocal, the law must
be taken to mean exactly what it says.

Further, because taxes are the lifeblood of the nation, the court has always applied the doctrine of
strict interpretation in construing tax exemptions. A claim for exemption from tax payments must be
clearly shown and be based on language in the law too plain to be mistaken. Elsewise stated,
taxation is the rule, exemption therefrom is the exception. 12

Second, we rule on the issue of assessment of petitioner’s real properties.

Petitioner contests the assessment by respondent of its properties. It claims that the tax declarations
covering its properties were issued without prior consultation, and without its knowledge and consent.
In addition, it argues that respondent classified its poles, towers and fixtures, overhead conductors
and devices, station equipment, line transformers, etc. as real properties "when by [their] nature, use,
purpose, and destination and by substantive law and jurisprudence, they are personal properties." 13
However, petitioner does not deny having duly received the two Notices of Assessment dated
October 8, 1985 on October 10, 1985.14 It also admits that it did not file a protest before the Board of
Assessment Appeals to question the assessment.15 Section 30 of PD No. 464,16 otherwise known as
the "The Real Property Tax Code," provides:

Sec. 30. Local Board of Assessment Appeals. — Any owner who is not satisfied with the action of the
provincial or city assessor in the assessment of his property may, within sixty days from the date of
receipt by him of the written notice of assessment as provided in this Code, appeal to the Board of
Assessment Appeals of the province or city, by filing with it a petition under oath using the form
prescribed for the purpose, together with copies of the tax declarations and such affidavit or
documents submitted in support of the appeal.

Having failed to appeal the assessment of its properties to the Board of Assessment Appeals,
petitioner cannot now assail the validity of the tax assessment against it before the courts. Petitioner
failed to exhaust its administrative remedies, and the consequence for such failure is clear – the tax
assessment, as computed and issued by the Office of the Provincial Assessor, became final.
Petitioner is deemed to have admitted the correctness of the assessment of its properties. In addition,
Section 64 of PD No. 464 requires that the taxpayer must first pay under protest the tax assessed
against him before he could seek recourse from the courts to assail its validity. The said section
provides:

SEC. 64. Restriction upon power of court to impeach tax. — No court shall entertain any suit assailing
the validity of tax assessed under this Code until the taxpayer shall have paid, under protest, the tax
assessed against himnor shall any court declare any tax invalid by reason of irregularities or
informalities in the proceedings of the officers charged with the assessment or collection of taxes, or
of failure to perform their duties within this time herein specified for their performance unless such
irregularities, informalities or failure shall have impaired the substantial rights of the taxpayer; nor
shall any court declare any portion of the tax assessed under the provisions of Code invalid except
upon condition that the taxpayer shall pay the just amount of the tax, as determined by the court in
the pending proceeding. (Emphasis supplied)

IN VIEW WHEREOF, petitioner’s appeal is DENIED. The November 15, 2005 Decision of the Court
of Appeals in CA-G.R. CV No. 67188 is AFFIRMED. Costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-25289 June 28, 1974

SURIGAO ELECTRIC CO., INC., petitioner,

vs.
THE HONORABLE COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.

David G. Nitafan for petitioner.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete
and Special Attorney Franciso J. Malate, Jr. for respondents.

CASTRO, J.:p
The Court denies the present petition for review of the decision of the Court of Appeals dated October
1, 1965 in its CTA Case No. 1438, which dismissed the appeal filed by the petitioner Surigao Electric
Company, Inc. with the tax court on August 1, 1963 on the ground that it was time-barred.

In November 1961 the petitioner Surigao Electric Co., Inc., grantee of a legislative electric franchise,
received a warrant of distraint and levy to enforce the collection from "Mainit Electric" of a deficiency
franchise tax plus surcharge in the total amount of P718.59. In a letter to the Commissioner of
Internal Revenue, the petitioner contested this warrant, stating that it did not have a franchise in
Mainit, Surigao.

Thereafter the Commissioner, by letter dated April 2, 1961, advised the petitioner to take up the
matter with the General Auditing Office, enclosing a copy of the 4th Indorsement of the Auditor
General dated November 23, 1960. This indorsement indicated that the petitioner's liability for
deficiency franchise tax for the period from September 1947 to June 1959 was P21,156.06, excluding
surcharge. Subsequently, in a letter to the Auditor General dated August 2, 1962, the petitioner asked
for reconsideration of the assessment, admitting liability only for the 2% franchise tax in accordance
with its legislative franchise and not at the higher rate of 5% imposed by section 259 of the National
Internal Revenue Code, as amended, which latter rate the Auditor General used as basis in
computing the petitioner's deficiency franchise tax.

An exchange of correspondence between the petitioner, on the one hand, and the Commissioner and
the Auditor General, on the other, ensued, all on the matter of the petitioner's liability for deficiency
franchise tax.

The controversy culminated in a revised assessment dated April 29, 1963 (received by the petitioner
on May 8, 1963) in the amount of P11,533.53, representing the petitioner's deficiency franchise-tax
and surcharges thereon for the period from April 1, 1956 to June 30, 1959. The petitioner then
requested a recomputation of the revised assessment in a letter to the Commissioner dated June 6,
1963 (sent by registered mail on June 7, 1963). The Commissioner, however, in a letter dated June
28, 1963 (received by the petitioner on July 16, 1963), denied the request for recomputation.

On August 1, 1963 the petitioner appealed to the Court of Tax Appeals. The tax court dismissed the
appeal on October 1, 1965 on the ground that the appeal was filed beyond the thirty-day period of
appeal provided by section 11 of Republic Act 1125.

Hence, the present recourse.

The case at bar raises only one issue: whether or not the petitioner's appeal to the Court of Tax
Appeals was time-barred. The parties disagree on which letter of the Commissioner embodies the
decision or ruling appealable to the tax court.

A close reading of the numerous letters exchanged between the petitioner and the Commissioner
clearly discloses that the letter of demand issued by the Commissioner on April 29, 1963 and
received by the petitioner on May 8, 1963 constitutes the definite determination of the petitioner's
deficiency franchise tax liability or the decision on the disputed assessment and, therefore, the
decision appealable to the tax court. This letter of April 29, 1963 was in response to the
communications of the petitioner, particularly the letter of August 2, 1962 wherein it assailed the 4th
Indorsement's data and findings on its deficiency, franchise tax liability computed at 5% (on the
ground that its franchise precludes the imposition of a rate higher than the 2% fixed in its legislative
franchise), and the letter of April 24, 1963 wherein it again questioned the assessment and requested
for a recomputation (on the ground that the Government could make an assessment only for the
period from May 29, 1956 to June 30, 1959). Thus, as early as August 2, 1962, the petitioner already
disputed the assessment made by the Commissioner.

