REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner,
vs.
COCOFED, ET AL. and BALLARES, ET AL.,1 EDUARDO M.
COJUANGCO JR. and the SANDIGANBAYAN (First
Division) respondents.
G.R. No. 147062-64 December 14, 2001
Note: Simply stated, the gut substantive issue to be resolved in the present
Petition is: "Who may vote the sequestered UCPB shares while the main
case for their reversion to the State is pending in the Sandiganbayan?"
This Court holds that the government should be allowed to continue voting
those shares inasmuch as they were purchased with coconut levy funds –
that are prima facie public in character or, at the very least, are "clearly
affected with public interest."
Facts:
 On the premise that resources of the government have been
amassed by the former president Ferdidnan Marco, the PCGG
was created to recover ill gotten wealth, accumulated in the
Philippines or abroad.
 Aquino promulgated EO nos. 1, 2 and 14.
 Created the PCGG
 States the ill gotten assets and properties in the Philippnes and
abroad
 14 empowered PCGG with the assistance of the OSG and other
govt agencies to file and prosecute all case investigated.
 Among the properties sequestered by the Commission were
shares of stock in the United Coconut Planters Bank (UCPB)
registered in the names of the alleged "one million coconut
farmers," the so-called Coconut Industry Investment Fund
companies (CIIF companies) and Private Respondent Eduardo
Cojuangco Jr. (hereinafter "Cojuangco").
 PCGG filed a case for reconveyance, reversion, ccount, restitution
and damages with the Sandiganbayan. The Sandigan Bayan
ruled in favor of UCBP and listed the TRO order and ordered the
USCPB to proceed with the election and voting of the shares by
their registered owners.
 But the OSG through a motion for clarification/manifestation
declared that the right of petitioners (herein respondents) to vote
for stock in their names at the meetings of the UCPB cannot be
conceded at this time since the right has to be established by the
Sandiganbayan.
 The court ruled in GR no. 96073 nullifying the sandiganbayan
resolution that lifted the sequestration of UCPB shares. Years
laeter, UCPB received a letter from COCOFED and in behalf of
the one million coconut farmers, demanding the holding of a stock
holders meeting. The board responded by setting a meeting for
the holding of one.
Issue: Who may Vote the Sequestered shares of stock?
Ruling: the general rule that the registered owner of the shares of a
corporation exercises the right and the privilege of voting.25
This principle applies even to shares that are sequestered by the
government, over which the PCGG as a mere conservator cannot, as a
general rule, exercise acts of dominion.26On the other hand, it is
authorized to vote these sequestered shares registered in the names of
private persons and acquired with allegedly ill-gotten wealth, if it is able to
satisfy the two-tiered test devised by the Court inCojuangco v.
Calpo27 and PCGG v. Cojuangco Jr.,28 as follows:
(1) Is there prima facie evidence showing that the said shares are
ill-gotten and thus belong to the State?
(2) Is there an imminent danger of dissipation, thus necessitating
their continued sequestration and voting by the PCGG, while the
main issue is pending with the Sandiganbayan?
EXCEPTION: SEQUESTERED SHARES ACQUIRED WITH PUBLIC
FUNDS.
The court cited Baseco v PCGG and Conjuangco Jr. Roxas provding for
two clear public character exceptions under which the government is
granted the authority to vote the shares:
(1) Where government shares are taken over by private persons or entities
who/which registered them in their own names, and
(2) Where the capitalization or shares that were acquired with public funds
somehow landed in private hands.
"The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform
acts of strict ownership of sequestered property. It is a mere conservator.
It may not vote the shares in a corporation and elect the members of the
board of directors. The only conceivable exception is in a case of a
takeover of a business belonging to the government or whose
capitalization comes from public funds, but which landed in private hands
as in BASECO."
The "public character" test was reiterated in many subsequent cases; most
recently, in Antiporda v. Sandiganbayan.37 Expressly citing Conjuangco-
Roxas,38 this Court said that in determining the issue of whether the PCGG
should be allowed to vote sequestered shares, it was crucial to find out
first whether these were purchased with public funds, as follows:
"It is thus important to determine first if the sequestered corporate shares
came from public funds that landed in private hands."39
In short, when sequestered shares registered in the names of private
individuals or entities are alleged to have been acquired with ill-gotten
wealth, then the two-tiered test is applied. However, when the sequestered
shares in the name of private individuals or entities are shown, prima facie,
to have been (1) originally government shares, or (2) purchased with
public funds or those affected with public interest, then the two-tiered test
does not apply. Rather, the public character exceptions in Baseco v.
PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall
vote the shares.
To stress, the two-tiered test is applied only when the sequestered asset
in the hands of a private person is alleged to have been acquired with ill-
gotten wealth. Hence, in PCGG v. Cojuangco,47 we allowed Eduardo
Cojuangco Jr. to vote the sequestered shares of the San Miguel
Corporation (SMC) registered in his name but alleged to have been
acquired with ill-gotten wealth. We did so on his representation that he had
acquired them with borrowed funds and upon failure of the PCGG to
satisfy the "two-tiered" test. This test was, however, not applied to
sequestered SMC shares that were purchased with coco levy funds.
In the present case, the sequestered UCPB shares are confirmed to have
been acquired with coco levies, not with alleged ill-gotten wealth. Hence,
by parity of reasoning, the right to vote them is not subject to the "two-
tiered test" but to the public character of their acquisition, which
per Antiporda v. Sandiganbayan cited earlier, must first be determined.
In the present case before the Court, it is not disputed that the money used
to purchase the sequestered UCPB shares came from the Coconut
Consumer Stabilization Fund (CCSF), otherwise known as the coconut
levy funds.
Having conclusively shown that the sequestered UCPB shares were
purchased with coconut levies, we hold that these funds and shares are,
at the very least, "affected with public interest."
Issue: Are the funds (shares) public funds? Taxes?
Ruling: Yes
Coconut Levy Funds Are Prima Facie Public Funds - Public funds are
those moneys belonging to the State or to any political subdivision of the
State; more specifically, taxes, customs duties and moneys raised by
operation of law for the support of the government or for the discharge of
its obligations.
Coconut levy funds partake of the nature of taxes which, in general, are
enforced proportional contributions from persons and properties, exacted
by the State by virtue of its sovereignty for the support of government and
for all public needs
Based on this definition, a tax has three elements, namely:
a) it is an enforced proportional contribution from persons and properties;
b) it is imposed by the State by virtue of its sovereignty; and
c) it is levied for the support of the government.
Taxation is done not merely to raise revenues to support the government,
but also to provide means for the rehabilitation and the stabilization of a
threatened industry, which is so affected with public interest as to be within
the police power of the State, as held in Caltex Philippines v.
COA57 and Osmeña v. Orbos.58
Even if the money is allocated for a special purpose and raised by special
means, it is still public in character. In the case before us, the funds were
even used to organize and finance State offices. In Cocofed v.
PCGG,59 the Court observed that certain agencies or enterprises "were
organized and financed with revenues derived from coconut levies
imposed under a succession of laws of the late dictatorship x x x with
deposed Ferdinand Marcos and his cronies as the suspected authors and
chief beneficiaries of the resulting coconut industry monopoly."
Just like the sugar levy funds, the coconut levy funds constitute state funds
even though they may be held for a special public purpose.
Coconut levy funds is likend to the sugary levy fund, on-line lottery system
fund, and the oil-stabilization funds. are funds exacted by the State. Being
enforced contributions, the are prima faciepublic funds.
. Because these funds have been subjected to COA audit, there can be
no other conclusion than that are prima facie public in character.
In response to a query posed by the administrator of the Philippine
Coconut Authority regarding the character of the coconut levy funds, the
Bureau of Internal Revenue has affirmed that these funds are public in
character. It held as follows: "[T]he coconut levy is not a public trust fund
for the benefit of the coconut farmers, but is in the nature of a tax and,
therefore, x x x public funds that are subject to government administration
and disposition."
Finally and tellingly, the very laws governing the coconut levies recognize
their public character. even President Marcos himself, as the sole
legislative/executive authority during the martial law years, struck off the
phrase which is a private fund of the coconut farmers from the original
copy of Executive Order No. 504 dated May 31, 1978, and we quote: The
phrase in bold face -- which is the private fund of the coconut farmers –
was crossed out and duly initialed by its author, former, President Marcos.
This deletion, clearly visible in "Attachment C" of petitioner's
Memorandum,75 was a categorical legislative intent to regard the CCSF as
public, not private, funds.
ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and
ENVIRONMENTALIST CONSUMERS NETWORK, INC. (ECN),
Petitioners,
-versus-
DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY
COMMISSION (ERC), NATIONAL POWER CORPORATION (NPC),
POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT GROUP
(PSALM Corp.), STRATEGIC POWER UTILITIES GROUP (SPUG),
and PANAYELECTRIC COMPANY INC. (PECO),
Respondents.
G.R. No. 159796
July 17, 2007
Facts
 Petitioners pray that the court would declare Section 34 of RA
9136 known as the Electric Power Industry Reform Act of 2001
(EPIRA) imposing a universal charge and Rule 18 of the IRR
seeking its implementation be declared unconstitutional.
 The case stemmed when respondents NPC (national power
corporation) petitioned for the availmen from the universal charge
of its share for missionary electrification. That the proposed
amount charge be approved for withdrawal from the special trust
fund managed by the Liabilities Management Group. The court
granted the petition of NPC.
 On the basis of the ERC decision Respondent Panay Electric
Company Inc. charged petitioner with the Universal charge as
reflected in their bills. Petitioners assail that the law and its IRR
are unconstitutional on the following grounds.
1) The universal charge provided for under Sec. 34 of the
EPIRA and sought to be implemented under Sec. 2, Rule 18 of
the IRR of the said law is a tax which is to be collected from all
electric end-users and self-generating entities. The power to tax
is strictly a legislative function and as such, the delegation of said
power to any executive or administrative agency like the ERC is
unconstitutional, giving the same unlimited authority. The assailed
provision clearly provides that the Universal Charge is to be
determined, fixed and approved by the ERC, hence leaving to the
latter complete discretionary legislative authority.
 2) The ERC is also empowered to approve and determine
where the funds collected should be used.
3) The imposition of the Universal Charge on all end-users is
oppressive and confiscatory and amounts to taxation without
representation as the consumers were not given a chance to be heard and
represented.

Petitioners contend that the Universal Charge has the
characteristics of a tax and is collected to fund the operations of
the NPC. Petitioners posit that the Universal Charge is imposed
not for a similar purpose as that used to stabilize the prices of oil
and sugar (respective funds).
 Respondent PSALM, contends that unlike a tax which is imposed
to provide income for public purposes, such as support of the
government, administration of the law, or payment of public
expenses, the assailed Universal Charge is levied for a specific
regulatory purpose, which is to ensure the viability of the country's
electric power industry. Thus, it is exacted by the State in the
exercise of its inherent police power.
 Respondents further contend that said Universal Charge does not
possess the essential characteristics of a tax, that its imposition
would redound to the benefit of the electric power industry and not
to the public, and that its rate is uniformly levied on electricity end-
users, unlike a tax which is imposed based on the individual
taxpayer's ability to pay. Moreover, respondents deny that there is
undue delegation of legislative power to the ERC since the EPIRA
sets forth sufficient determinable standards which would guide the
ERC in the exercise of the powers granted to it. Lastly,
respondents argue that the imposition of the Universal Charge is
not oppressive and confiscatory since it is an exercise of the police
power of the State and it complies with the requirements of due
process.
Issue: Is the Universal Charge imposed under Sec. 34o of the EPIRA a
tax? Is it an exercise of Police Power? The Power to tax?
Ruling: No. Police Power. The conservative and pivotal distinction
between these two powers rests in the purpose for which the charge is
made. If generation of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the primary
purpose, the fact that revenue is incidentally raised does not make the
imposition a tax.[36]
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA,
the State's police power, particularly its regulatory dimension, is invoked.
Such can be deduced from Sec. 34 which enumerates the purposes for
which the Universal Charge is imposed[37] and which can be amply
discerned as regulatory in character.
Moreover, it is a well-established doctrine that the taxing power may be
used as an implement of police power.[38] In Valmonte v. Energy
Regulatory Board, et al.[39] and in Gaston v. Republic Planters
Bank,[40] this Court held that the Oil Price Stabilization Fund (OPSF) and
the Sugar Stabilization Fund (SSF) were exactions made in the exercise
of the police power. The doctrine was reiterated in Osmea v. Orbos[41] with
respect to the OPSF. Thus, we disagree with petitioners that the instant
case is different from the aforementioned cases. With the Universal
Charge, a Special Trust Fund (STF) is also created under the
administration of PSALM.[42] The STF has some notable characteristics
similar to the OPSF and the SSF.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX
APPEALS, respondents.
G.R. No. L-29059 December 15, 1987
Facts
 By virtue of a decision of the Court of Tax Appeals rendered on
June 21, 1961, as modified on appeal by the Supreme Court on
February 27, 1965, the Commissioner of Internal Revenue was
ordered to refund to the Cebu Portland Cement Company the
amount of P 359,408.98, representing overpayments of ad
 valorem taxes on cement produced and sold by it after October
1957.