Moreover, the letter of demand dated April 29, 1963 unquestionably constitutes the final action taken
by the Commissioner on the petitioner's several requests for reconsideration and recomputation. In
this letter, the Commissioner not only in effect demanded that the petitioner pay the amount of
P11,533.53 but also gave warning that in the event it failed to pay, the said Commissioner would be
constrained to enforce the collection thereof by means of the remedies provided by law. The tenor of
the letter, specifically, the statement regarding the resort to legal remedies, unmistakably indicates
the final nature of the determination made by the Commissioner of the petitioner's deficiency
franchise tax liability.
The foregoing-view accords with settled jurisprudence — and this despite the fact that nothing in
Republic Act 1125,1 as amended, even remotely suggests the element truly determinative of the
appealability to the Court of Appeals of a ruling of the Commissioner of Internal Revenue. Thus, this
Court has considered the following communications sent by the Commissioner to taxpayers as
embodying rulings appealable to the tax court: (a) a letter which stated the result of the investigation
requested by the taxpayer and the consequent modification of the assessment; 2 (b) letter which
denied the request of the taxpayer for the reconsideration cancellation, or withdrawal of the original
assessment;3 (c) a letter which contained a demand on the taxpayer for the payment of the revised or
reduced assessment;4 and (d) a letter which notified the taxpayer of a revision of previous
assessments.5

To sustain the petitioner's contention that the Commissioner's letter of June 28, 1963 denying its
request for further amendment of the revised assessment constitutes the ruling appealable to the tax
court and that the thirty-day period should, therefore, be counted from July 16, 1963, the day it
received the June 28, 1963 letter, would, in effect, leave solely to the petitioner's will the
determination of the commencement of the statutory thirty-day period, and place the petitioner — and
for that matter, any taxpayer — in a position, to delay at will and on convenience the finality of a tax
assessment. This absurd interpretation espoused by the petitioner would result in grave detriment to
the interests of the Government, considering that taxes constitute its life-blood and their prompt and
certain availability is an imperative need.6

The revised assessment embodied in the Commissioner's letter dated April 29, 1963 being, in legal
contemplation, the final ruling reviewable by the tax court, the thirty-day appeal period should be
counted from May 8, 1963 (the day the petitioner received a copy of the said letter). From May 8,
1963 to June 7, 1963 (the day the petitioner, by registered mail, sent to the Commissioner its letter of
June 6, 1963 requesting for further recomputation of the amount demanded from it) saw the lapse of
thirty days. The June 6, 1963 request for further recomputation, partaking of a motion for
reconsideration, tolled the running of the thirty-day period from June 7, 1963 (the day the petitioner
sent its letter by registered mail) to July 16, 1963 (the day the petitioner received the letter of the
Commissioner dated June 28, 1963 turning down its request). The prescriptive period commenced to
run again on July 16, 1963. The petitioner filed its petition for review with the tax court on August 1,
1963 — after the lapse of an additional sixteen days. The petition for review having been filed beyond
the thirty-day period, we rule that the Court of Tax Appeals correctly dismissed the same.

The thirty-day period prescribed by section 11 of Republic Act 1125, as amended, within which a
taxpayer adversely affected by a decision of the Commissioner of Internal Revenue should file his
appeal with the tax court, is a jurisdictional requirement,7 and the failure of a taxpayer to lodge his
appeal within the prescribed period bars his appeal and renders the questioned decision final and
executory.8

Prescinding from all the foregoing, we deem it appropriate to state that the Commissioner of Internal
Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his
action on an assessment questioned by a taxpayer constitutes his final determination on the disputed
assessment, as contemplated by sections 7 and 11 of Republic Act 1125, as amended. On the basis
of this indicium indubitably showing that the Commissioner's communicated action is his final decision
on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax
court at the opportune time. Without needless difficulty, the taxpayer would be able to determine
when his right to appeal to the tax court accrues. This rule of conduct would also obviate all desire
and opportunity on the part of the taxpayer to continually delay the finality of the assessment — and,
consequently, the collection of the amount demanded as taxes — by repeated requests for
recomputation and reconsideration. On the part of the Commissioner, this would encourage his office
to conduct a careful and thorough study of every questioned assessment and render a correct and
definite decision thereon in the first instance. This would also deter the Commissioner from unfairly
making the taxpayer grope in the dark and speculate as to which action constitutes the decision
appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for fair
play, regularity, and orderliness in administrative action.

ACCORDINGLY, the decision of the Court of Tax Appeals dated October 1, 1965 is affirmed, at
petitioner's cost.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-25043 April 26, 1968

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and
as judicial co-guardians of JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

Leido, Andrada, Perez and Associates for petitioners.

Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by
hereditary succession the following properties:

(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of
Nasugbu, Batangas province;

(2) A residential house and lot located at Wright St., Malate, Manila; and

(3) Shares of stocks in different corporations.

To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas
and Jose Roxas, formed a partnership called Roxas y Compania.

AGRICULTURAL LANDS

At the conclusion of the Second World War, the tenants who have all been tilling the lands in
Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels which they
actually occupied. For its part, the Government, in consonance with the constitutional mandate to
acquire big landed estates and apportion them among landless tenants-farmers, persuaded the
Roxas brothers to part with their landholdings. Conferences were held with the farmers in the early
part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to the Government for
distribution to actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey and
subdivision expenses.

It turned out however that the Government did not have funds to cover the purchase price, and so a
special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia.
the amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to
the farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same
price but by installment, and contracted with the Rehabilitation Finance Corporation to pay its loan
from the proceeds of the yearly amortizations paid by the farmers.

In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and
P29,500.71. Fifty percent of said net gain was reported for income tax purposes as gain on the sale
of capital asset held for more than one year pursuant to Section 34 of the Tax Code.

RESIDENTIAL HOUSE

During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate,
Manila, which they inherited from their grandparents. After Antonio and Eduardo got married, they
resided somewhere else leaving only Jose in the old house. In fairness to his brothers, Jose paid to
Roxas y Cia. rentals for the house in the sum of P8,000.00 a year.

ASSESSMENTS
On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment
of real estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for late
payment, and P150.00 tax for dealers of securities for 1952 plus P10.00 compromise penalty for late
payment. The assessment for real estate dealer's tax was based on the fact that Roxas y Cia.
received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax
Code, an owner of a real estate who derives a yearly rental income therefrom in the amount of
P3,000.00 or more is considered a real estate dealer and is liable to pay the corresponding fixed tax.

The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities
against Roxas y Cia., on the fact that said partnership made profits from the purchase and sale of
securities.

In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas
Brothers for the years 1953 and 1955, as follows:

1953 1955
Antonio Roxas P7,010.00 P5,813.00
Eduardo Roxas 7,281.00 5,828.00
Jose Roxas 6,323.00 5,588.00

The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported
50% of the net profits for 1953 and 1955 derived from the sale of the Nasugbu farm lands to the
tenants, and the disallowance of deductions from gross income of various business expenses and
contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that Roxas y Cia.
subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner
considered the partnership as engaged in the business of real estate, hence, 100% of the profits
derived therefrom was taxed.

The following deductions were disallowed:

ROXAS Y CIA.:
1953
Tickets for Banquet in honor of P
S. Osmeña 40.00
Gifts of San Miguel beer 28.00
Contributions to —
Philippine Air Force Chapel 100.00
Manila Police Trust Fund 150.00

Philippines Herald's fund for

Manila's neediest families 100.00
1955
Contributions to Contribution
to
Our Lady of Fatima
Chapel, FEU 50.00
ANTONIO ROXAS:
1953
Contributions to —
Pasay City Firemen Christmas
Fund 25.00
Pasay City Police Dept. X'mas
fund 50.00
 Contributions to —
Baguio City Police Christmas
fund 25.00
Pasay City Firemen Christmas
fund 25.00
Pasay City Police Christmas
fund 50.00
EDUARDO ROXAS:
1953
Contributions to —
Hijas de Jesus' Retiro de
Manresa 450.00
Philippines Herald's fund for
Manila's neediest families 100.00
1955
Contributions to Philippines
Herald's fund for
Manila's
neediest families 120.00
JOSE ROXAS:
1955
Contributions to Philippines
Herald's fund for
Manila's
neediest families 120.00

The Roxas brothers protested the assessment but inasmuch as said protest was denied, they
instituted an appeal in the Court of Tax Appeals on January 9, 1961. The Tax Court heard the appeal
and rendered judgment on July 31, 1965 sustaining the assessment except the demand for the
payment of the fixed tax on dealer of securities and the disallowance of the deductions for
contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa. The Tax
Court's judgment reads:

WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners
Antonio Roxas, Eduardo Roxas, and Jose Roxas who are hereby ordered to pay the
respondent Commissioner of Internal Revenue the amounts of P12,808.00, P12,887.00 and
P11,857.00, respectively, as deficiency income taxes for the years 1953 and 1955, plus 5%
surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and
modified with respect to the partnership Roxas y Cia. in the sense that it should pay only
P150.00, as real estate dealer's tax. With costs against petitioners.

Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of
Internal Revenue did not appeal.

The issues:

(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100%
taxable?

(2) Are the deductions for business expenses and contributions deductible?

(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers?
The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate
dealer because it engaged in the business of selling real estate. The business activity alluded to was
the act of subdividing the Nasugbu farm lands and selling them to the farmers-occupants on
installment. To bolster his stand on the point, he cites one of the purposes of Roxas y Cia. as
contained in its articles of partnership, quoted below:

4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer a

ella en el futuro, alquilandoles por los plazos y demas condiciones, estime convenientes y
vendiendo aquellas que a juicio de sus gerentes no deben conservarse;

The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue
cannot be favorably accepted by Us in this isolated transaction with its peculiar circumstances in spite
of the fact that there were hundreds of vendees. Although they paid for their respective holdings in
installment for a period of ten years, it would nevertheless not make the vendor Roxas y Cia. a real
estate dealer during the ten-year amortization period.

It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them
for generations was not only in consonance with, but more in obedience to the request and pursuant
to the policy of our Government to allocate lands to the landless. It was the bounden duty of the
Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its
haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and
prices. However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y
Cia. shouldered the Government's burden, went out of its way and sold lands directly to the farmers in
the same way and under the same terms as would have been the case had the Government done it
itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing
the people's gratitude.

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order to
maintain the general public's trust and confidence in the Government this power must be used justly
and not treacherously. It does not conform with Our sense of justice in the instant case for the
Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly
answering the urgent call.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence,
pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain
derived from the sale thereof is capital gain, taxable only to the extent of 50%.

DISALLOWED DEDUCTIONS

Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in
honor of Sergio Osmena and P28.00 for San Miguel beer given as gifts to various persons. The
deduction were claimed as representation expenses. Representation expenses are deductible from
gross income as expenditures incurred in carrying on a trade or business under Section 30(a) of the
Tax Code provided the taxpayer proves that they are reasonable in amount, ordinary and necessary,
and incurred in connection with his business. In the case at bar, the evidence does not show such link
between the expenses and the business of Roxas y Cia. The findings of the Court of Tax Appeals
must therefore be sustained.

The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen,
and Baguio City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for
Manila's neediest families and Our Lady of Fatima chapel at Far Eastern University.

The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio
City Police are not deductible for the reason that the Christmas funds were not spent for public
purposes but as Christmas gifts to the families of the members of said entities. Under Section 39(h), a
contribution to a government entity is deductible when used exclusively for public purposes. For this
reason, the disallowance must be sustained. On the other hand, the contribution to the Manila Police
trust fund is an allowable deduction for said trust fund belongs to the Manila Police, a government
entity, intended to be used exclusively for its public functions.
The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on
the ground that the Philippines Herald is not a corporation or an association contemplated in Section
30 (h) of the Tax Code. It should be noted however that the contributions were not made to the
Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald solely
for charitable purposes. There is no question that the members of this group of citizens do not receive
profits, for all the funds they raised were for Manila's neediest families. Such a group of citizens may
be classified as an association organized exclusively for charitable purposes mentioned in Section
30(h) of the Tax Code.

Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima
chapel at the Far Eastern University on the ground that the said university gives dividends to its
stockholders. Located within the premises of the university, the chapel in question has not been
shown to belong to the Catholic Church or any religious organization. On the other hand, the lower
court found that it belongs to the Far Eastern University, contributions to which are not deductible
under Section 30(h) of the Tax Code for the reason that the net income of said university injures to
the benefit of its stockholders. The disallowance should be sustained.

Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because
although it earned a rental income of P8,000.00 per annum in 1952, said rental income came from
Jose Roxas, one of the partners. Section 194 of the Tax Code, in considering as real estate dealers
owners of real estate receiving rentals of at least P3,000.00 a year, does not provide any qualification
as to the persons paying the rentals. The law, which states: 1äwphï1.ñët

. . . "Real estate dealer" includes any person engaged in the business of buying, selling,
exchanging, leasing or renting property on his own account as principal and holding himself
out as a full or part-time dealer in real estate or as an owner of rental property or properties
rented or offered to rent for an aggregate amount of three thousand pesos or more a year: . . .
(Emphasis supplied) .

is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is
sustained.1äwphï1.ñët

To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and
Jose Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and
P49.00, respectively, computed as follows: *

ANTONIO ROXAS
Net income per return P315,476.59
Add: 1/3 share, profits in
P 153,249.15
Roxas y Cia.
Less amount declared 146,135.46

Amount understated P 7,113.69

Contributions disallowed 115.00

P 7,228.69
Less 1/3 share of
contributions amounting to
P21,126.06 disallowed from
partnership but allowed to
partners 7,042.02 186.67

Net income per review P315,663.26

Less: Exemptions 4,200.00
Net taxable income
 P311,463.26
Tax due 154,169.00
Tax paid 154,060.00

Deficiency P 109.00
==========
EDUARDO ROXAS
P
Net income per return
304,166.92
Add: 1/3 share, profits in
P 153,249.15
Roxas y Cia
Less profits declared 146,052.58

Amount understated P 7,196.57

Less 1/3 share in
contributions amounting to
P21,126.06 disallowed from
partnership but allowed to
partners 7,042.02 155.55

Net income per review P304,322.47

Less: Exemptions 4,800.00

Net taxable income P299,592.47

Tax Due P147,250.00
Tax paid 147,159.00

Deficiency P91.00
===========
JOSE ROXAS
Net income per return P222,681.76
Add: 1/3 share, profits in
P153,429.15
Roxas y Cia.
Less amount reported 146,135.46

Amount understated 7,113.69

Less 1/3 share of
contributions disallowed
from partnership but allowed
as deductions to partners 7,042.02 71.67

Net income per review P222,753.43

Less: Exemption 1,800.00

Net income subject to tax P220,953.43

 Tax due P102,763.00
Tax paid 102,714.00

Deficiency P 49.00
===========

WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay the
sum of P150.00 as real estate dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and
Jose Roxas are ordered to pay the respective sums of P109.00, P91.00 and P49.00 as their
individual deficiency income tax all corresponding for the year 1955. No costs. So ordered.

G.R. No. 159694 January 27, 2006

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AZUCENA T. REYES, Respondent.

x -- -- -- -- -- -- -- -- -- -- -- -- -- x

G.R. No. 163581 January 27, 2006

AZUCENA T. REYES, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

PANGANIBAN, CJ.:

Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers
must be informed in writing of the law and the facts upon which a tax assessment is based;
otherwise, the assessment is void. Being invalid, the assessment cannot in turn be used as a basis
for the perfection of a tax compromise.