 The motion was opposed by the petitioner on the ground that the
private respondent had an outstanding sales tax liability to which
the judgment debt had already been credited. In fact, it was
stressed, there was still a balance owing on the sales taxes in the
amount of P 4,789,279.85 plus 28% surcharge. 3
 On April 22, 1968, the Court of Tax Appeals * granted the motion,
holding that the alleged sales tax liability of the private respondent
was still being questioned and therefore could not be set-off
against the refund.
 the Commissioner of Internal Revenue claims that the refund
should be charged against the tax deficiency of the private
respondent on the sales of cement under Section 186 of the Tax
Code. His position is that cement is a manufactured and not a
mineral product and therefore not exempt from sales taxes. he
petitioner also denies that the sales tax assessments have already
prescribed because the prescriptive period should be counted
from the filing of the sales tax returns, which had not yet been
done by the private respondent.
 The private respondent disclaims liability for the sales taxes, on
the ground that cement is not a manufactured product but a
mineral product. the alleged sales tax deficiency could not as yet
be enforced against it because the tax assessment was not yet
final, the same being still under protest and still to be definitely
resolved on the merits. Besides, the assessment had already
prescribed, not having been made within the reglementary five-
year period from the filing of the tax returns
Issue: Should the refund, as the petitioner claims be charged agains the
tax deficiency of private respondent?
Ruling: Yes. The argument that the assessment cannot as yet be enforced
because it is still being contested loses sight of the urgency of the need to
collect taxes as "the lifeblood of the government." If the payment of taxes
could be postponed by simply questioning their validity, the machinery of
the state would grind to a halt and all government functions would be
paralyzed. That is the reason why, save for the exception already noted,
the Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. — No court
shall have authority to grant an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed by this Code.
It goes without saying that this injunction is available not only when the
assessment is already being questioned in a court of justice but more so
if, as in the instant case, the challenge to the assessment is still-and only-
on the administrative level. There is all the more reason to apply the rule
here because it appears that even after crediting of the refund against the
tax deficiency, a balance of more than P 4 million is still due from the
private respondent.
To require the petitioner to actually refund to the private respondent the
amount of the judgment debt, which he will later have the right to distrain
for payment of its sales tax liability is in our view an Idle ritual.
Issue: Can respondent avail of the prescription period?
Ruling: No. . This contention must fail for what CEPOC filed was not the
sales returns required in Section 183(n) but the ad valorem tax returns
required under Section 245 of the Tax Code. In order to avail itself of the
benefits of the five-year prescription period under Section 331 of the Tax
Code, the taxpayer should have filed the required return for the tax
involved, that is, a sales tax return.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
G.R. No. L-28896 February 17, 1988
NOTES
Taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance On the other hand, such collection should
be made in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so that
the real purpose of taxation, which is the promotion of the common good,
may be achieved.
It is said that taxes are what we pay for civilization society. Without taxes,
the government would be paralyzed for lack of the motive power to activate
and operate it. Hence, despite the natural reluctance to surrender part of
one's hard earned income to the taxing authorities, every person who is
able to must contribute his share in the running of the government. The
government for its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and
enhance their moral and material values. This symbiotic relationship is the
rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation,
it is a requirement in all democratic regimes that it be exercised reasonably
and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate, as it has here, that
the law has not been observed.
Facts
 In January 1965, petitioner sent a letter to respondent assessing
it for delinquency income taxes for 1958 and 1959. Algue
seasonedly filed a protest and a few months later, on March, a
warranty of distraint was issued against respondent but the same
was refused because of the pending protest.
 Bir wasn’t able to filed the protest in their record. Said warrant was
acknowledged afterwards. Algue filed a pettion for review of the
decision of the CIR with the CTA.
 Philippine Sugar Estate Development Company had earlier
appointed Algue as its agent, authorizing it to sell its land, factories
and oil manufacturing process. Pursuant to such authority, Alberto
Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell,
and Pablo Sanchez, worked for the formation of the Vegetable Oil
Investment Corporation, inducing other persons to invest in
it. 14 Ultimately, after its incorporation largely through the
promotion of the said persons, this new corporation purchased the
PSEDC properties.
 For this sale, Algue received as agent a commission of
P126,000.00, and it was from this commission that the P75,000.00
promotional fees were paid to the aforenamed individuals. 16
 The petitioner contends that the claimed deduction of P75,000.00
was properly disallowed because it was not an ordinary
reasonable or necessary business expense.