The Case

Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of the Rules of Court,
assailing the August 8, 2003 Decision3 of the Court of Appeals (CA) in CA-GR SP No. 71392. The
dispositive portion of the assailed Decision reads as follows:

"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is
ANNULLED and SET ASIDE without prejudice to the action of the National Evaluation Board on the
proposed compromise settlement of the Maria C. Tancinco estate’s tax liability." 4

The Facts

The CA narrated the facts as follows:

"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died, leaving a 1,292 square-meter residential lot
and an old house thereon (or ‘subject property’) located at 4931 Pasay Road, Dasmariñas Village,
Makati City.

"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond
Abad (or ‘Abad’), Revenue District Office No. 50 (South Makati) conducted an investigation on the
decedent’s estate (or ‘estate’). Subsequently, it issued a Return Verification Order. But without the
required preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular
investigation of the estate tax case. Azucena T. Reyes (or ‘[Reyes]’), one of the decedent’s heirs,
received the Letter of Authority on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or ‘BIR’), issued
a preliminary assessment notice against the estate in the amount of P14,580,618.67. On May 10,
1998, the heirs of the decedent (or ‘heirs’) received a final estate tax assessment notice and a
demand letter, both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge
and interest.

"On June 1, 1998, a certain Felix M. Sumbillo (or ‘Sumbillo’) protested the assessment [o]n behalf of
the heirs on the ground that the subject property had already been sold by the decedent sometime in
1990.

"On November 12, 1998, the Commissioner of Internal Revenue (or ‘[CIR]’) issued a preliminary
collection letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998.

"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on
February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it.

"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs
proposed a compromise settlement of P1,000,000.00.

"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due,
citing the heirs’ inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyes’s]
offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latter’s
financial incapacity is immaterial as, in fact, the gross value of the estate amounting
to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR] demanded payment
of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale of the
subject property would be published.

"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax
due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000.

"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection
Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold
at public auction on August 8, 2000.

"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled
auction sale, she asserted that x x x the assessment, letter of demand[,] and the whole tax
proceedings against the estate are void ab initio. She offered to file the corresponding estate tax
return and pay the correct amount of tax without surcharge [or] interest.

"Without acting on [Reyes’s] protest and offer, [the CIR] instructed the Collection Enforcement
Division to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes]
filed a [P]etition for [R]eview with the Court of Tax Appeals (or ‘CTA’), docketed as CTA Case No.
6124.

"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status
Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyes’s] filing of a surety bond in
the amount ofP27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000 ordering [the
CIR] to desist and refrain from proceeding with the auction sale of the subject property or from issuing
a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending determination of the case
and/or unless a contrary order is issued.

"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has
jurisdiction over the case[,] because the assessment against the estate is already final and executory;
and (ii) that the petition was filed out of time. In a [R]esolution dated November 23, 2000, the CTA
denied [the CIR’s] motion.

"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue
Regulation (or ‘RR’) No. 6-2000 and Revenue Memorandum Order (or ‘RMO’) No. 42-2000 offering
certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise
their tax liability.
"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or
‘compromise’) of the assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as
implemented by RR No. 6-2000 and RMO No. 42-2000.

"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the
CTA scheduled on January 9, 2001, citing her pending application for compromise with the BIR. The
motion was granted and the hearing was reset to February 6, 2001.

"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this
time on the ground that she had already paid the compromise amount of P1,062,778.20 but was still
awaiting approval of the National Evaluation Board (or ‘NEB’). The CTA granted the motion and reset
the hearing to February 27, 2001.

"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed
Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR] had not yet
signed the compromise[,] because of procedural red tape requiring the initials of four Deputy
Commissioners on relevant documents before the compromise is signed by the [CIR]. [Reyes]
posited that the absence of the requisite initials and signature[s] on said documents does not vitiate
the perfected compromise.

"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyes’s]
application for compromise with the BIR cannot be considered a perfected or consummated
compromise.

"On March 9, 2001, the CTA denied [Reyes’s] motion, prompting her to file a Motion for
Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the [M]otion for
[R]econsideration with the suggestion that[,] for an orderly presentation of her case and to prevent
piecemeal resolutions of different issues, [Reyes] should file a [S]upplemental [P]etition for [R]eview[,]
setting forth the new issue of whether there was already a perfected compromise.

"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4,
2001 by its Amplificatory Arguments (for the Supplemental Petition for Review), raising the following
issues:

‘1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of
Finance, of a tax liability pending in court, that was accepted and paid by the taxpayer, is a perfected
and consummated compromise.

‘2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP) that
requires approval by the BIR [NEB].’

"Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax
liability under RR No. 6-2000 and RMO No. 42-2000 requires the evaluation and approval of either
the NEB or the Regional Evaluation Board (or ‘REB’), as the case may be.

"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted on
July 11, 2001. After submission of memoranda, the case was submitted for [D]ecision.

"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads:

‘WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED.
Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the amount of Nineteen
Million Five Hundred Twenty Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78),
computed as follows:

xxxxxxxxx

‘[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due
of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to Section 249(c) of the
Tax Code, as amended.’
"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated
compromise of the estate’s tax liability[,] if the NEB has approved [Reyes’s] application for
compromise in accordance with RR No. 6-2000, as implemented by RMO No. 42-2000.

"Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated
that ‘at the time the questioned assessment notice and letter of demand were issued, the heirs knew
very well the law and the facts on which the same were based.’ It also observed that the petition was
not filed within the 30-day reglementary period provided under Sec. 11 of Rep. Act No. 1125 and Sec.
228 of the Tax Code."5

Ruling of the Court of Appeals

In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were
mandatory and unequivocal in their requirement. The assessment notice and the demand letter
should have stated the facts and the law on which they were based; otherwise, they were deemed
void.6 The appellate court held that while administrative agencies, like the BIR, were not bound by
procedural requirements, they were still required by law and equity to observe substantive due
process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be
duly apprised of -- and could effectively protest -- the basis of tax assessments against them.7 Since
the assessment and the demand were void, the proceedings emanating from them were likewise
void, and any order emanating from them could never attain finality.

The appellate court added, however, that it was premature to declare as perfected and consummated
the compromise of the estate’s tax liability. It explained that, where the basic tax assessed
exceeded P1 million, or where the settlement offer was less than the prescribed minimum rates, the
National Evaluation Board’s (NEB) prior evaluation and approval were the conditio sine qua non to
the perfection and consummation of any compromise.8 Besides, the CA pointed out, Section 204(A)
of the Tax Code applied to all compromises, whether government-initiated or not.9 Where the law did
not distinguish, courts too should not distinguish.

Hence, this Petition.10

The Issues

In GR No. 159694, petitioner raises the following issues for the Court’s consideration:

"I.

Whether petitioner’s assessment against the estate is valid.

"II.

Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts
and the law on which the assessment in question is based, after she had opted to propose several
compromises on the estate tax due, and even prematurely acting on such proposal by paying 20% of
the basic estate tax due."11

The foregoing issues can be simplified as follows: first, whether the assessment against the estate is
valid; and, second, whether the compromise entered into is also valid.

The Court’s Ruling

The Petition is unmeritorious.