 The petitioner claims that these payments are fictitious because
most of the payees are members of the same family in control of
Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is
not enough substantiation of such payments. In short, the
petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
Issue: whether or not the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed by private respondent Algue
as legitimate business expenses in its income tax returns
Ruling:
Agreeing with Algue, it held that the said amount had been legitimately
paid by the private respondent for actual services rendered. The payment
was in the form of promotional fees. These were collected by the Payees
for their work in the creation of the Vegetable Oil Investment Corporation
of the Philippines and its subsequent purchase of the properties of the
Philippine Sugar Estate Development Company.
There is no dispute that the payees duly reported their respective shares
of the fees in their income tax returns and paid the corresponding taxes
thereon.
We agree with the respondent court that the amount of the promotional
fees was not excessive. The total commission paid by the Philippine Sugar
Estate Development Co. to the private respondent was
P125,000.00. 21After deducting the said fees, Algue still had a balance of
P50,000.00 as clear profit from the transaction. The amount of P75,000.00
was 60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual
purchase by it of the Sugar Estate properties. This finding of the
respondent court is in accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there
shall be allowed as deductions —
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business, including a
reasonable allowance for salaries or other compensation for personal
services actually rendered; ...
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.
G.R. No. L-25043 April 26, 1968
Facts:
 Petitioners herein acquired the lands composed of Agrilcultrual
lands with a total area of 19,000 hectares in Nasugbu, Batangas.
 The tenants expressed their desire to purchase the lands from
petitioners of which petitioners agree after the government
persuaded them. 13,5000 hectares wereagreed upon for sale for
a price of 2 million plus 300k for expenses.
 Turns out, the government did not have the funds so a special
arrangement was mde for the rehabilitation finance corporation to
advance to Roxas the amount of 1.5 million as loan. Collateral for
such loan were the lands proposed to be sold to the farmers.
 In 1948, Petitioner allowed the farmers to buy the land for the
same price, on installment with an agreement with RFC that
amortization froms the workers will be paid for the loan.
 On 1958, the CIR demanded Roxas to the payment of real estate
dealer's tax for 1952. 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.
 In the same assessment, the Commissioner assessed deficiency
income taxes against the Roxas Brothers for the years 1953 and
1955.
 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,
 The Tax Court heard the appeal and rendered judgment on July
31, 1965 sustaining the assessment.
 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.
 Hence this petitioner for the court.
Issue: (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?
Ruling:
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.
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%.
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.
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 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.
Pasay Police, Firemen and Baguit police – not deductible since they were
used for Christmas gifts and not for public purposes.
Manila Police – deductible was used for public function
Philippine Heralds fund – not deductible – not corporation or associated
contemplated in Section 30 (h) of the Tax Code.
Our lady of Fatima Chapel at the far easter Uni – not deductible –
university gives dividends to its stock holders. Not shown that it is a
religious, or catholic organization.
JOHN H. OSMEÑA, petitioner,
vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS
ESTANISLAO, in his capacity as Secretary of Finance; WENCESLAO
DELA PAZ, in his capacity as Head of the Office of Energy Affairs; REX
V.
G.R. No. 99886 March 31, 1993
Facts
 On October 10, 1984, President Ferdinand Marcos issued P.D.
1956 creating a Special Account in the General Fund, designated
as the Oil Price Stabilization Fund (OPSF). The OPSF was
designed to reimburse oil companies for cost increases in crude
oil and imported petroleum products resulting from exchange rate
adjustments and from increases in the world market prices of
crude oil.
 Subsequently, the OPSF was reclassified into a "trust liability
account," in virtue of E.O. 1024, 7 and ordered released from the
National Treasury to the Ministry of Energy. The same Executive
Order also authorized the investment of the fund in government
securities, with the earnings from such placements accruing to the
fund.
 President Corazon C. Aquino, amended P.D. 1956. She
promulgated Executive Order No. 137 on February 27, 1987,
expanding the grounds for reimbursement to oil companies for
possible cost underrecovery incurred as a result of the reduction
 of domestic prices of petroleum products, the amount of the
underrecovery being left for determination by the Ministry of
Finance.
 The petition further avers that the creation of the trust fund violates
§ adverse consequences that such frequent oil price adjustments may have
29(3), Article VI of the Constitution, reading as follows:
 (3) All money collected on any tax levied for a special purpose
shall be treated as a special fund and paid out for such purposes
only. If the purpose for which a special fund was created has been
fulfilled or abandoned, the balance, if any, shall be transferred to
the general funds of the Government.
 The petitioner argues that "the monies collected pursuant to . .
P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,'
not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom
shall 'be treated as a special fund' to be used only for the purpose
indicated, and not channeled to another government objective."
 He also contends that the "delegation of legislative authority" to
the ERB violates § 28 (2). Article VI of the Constitution, viz.:
 The petitioner does not suggest that a "trust account" is illegal per
se, but maintains that the monies collected, which form part of the
OPSF, should be maintained in a special account of the general
fund for the reason that the Constitution so provides, and because
they are, supposedly, taxes levied for a special purpose. He
assumes that the Fund is formed from a tax undoubtedly because
a portion thereof is taken from collections of ad valorem taxes and
the increases thereon.
Issue: WON the powers of the ERB under P.D. 1956, partake the nature
of the taxation power of the state.
Ruling: No. the court cited the ruling on Valmonte v. Energy Regulatory
Board, where it ruled,
The OPSF is a "Trust Account" which was established "for the purpose of
minimizing the frequent price changes brought about by exchange rate
adjustment and/or changes in world market prices of crude oil and
imported petroleum products."
The OPSF was established precisely to protect local consumers from the
upon the economy.
He OPSF is thus a buffer mechanism through which the domestic
consumer prices of oil and petroleum products are stabilized, instead of
fluctuating every so often, and oil companies are allowed to recover those
portions of their costs which they would not otherwise recover given the
level of domestic prices existing at any given time.
It appears to the Court that the establishment and maintenance of the
OPSF is well within that pervasive and non-waivable power and
responsibility of the government to secure the physical and economic
survival and well-being of the community, that comprehensive sovereign
authority we designate as the police power of the State.
And in thecase of Gaston v Republic Planters Bank the court added,
The stabilization fees collected are in the nature of a tax, which is within
the power of the State to impose for the promotion of the sugar industry
(Lutz v. Araneta, 98 Phil. 148). . . . The tax collected is not in a pure
exercise of the taxing power. It is levied with a regulatory purpose, to
provide a means for the stabilization of the sugar industry. The levy is
primarily in the exercise of the police power of the State (Lutz v.
Araneta, supra).
Hence, it seems clear that while the funds collected may be referred to as
taxes, they are exacted in the exercise of the police power of the State.
Moreover, that the OPSF is a special fund is plain from the special
treatment given it by E.O. 137. It is segregated from the general fund; and
while it is placed in what the law refers to as a "trust liability account," the
fund nonetheless remains subject to the scrutiny and review of the COA.
The Court is satisfied that these measures comply with the constitutional
description of a "special fund." Indeed, the practice is not without
precedent.
With regard to the alleged undue delegation of legislative power, the Court
finds that the provision conferring the authority upon the ERB to impose
additional amounts on petroleum products provides a sufficient standard
by which the authority must be exercised. In addition to the general policy
of the law to protect the local consumer by stabilizing and subsidizing
domestic pump rates, § 8(c) of P.D. 1956 18 expressly authorizes the ERB
to impose additional amounts to augment the resources of the Fund.
For a valid delegation of power, it is essential that the law delegating the
power must be (1) complete in itself, that is it must set forth the policy to
be executed by the delegate and (2) it must fix a standard — limits of which
are sufficiently determinate or determinable — to which the delegate must
conform.
EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,
vs.
CITY OF ILOILO, defendants-appellants
G.R. No. L-26521 December 28, 1968
Facts
 On September of 1946, the City of Ilo-ilo enacted Ord. 86
imposing a license tax fees for the ff:
 tenement house (casa de vecindad), P25.00 annually; (2)
tenement house, partly or wholly engaged in or dedicated to
business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00
per apartment; (3) tenement house, partly or wholly engaged in
business in any other streets, P12.00 per apartment.
 The passage of the Local Autonomy Act gave the City of Ilo-ilo
the impression that they can enact a similar ordinance which was
declared by the court before as ultra-vires. Hence Ordinance 11.
 The validity and constitutionality of this ordinance were challenged
by the spouses Eusebio Villanueva and Remedies Sian
Villanueva, owners of four tenement houses containing 34
apartments. They contend that it is not within the power of the
City of Ilo-ilo and by its chapter to tax owners of tenement houses.
 Appelles contend that other cities do not impose tenement or
apartment taxes. They prayed that the ordinance be wendered
invalid for being unconstitutional; violative of the rule as to the
uniformity of taxation and depriving said plaintiffs of the equal
protection clause and tht the city refund the amonts collected.
 The lower court declared the ordinance illegal for being
oppressive and unreasonable; that no Law empowers cities to
impose apartment taxes; that the same constitute double taxation.
Issue: WON Ordinance 11 is unconstitutional, invalid, illegal
Can the City of Ilo-ilo impose tenement taxes by virtue of the Local
Autonomy act?