First Issue:

Validity of the Assessment Against the Estate

The second paragraph of Section 228 of the Tax Code12 is clear and mandatory. It provides as
follows:

"Sec. 228. Protesting of Assessment. --

 xxxxxxxxx

"The taxpayers shall be informed in writing of the law and the facts on which the assessment is made:
otherwise, the assessment shall be void."

In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 229 13 prior to its amendment by Republic Act
(RA) No. 8424, otherwise known as the Tax Reform Act of 1997.

First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998
to informing the taxpayer of not only the law, but also of the facts on which an assessment would be
made; otherwise, the assessment itself would be invalid.

It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued.
During those dates, RA 8424 was already in effect. The notice required under the old law was no
longer sufficient under the new law.

To be simply informed in writing of the investigation being conducted and of the recommendation for
the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of
correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law
and the facts on which the assessment was based. It does not at all conform to the compulsory
requirement under Section 228. Moreover, the Letter of Authority received by respondent on March
14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under the
law.

The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII,
which deals with remedies. Being procedural in nature, can its provision then be applied
retroactively? The answer is yes.

The general rule is that statutes are prospective. However, statutes that are remedial, or that do not
create new or take away vested rights, do not fall under the general rule against the retroactive
operation of statutes.14 Clearly, Section 228 provides for the procedure in case an assessment is
protested. The provision does not create new or take away vested rights. In both instances, it can
surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by necessary
implication, that pending actions are excepted from the operation of Section 228, or that applying it to
pending proceedings would impair vested rights.

Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment,
considering that it merely implements the law.

A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax
Code.15 While it is desirable for the government authority or administrative agency to have one
immediately issued after a law is passed, the absence of the regulation does not automatically mean
that the law itself would become inoperative.

At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer
must be informed of both the law and facts on which the assessment was based. Thus, the CIR
should have required the assessment officers of the Bureau of Internal Revenue (BIR) to follow the
clear mandate of the new law. The old regulation governing the issuance of estate tax assessment
notices ran afoul of the rule that tax regulations -- old as they were -- should be in harmony with, and
not supplant or modify, the law.16

It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch
of the imagination, though, to still issue a regulation that would simply require tax officials to inform
the taxpayer, in any manner, of the law and the facts on which an assessment was based. That
requirement is neither difficult to make nor its desired results hard to achieve.

Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and
corresponding obligations, is given retroactive effect as of the date of the effectivity of the
statute.17 RR 12-99 is one such rule. Being interpretive of the provisions of the Tax Code, even if it
was issued only on September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date
prior to the issuance of the preliminary assessment notice and demand letter.

Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.

No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has
been amended. Furthermore, in case of discrepancy between the law as amended and its
implementing but old regulation, the former necessarily prevails. 18 Thus, between Section 228 of the
Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go
beyond the provision of the law. The law must still be followed, even though the existing tax
regulation at that time provided for a different procedure. The regulation then simply provided that
notice be sent to the respondent in the form prescribed, and that no consequence would ensue for
failure to comply with that form.

Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due
process. Not only was the law here disregarded, but no valid notice was sent, either. A void
assessment bears no valid fruit.

The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax
collection without first establishing a valid assessment is evidently violative of the cardinal principle in
administrative investigations: that taxpayers should be able to present their case and adduce
supporting evidence.19 In the instant case, respondent has not been informed of the basis of the
estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of
the government’s claim, there can be no deprivation of property, because no effective protest can be
made.20 The haphazard shot at slapping an assessment, supposedly based on estate taxation’s
general provisions that are expected to be known by the taxpayer, is utter chicanery.

Even a cursory review of the preliminary assessment notice, as well as the demand letter sent,
reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of the
itemized deductions indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or capriciously arrived at.
Although taxes are the lifeblood of the government, their assessment and collection "should be made
in accordance with law as any arbitrariness will negate the very reason for government itself."21

Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the
negligence or omission of its agents, the obligatory provision on protesting a tax assessment cannot
be rendered nugatory by a mere act of the CIR .

Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory provisions
of law are void, except when the law itself authorizes the validity of those acts. 23 Failure to comply
with Section 228 does not only render the assessment void, but also finds no validation in any
provision in the Tax Code. We cannot condone errant or enterprising tax officials, as they are
expected to be vigilant and law-abiding.

Second Issue:

Validity of Compromise

It would be premature for this Court to declare that the compromise on the estate tax liability has
been perfected and consummated, considering the earlier determination that the assessment against
the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code,
where the basic tax involved exceeds one million pesos or the settlement offered is less than the
prescribed minimum rates, the compromise shall be subject to the approval of the NEB composed of
the petitioner and four deputy commissioners.

Finally, as correctly held by the appellate court, this provision applies to all compromises, whether
government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law does
not distinguish, we should not distinguish.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No
pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-30644 March 9, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
FIREMAN'S FUND INSURANCE COMPANY and the COURT OF TAX APPEALS, respondents.

B.V. Abela, M.C. Gutierrez & F.J. Malate, Jr., for respondents.

PARAS, J.:

This is an appeal from the decision of the respondent Court of Tax Appeals dated May 24, 1969, in
C.T.A. Case No. 1629, entitled "FIREMAN'S FUND INSURANCE COMPANY v. COMMISSIONER
OF INTERNAL REVENUE,"which reversed the decision of petitioner Commissioner of Internal
Revenue holding private respondent Fireman's Fund Insurance Company liable for the payment of
the amount of P81,406.87 as documentary stamp taxes and compromise penalties for the years 1952
to 1958.

Private respondent is a resident foreign insurance corporation organized under the laws of the United
States, authorized and duly licensed to do business in the Philippines. It is a member of the American
Foreign Insurance Association, through which its business is cleared (Brief for Respondents, pp. 1-2)

The antecedent facts of this case are as follows:

From January, 1952 to December, 1958, herein private respondent Fireman's Fund Insurance
Company entered into various insurance contracts involving casualty, fire and marine risks, for which
the corresponding insurance policies were issued. From January, 1952 to 1956, documentary stamps
were bought and affixed to the monthly statements of policies issues; and from 1957 to 1958
documentary stamps were bought and affixed to the corresponding pages of the policy register,
instead of on the insurance policies issued. On July 3, 1959, respondent company discovered that its
monthly statements of business and policy register were lost. The loss was reported to the Building
Administration of Ayala Building and the National Bureau of Investigation on July 6, 1959. Herein
petitioner was also informed of such loss by respondent company, through the latter's auditors, Sycip,
Gorres and Velayo, in a letter dated July 14, 1959. After conducting an investigation of said loss,
petitioner's examiner ascertained that respondent company failed to affix the required documentary
stamps to the insurance policies issued by it and failed to preserve its accounting records within the
time prescribed by Section 337 of the Revenue Code by using loose leaf forms as registers of
documentary stamps without written authority from the Commissioner of Internal Revenue as required
by Section 4 of Revenue Regulations No. V-1. As a consequence of these findings, petitioner, in a
letter dated December 7, 1962, assessed and demanded from petitioner the payment of documentary
stamp taxes for the years 1952 to 1958 in the total amount of P 79,806.87 and plus compromise
penalties, a total of P 81,406.87.