Ruling: No.
It is necessary to determine the true nature of the tax. The appellees
strongly maintain that it is a "property tax" or "real estate tax,"3 and not a
"tax on persons engaged in any occupation or business or exercising
privileges," or a license tax, or a privilege tax, or an excise tax. 4 Indeed,
the title of the ordinance designates it as a "municipal license
tax on persons engaged in the business of operating tenement houses,"
while section 1 thereof states that a "municipal license tax is
hereby imposed on tenement houses." It is the phraseology of section 1
on which the appellees base their contention that the tax involved is a real
estate tax which, according to them, makes the ordinance ultra vires as it
imposes a levy "in excess of the one per centum real estate tax allowable
under Sec. 38 of the Iloilo City Charter, Com. Act 158."5.
It is our view, contrary to the appellees' contention, that the tax in question
is not a real estate tax. Obviously, the appellees confuse the tax with the
real estate tax within the meaning of the Assessment Law, 6 which,
although not applicable to the City of Iloilo, has counterpart provisions in
the Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of
lands and buildings or other improvements thereon, not specially
exempted,8 and is payable regardless of whether the property is used or
not, although the value may vary in accordance with such factor. 9The tax
is usually single or indivisible, although the land and building or
improvements erected thereon are assessed separately, except when the
land and building or improvements belong to separate owners.10 It is a
fixed proportion11 of the assessed value of the property taxed, and
requires, therefore, the intervention of assessors.12 It is collected or
payable at appointed times,13 and it constitutes a superior lien on and is
enforceable against the property14 subject to such taxation, and not by
imprisonment of the owner.
The tax imposed by the ordinance in question does not possess the
aforestated attributes. It is not a tax on the land on which the tenement
houses are erected, although both land and tenement houses may belong
to the same owner. The tax is not a fixed proportion of the assessed value
of the tenement houses, and does not require the intervention of
assessors or appraisers. It is not payable at a designated time or date, and
is not enforceable against the tenement houses either by sale or distraint.
Clearly, therefore, the tax in question is not a real estate tax.
The contention that the plaintiffs-appellees are doubly taxed because they
are paying the real estate taxes and the tenement tax imposed by the
ordinance in question, is also devoid of merit. It is a well-settled rule that a
license tax may be levied upon a business or occupation although the land
or property used in connection therewith is subject to property tax. The
State may collect an ad valorem tax on property used in a calling, and at
the same time impose a license tax on that calling, the imposition of the
latter kind of tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or prohibited
sense the same property must be taxed twice when it should be taxed but
once; both taxes must be imposed on the same property or subject-matter,
for the same purpose, by the same State, Government, or taxing authority,
within the same jurisdiction or taxing district, during the same taxing
period, and they must be the same kind or character of tax."23 It has been
shown that a real estate tax and the tenement tax imposed by the
ordinance, although imposed by the same taxing authority, are not of the
same kind or character.
At all events, there is no constitutional prohibition against double taxation
in the Philippines.24 It is something not favored, but is permissible,
provided some other constitutional requirement is not thereby violated,
such as the requirement that taxes must be uniform."25.
Complementing the above ruling of the lower court, the appellees argue
that there is "lack of uniformity" and "relative inequality," because "only the
taxpayers of the City of Iloilo are singled out to pay taxes on their tenement
houses, while citizens of other cities, where their councils do not enact a
similar tax ordinance, are permitted to escape such imposition." .
It is our view that both assertions are undeserving of extended attention.
This Court has already ruled that tenement houses constitute a distinct
class of property. It has likewise ruled that "taxes are uniform and equal
when imposed upon all property of the same class or character within the
taxing authority
PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF
TAX APPEALS, respondents.
G.R. No. 125704. August 28, 1998
Facts
 August 5, 1992, the BIR sent a letter to Philex asking it to settle its
tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as
the 1st and 2nd quarter of 1992 in the total amount
of P123,821,982.52
 Philex protested the demand for payment of the tax liabilities
stating that it has pending claims for VAT input credit/refund for
the taxes it paid for the years 1989 to 1991 in the amount
of P119,977,037.02 plus interest. Therefore, these claims for tax
credit/refund should be applied against the tax liabilities.
 he BIR reiterated its demand that Philex settle the amount plus
interest within 30 days from the receipt of the letter.
 In view of the BIRs denial of the offsetting of Philexs claim for VAT
input credit/refund against its exercise tax obligation, Philex raised
the issue to the Court of Tax Appeals on November 6, 1992.[7]
 In the course of the proceedings, the BIR issued a Tax Credit
Certificate SN 001795 in the amount of P13,144,313.88 which,
applied to the total tax liabilities of Philex of P123,821,982.52;
effectively lowered the latters tax obligation of P110,677,688.52.