A breakdown of the amount of taxes due and collectible are as follows:

YEAR AMOUNT

1952 P 6,500.00

1953 9,977.72
 1954 10,908.89

1955 14,204.52

1956 12,108.26

1957 7,880.68

1958 16,257.60

Total stamp taxes due on policies issued from 1952 to 1958 77,837.67

Add: Stamp taxes on monthly statements during:

1957..........................................................................................1,218.35

1958..........................................................................................3,264.39

Total...................................................................................P 82,320.41

Less: Stamp taxes paid per voucher shown:

1957............................................................... p 416.82

1958................................................................2,096.72 2,513.54

AMOUNT DUE & COLLECTIBLE.............................................P 79,906.87

(CTA Decision, Rollo, pp. 16-17).

The compromise penalties consisted of the sum of P1,000.00 as penalty for the alleged failure to affix
documentary stamps and the further sum of P 600.00 as penalty for an alleged violation of Revenue
Regulations No. V-1 otherwise known as the Bookkeeping Regulations (Brief for Respondents, p. 4)

In a letter dated January 14, 1963, respondent company contested the assessment. After petitioner
denied the protest in a decision dated March 17, 1965, respondent company appealed to the
respondent Court of Tax Appeals on May 8, 1965. After hearing respondent court rendered its
decision dated May 24, 1969 (Rollo, pp. 16-21) reversing the decision of the Commissioner of Internal
Revenue. The assailed decision reads in part:

The affixture of documentary stamps to papers other than those authorized by law is not
tantamount to failure to pay the same. It is true that the mode of affixing the stamps as
prescribed by law was not followed, but the fact remains that the documentary stamps
corresponding to the various insurance policies were purchased and paid by petitioner.
There is no legal justification for respondent to require petitioner to pay again the
documentary stamp tax which it had already paid. To sustain respondent's stand would
require petitioner to pay the same tax twice. If at all, the petitioner should be proceeded
against for failure to comply with the requirement of affixing the documentary stamps to
the taxable insurance policies and not for failure to pay the tax. (See Sec. 239 and 332,
Rev. Code).

It should be observed that the law allows the affixture of documentary stamps' to such
other paper as may be indicated by law or regulations as the proper recipient of the
stamp.' It appears from this provision that respondent has authority to allow
documentary stamps to be affixed to papers other than the documents or instruments
taxed. Although the practice adopted by petitioner in affixing the documentary stamps to
the business statements and policy register was without specific permission from
respondent but only on the strength of his ruling given to Wise & Company (see
Petitioner's Memorandum, p. 176, CTA rec.; p. 24, t.s.n.), one of the general agents of
petitioner, however, considering that petitioner actually purchased the documentary
stamps, affixed them to the business statements and policy register and cancelled the
 stamps by perforating them, we hold that petitioner cannot be held liable to pay again
the same tax.

With respect to the 'compromise penalties' in the total sum of P 1,600.00, suffice it to
say that penalties cannot be imposed in the absence of a showing that petitioner
consented thereto. A compromise implies agreement. If the offer is rejected by the
taxpayer, as in this case, respondent cannot enforce it except through a criminal action.
(See Comm. of Int. Rev. vs. Abad, L-19627, June 27, 1968.) (CTA Decision, Rollo, pp.
20-21).

Hence, this petition filed on June 26, 1969 (Rollo, pp. 1-8).

The petition is devoid of merit.

The principal issue in this case is whether or not respondent company may be required to pay again
the documentary stamps it has actually purchased, affixed and cancelled.

The relevant provisions of the National Internal Revenue Code provide:

SEC. 210. Stamp taxes upon documents, instruments, and papers. — Upon
documents, instruments, and papers, and upon acceptances, assignments, sales, and
transfers of the obligation, right, or property incident thereto, there shall be levied,
collected and paid for and in respect of the transaction so had or accomplished, the
corresponding documentary stamp taxes prescribed in the following sections of this
Title, by the person making, signing, issuing, accepting, or transferring the same, and at
the same time such act is done or transaction had. (Now. Sec. 222).

SEC. 232. Stamp tax on life insurance policies. — On all policies of insurance or other
instruments by whatever name the same may be called, whereby any insurance shall
be made or renewed upon any life or lives, there shall be collected a documentary
stamp tax of thirty-five centavos on each two hundred pesos or fractional part thereof, of
the amount issued by any such policy. (220) (As amended by PD 1457)

Insurance policies issued by a Philippine company to persons in other countries are not
subject to documentary stamp tax. (Rev. Regs. No. 26)

Medical certificate attached to an insurance policy is not a part of the said policy.
Insurance policy is subject to Section 232 of the Tax Code while medical certificate is
taxable under Section 237 of the same Code.

Insurance policies are issued in the place where delivered to the person insured. (As
amended.)

SEC. 221. Stamp tax on policies of insurance upon property. — On all policies of
insurance or other instruments by whatever name the same may be called, by which
insurance shall be made or renewed upon property of any description, including rents or
profits, against peril by sea or on inland waters, or by fire or lightning, there shall be
collected a documentary stamp tax of six centavos on each four persons, or fractional
part thereof, of the amount of premium charged," (Now Sec. 233.)

SEC. 237. Payment of documentary stamp tax. — Documentary stamp taxes shall be
paid by the purchase and affixture of documentary stamps to the document or
instrument taxed or to such other paper as may be indicated by law or regulations as
the proper recipient of the stamp, and by the subsequent cancellation of same, such
cancellation to be accomplished by writing, stamping, or perforating the date of the
cancellation across the face of each stamp in such manner that part of the writing,
impression, or perforation shall be on the stamp itself and part on the paper to which it
is attached; Provided, That if the cancellation is accomplished by writing or stamping the
date of cancellation, a hole sufficiently large to be visible to the naked eye shall be
punched, cut or perforated on both the stamp and the document either by the use of a
hand punch, knife, perforating machine, scissors, or any other cutting instrument; but if
 the cancellation is accomplished by perforating the date of cancellation, no other hole
need be made on the stamp. (Now Sec. 249.)

SEC. 239. Failure to affix or cancel documentary stamps. — Any person who fails to
affix the correct amount of documentary stamps to any taxable document, instrument, or
paper, or to cancel in the manner prescribed by section 237 any documentary stamp
affixed to any document, instrument, or paper, shall be subject to a fine of not less than
twenty pesos or more than three hundred pesos. (Emphasis supplied.) (Now Sec. 250.)

As correctly pointed out by respondent Court of Tax Appeals, under the above-quoted provisions of
law, documentary tax is deemed paid by: (a) the purchase of documentary stamps; (b) affixture of
documentary stamps to the document or instrument taxed or to such other paper as may be indicated
by law or regulations; and (c) cancellation of the stamps as required by law (Rollo, p. 18).

It will be observed however, that the over-riding purpose of these provisions of law is the collection of
taxes. The three steps above-mentioned are but the means to that end. Thus, the purchase of the
stamps is the form of payment made; the affixture thereof on the document or instrument taxed is to
insure that the corresponding tax has been paid for such document while the cancellation of the
stamps is to obviate the possibility that said stamps will be reused for similar documents for similar
purposes.

In the case at bar, there appears to be no dispute on the fact that the documentary stamps
corresponding to the various policies were purchased and paid for by the respondent Company.
Neither is there any argument that the same were cancelled as required by law. In fact such were the
findings of petitioner's examiner Amando B. Melgar who stated as follows:

Investigation disclosed that the subject insurance company is a duly organized

corporation doing business in the Philippines. It keeps the necessary books of accounts
and other accounting records needed by the business. Further verification revealed that
it has, since July, 1959, been using a "HASLER" franking machine, Model F88, which
stamps the documentary stamps on the duplicates of the policies issued. Prior to the
acquisition of the said machine, the company buys its stamps by allowing the Manager
to issue a Manager's check drawn against the National City Bank of New York and
payable to the City Treasurer of Manila. It was also found out that during this period
(1952 to 1958), the total purchases of documentary stamps amounted to P77,837.67,
while the value of the used stamps lost amounted to P65,901.11. Verification with the
files revealed that most of the monthly statements of business and registers of
documentary stamps corresponding to insurance policies issued were missing while
some where the punched documentary stamps affixed were small in amount are still
intact.

The taxpayer was found to be negligent in the preservation and keeping of its records.
Although the loss was found by the company's private investigator (see attached true
copies of his reports) was not an "Inside Job," still the company should be held liable for
its negligence, it appearing that the said records were placed in a bodega, where almost
all patrons of the coffee shop nearby could see them. The company also violated the
provision of Section 221 of the National Internal Revenue Code which provides that the
documentary stamps should be affixed and cancelled on the duplicates of bonds and
policies issued. In this case, the said stamps were affixed on the register of
documentary stamps.(pp. 35-36, BIR rec.; Emphasis supplied.) (CTA Decision, Rollo,
pp, 18-19.)

Such findings were confirmed by the Memorandum of Acting Commissioner of Internal Revenue Jose
B. Lingad, dated November 7, 1962 to the Chief, Business Tax Division, which states:

The records show that the FIREMAN'S FUND INSURANCE COMPANY allegedly paid
P 77,837.67 in documentary stamp taxes for the policies of insurance issued by it for
the years 1952 to 1958 but could only present as proof of payment Pll,936.56 of said
taxes as the rest of the amount of P 65,901.11 were lost due to robbery. Upon
verification of this payment however it was found that the FIREMAN'S FUND
INSURANCE COMPANY affixed the documentary stamps not on the individual
insurance policies issued by it but on a monthly statement of business and a register of
 documentary stamps, the use of which was not authorized by this Office. It was claimed
that the same procedure was used in the case of the lost documentary stamps
aforementioned. As this practice is irregular and the remaining records are not
conclusive proofs of the payment of the corresponding documentary stamp tax on the
policies, the FIREMAN'S FUND AND INSURANCE COMPANY is still liable for the
payment of the documentary stamp taxes on the policies found not affixed with stamps.
(Original B I R Record, p. 87).

Later, respondent Court of Tax Appeals correctly observed that the purchase of documentary stamps
and their being affixed to the monthly statements of business and policy registers were also admitted
by counsel for the Government as could clearly be gleaned from his Memorandum submitted to the
respondent Court. (Decision, CTA Rollo, pp. 4-5).

Thus, all investigations made by the petitioner show the same factual findings that respondent
company purchased documentary stamps for the various policies it has issued for the period in
question although it has attached the same on documents not authorized by law.

There is no argument to petitioner's contention that the insurance policies with the corresponding
documentary stamps affixed are the best evidence to prove payment of said documentary stamp tax.
This rule however does not preclude the admissibility of other proofs which are uncontradicted and of
considerable weight, such as: copies of the applications for manager's checks, copies of the
manager's check vouchers of the bank showing the purchases of documentary stamps corresponding
to the various insurance policies issued during the years 1952-1958 duly and properly Identified by
the witnesses for respondent company during the hearing and admitted by the respondent Court of
Tax Appeals (Brief for Respondent, p. 15).

It is a general rule in the interpretation of statutes levying taxes or duties, that in case of doubt, such
statutes are to be construed most strongly against the government and in favor of the subjects or
citizens, because burdens are not to be imposed, nor presumed to be imposed beyond what statutes
expressly and clearly import (Manila Railroad Co. v. Collector of Customs, 52 Phil. 950 [1929]).

There appears to be no question that the purpose of imposing documentary stamp taxes is to raise
revenue and the corresponding amount has already been paid by respondent and has actually
become part of the revenue of the government. In the same manner, it is evident that the affixture of
the stamps on documents not authorized by law is not attended by bad faith as the practice was
adopted from the authority granted to Wise & Company, one of respondent's general agents (CTA
Decision, Rollo, p. 20). Indeed, petitioner argued that such authority was not given to respondent
company specifically, but under the general principle of agency, where the acts of the agents bind the
principal, the conclusion is inescapable that the justification for the acts of the agents may also be
claimed for the acts of the principal itself (Brief for the Respondents, pp. 12-13).

Be that as it may, there is no justification for the government which has already realized the revenue
which is the object of the imposition of subject stamp tax, to require the payment of the same tax for
the same documents. Enshrined in our basic legal principles is the time honored doctrine that no
person shall unjustly enrich himself at the expense of another. It goes without saying that the
government is not exempted from the application of this doctrine (Ramie Textiles, Inc. v. Mathay Sr.,
89 SCRA 587 [1979]).

Under the circumstances, this court RESOLVED to DISMISS this petition and to AFFIRM the assailed
decision of the Court of Tax Appeals.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

GR. No. L-37061 September 5, 1984

MAMBULAO LUMBER COMPANY, petitioner,

vs.
REPUBLIC OF THE PHILIPPINES, respondent.
CUEVAS, J.:

Petitioner in this appeal by certiorari, seeks the reversal of the decision of the defunct Court of
Appeals which affirmed the judgment of the then Court of First Instance of Manila ordering petitioner
to pay respondent the amount of P15,739.80 representing its tax liability not secured by any bond,
with legal interest thereon from August 25, 1961 until fully paid.

Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal Revenue, Regional District No. 6,
Bicol Region, Naga City, conducted an examination of the books of accounts of herein petitioner
Mambulao number Company for the purpose of determining said taxpayer's forest charges and
percentage tax liabilities.

On July 31, 1957, Agent Banzuela submitted his report wherein it was stated among others that —

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

It can be stated in this connection that sometime in the early part of 1949, the personnel
of the local office of the Bureau of Forestry in Daet, Camarines Norte, manifested under
the name of the subject taxpayer 2,052.48 cubic meters of timber, with the
corresponding forest charges in the total amount of P15,443.65 including surcharges.
The Bureau of Forestry then demanded for the payment of said forest charges on
January 15, 1949. However, the subject taxpayer, for one reason or the other,
contested this assessment until this case reached the hands of the Secretary of
Agriculture and Natural Resources, the undersigned cannot therefore include in his
assessment this amount in question, hence, due course is given, recommending that
this bureau take proper action regarding this case.

Consequently, on August 29, 1958, the Acting Commissioner of Internal Revenue addressed a letter
to petitioner, the pertinent portion of which reads-

Mambulao Lumber Company

R-406 Samanillo Building
Escolta, Manila

Gentlemen:

xxx xxx xxx

It was also ascertained that in 1949 you manifested 2,052.48 cubic meters of timber, the
forest charges and surcharges of which in the total amount of P15,443.55 was
demanded of you by the Bureau of Forestry on January 15, 1949. ...

In view thereof there is due from you the amount of P33,595.26 as deficiency sales tax,
forest charges and surcharges, committed as follows:

Sales Tax x x x

Forest Charges

Forest charges and surcharges for the year 1949 appealed to the Secretary of
Agriculture and Natural Resources P15,443.55

xxx xxx xxx

Total amount due & payable P33,595.26

 Demand is hereby made upon you to pay the aforesaid amount of P 33,595.26 to the
City Treasurer of Manila or this office within ten (10) days from receipt hereof so that
this case may be closed.

xxx xxx xxx

Sgd.Melencio
Domingo
Acting
Commissioner
of Internal Revenue

The aforesaid letter was acknowledged to have been received by petitioner on September 19,
1958. 3 On October 18, 1958, petitioner requested for a reinvestigation of its tax liability.
Subsequently, in a letter dated July 8, 1959, respondent Commissioner of Internal Revenue give
petitioner a period of twenty (20) days from receipt thereof to submit the results of its verification of
payments with a warning that failure to comply therewith would be construed as an abandonment of
the request for reinvestigation.

For failure of petitioner to comply with the above letter-request and/or to pay its tax liability despite
demands for the payment thereof, respondent Commissioner of Internal Revenue filed. a complaint
for collection in the Court of First Instance of Manila on August 25, 1961. 4

After trial, judgment was rendered by the trial court, the dispositive portion of which reads —

WHEREFORE, judgment is rendered —

(a) Ordering both defendants, jointly and severally, to pay plaintiff the amount of
P1,219.95 plus legal interest thereon from August 25, 1961, the date of the filing of the
original complaint until fully paid, or in case of failure to Pay the said amount, ordering
the forfeiture of GISCOR Bond No. 35 to the amount of P1,219.95; and

(b) Ordering defendant Mambulao Lumber Company to pay the plaintiff the amount of
P15,739.80 representing its tax liability not secured by any bond, with legal interest
thereon from August 25, 1961, until paid.

With costs against defendants.

From the aforesaid decision, petitioner appealed to the Court of Appeals 5 that portion of the trial
court's decision ordering it to pay the amount of P15,443.55 representing forest charges and
surcharges due for the year 1949.

As herein earlier stated, the then Court of Appeals affirmed the decision of the trial court. Petitioner
filed a motion for reconsideration which was denied by the said court in its Resolution dated June 7,
1973. Hence, the instant appeal, petitioner presenting the lone issue of whether or not the right of
plaintiff (respondent herein) to file a judicial action for the collection of the amount of P15,443.55 as
forest charges and surcharges due from the petitioner Mambulao Lumber Company for the year 1949
has already prescribed.

Relying on the provisions of Section 332 of the National Internal Revenue Code which reads-

Section 332. Exemptions as to period of limitation of assessment and collection of taxes

—

xxx xxx xxx

(c) Where the assessment of any internal revenue tax has been made within the period
of limitation above prescribed such tax may be collected by distraint or levy or by a
proceeding in court, but only if begun (1) within five years after the assessment of the
tax, or (2) prior to the expiration of any period for collection agreed upon in writing by
the Collector of Internal Revenue and the taxpayer before the expiration of such five-
 year period. The period so agreed upon may be extended by subsequent agreements in
writing made before the expiration of the period previously agreed upon.

petitioner argues that counting from January 15, 1949 when the Bureau of Forestry in Daet,
Camarines Norte made an assessment and demand for payment of the amount of P15,443.55 as
forest charges and surcharges for the year 1949, up to the filing of the complaint for collection before
the lower court on August 25, 196 1, more than five (5) years had already elapsed, hence, the action
had clearly prescribed.

Petitioner's aforesaid argument lacks merit. As correctly observed by the trial court and the Court of
Appeals in the appealed decision, the letter of demand of the Acting Commissioner of Internal
Revenue dated August 29, 1958 was the basis of respondent's complaint filed in this case and not the
demand letter of the Bureau of Forestry dated January 15, 1949. This must be so because forest
charges are internal revenue taxes 6 and the sole power and duty to collect the same is lodged with
the Bureau of Internal Revenue 7 and not with the Bureau of Forestry. The computation and/or
assessment of forest charges made by the Bureau of Forestry may or may not be adopted by the
Commissioner of Internal Revenue and such computation made by the Bureau of Forestry is not
appealable to the Court of Tax Appeals. 8 Therefore, for the purpose of computing the five-year
period within which to file a complaint for collection, the demand or even the assessment made by the
Bureau of Forestry is immaterial.

In the case at bar, the commencement of the five-year period should be counted from August 29,
1958, the date of the letter of demand of the Acting Commissioner of Internal Revenue 9 to petitioner
Mambulao Lumber Company. It is this demand or assessment that is appealable to the Court of Tax
Appeals. The complaint for collection was filed in the Court of First Instance of Manila on August 25,
1961, very much within the five-year period prescribed by Section 332 (c) of the Tax Code.
Consequently, the right of the Commissioner of Internal Revenue to collect the forest charges and
surcharges in the amount of P15,443.55 has not prescribed.

Furthermore, it is not disputed that on October 18, 1958, petitioner requested for a reinvestigation of
its tax liability. In reply thereto, respondent in a letter dated July 8, 1959, gave petitioner a period of
twenty (20) days from receipt thereof to submit the results of its verification of payments and failure to
comply therewith would be construed as abandonment of the request for reinvestigation. Petitioner
failed to comply with this requirement. Neither did it appeal to the Court of Tax Appeals within thirty
(30) days from receipt of the letter dated July 8, 1959, as prescribed under Section 11 of Republic Act
No. 1125, thus making the assessment final and executory.

Taxpayer's failure to appeal to the Court of Tax Appeals in due time made the
assessment in question final, executory and demandable. And when the action was
instituted on September 2, 1958 to enforce the deficiency assessment in question, it
was already barred from disputing the correctness of the assessment or invoking any
defense that would reopen the question of its tax liability. Otherwise, the period of thirty
days for appeal to the Court of Tax Appeals would make little sense.

In a proceeding like this the taxpayer's defenses are similar to those of the defendant in
a case for the enforcement of a judgment by judicial action under Section 6 of Rule 39
of the Rules of Court. No inquiry can be made therein as to the merits of the original
case or the justness of the judgment relied upon, other than by evidence of want of
jurisdiction, of collusion between the parties, or of fraud in the party offering the record
with respect to the proceedings. As held by this Court in Insular Government vs. Nico
the taxpayer may raise only the questions whether or not the Collector of Internal
Revenue had jurisdiction to do the particular act, and whether any fraud was committed
in the doing of the act. In that case, Doroteo Nico was fined by the Collector of Internal
Revenue for violation of sub-paragraphs (d), (e) and (g) of Section 28 as well as
Sections 36, 101 and 107 of Act 1189. Under Section 54 of the same Act, the taxpayer
was given the right to appeal from the decision of the Collector of Internal Revenue to
the Court of First Instance within a period of ten days from notice of imposition of the
fine. Nico did not appeal, neither did he pay the fine. Pursuant to Section 33 of the Act,
the Collector of Internal Revenue filed an action in the Court of First Instance to enforce
his decision and collect the fine. The decision of the Collector of Internal Revenue
having become final, this Court, on appeal, allowed no further inquiry into the merits of
the same. 10
In a suit for collection of internal revenue taxes, as in this case, where the assessment has already
become final and executory, the action to collect is akin to an action to enforce a judgment. No inquiry
can be made therein as to the merits of the original case or the justness of the judgment relied upon.
Petitioner is thus already precluded from raising the defense of prescription.

Where the taxpayer did not contest the deficiency income tax assessed against him, the
same became final and properly collectible by means of an ordinary court action. The
taxpayer cannot dispute an assessment which is being enforced by judicial action, He
should have disputed it before it was brought to court. 11

WHEREFORE, the decision appealed from is hereby AFFIRMED and the petition DISMISSED. No
costs.

SO ORDERED.