 Despite the reduction of its tax liabilities, the CTA still ordered
Philex to pay the remaining balance of P110,677,688.52 plus
interest, elucidating its reason, to wit:
 Thus, for legal compensation to take place, both obligations must
be liquidated and demandable. Liquidated debts are those where
the exact amount has already been determined In the instant
case, the claims of the Petitioner for VAT refund is still pending
litigation, and still has to be determined by this Court.
the liquidated debt of the Petitioner to the government cannot,
therefore, be set-off against the unliquidated claim which
Petitioner conceived to exist in its favor
  Moreover, the Court of Tax Appeals ruled that taxes cannot be
subject to set-off on compensation since claim for taxes is not a
debt or contract
 The coutr ruled against Philex and on Appeal, the CA dismissed
and affirmed the ruling. A few days later, philex received its VAT
refund. Petitioner contends that it should, ipso jure, off set its tax
liabilities.
 since both had already become due and demandable, as well as
fully liquidated;[16] hence, legal compensation can properly take
place.
Issue: Can tax liabilities be off-set by claims against the government?
Ruling: No.
Prescinding from this premise, in Francia v. Intermediate Appellate
Court,[19] we categorically held that taxes cannot be subject to set-off or
compensation, thus:
We have consistently ruled that there can be no off-setting of
taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being
collected. The collection of tax cannot await the results of a lawsuit against
the government.
The ruling in Francia has been applied to the subsequent case of Caltex
Philippines, Inc. v. Commission on Audit,[20] which reiterated that:
x x x a taxpayer may not offset taxes due from the claims that he may have
against the government. Taxes cannot be the subject of compensation
because the government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and
COURT OF TAX APPEALS, respondents.
G.R. No. 106611 July 21, 1994
Facts
 August 26, 1986, herein private respondent corporation filed a
claim for refund with the Bureau of Internal Revenue (BIR) in the
amount of P19,971,745.00 representing the alleged aggregate of
the excess of its carried-over total quarterly payments over the
actual income tax due
 in order to interrupt the running of the prescriptive period, Citytrust
filed a petition with the Court of Tax Appeals, docketed therein as
CTA Case No. 4099, claiming the refund of its income tax
overpayments for the years 1983, 1984 and 1985 in the total
amount of P19,971,745.00
 the Office of the Solicitor General, for and in behalf of therein
respondent commissioner, it was asserted that the mere averment
that Citytrust incurred a net loss in 1985 does not ipso facto merit
a refund; that the amounts of P6,611,223.00, P1,959,514.00 and
P28,238.00 claimed by Citytrust as 1983 income tax
overpayment, taxes withheld on proceeds of government
securities investments, as well as on rental income, respectively,
are not properly documented; that assuming arguendo that
petitioner is entitled to refund, the right to claim the same has
prescribed
with respect to income tax payments prior to August 28, 1984
 The case was submitted solely on the basis of the pleadings and
evidence submitted by respondent Citytrust
 but later on, a motion to suspend the proceedings was filed by
petitioner because the tax refund was already being processed by
the Tax credit/refund division of the BIR.
 This was opposed by petitioner contending that the CTA already
acquired jurisdiction. The court denied the motion to suspend.
 The court ruled in favor of the refund.
 The order for refund was based on the following findings of the
Court of Tax Appeals: (1) the fact of withholding has been
established by the statements and certificates of withholding taxes
accomplished by herein private respondent's withholding agents,
the authenticity of which were neither disputed nor controverted
by herein petitioner; (2) no evidence was presented which could
effectively dispute the correctness of the income tax return filed
by herein respondent corporation and other material facts stated
therein; (3) no deficiency assessment was issued by herein
petitioner; and (4) there was an audit report submitted by the BIR
Assessment Branch, recommending the refund of overpaid taxes
 for the years concerned (Exhibits Y to Y-3), which enjoys the
presumption of regularity in the performance of official duty
 The petitioner elevated the case to the CA where the court
affirmed. Hence this petition maintaining that said respondent
court erred in affirming the grant of the claim for refund of Citytrust,
considering that, firstly, said private respondent failed to prove and
substantiate its claim for such refund; and, secondly, the bureau's
findings of deficiency income and business tax liabilities against
private respondent for the year 1984 bars such payment.
Issue: WON the CA and CTA erred in rendering judgement in favor of
respondent. Was the refund granted correct?
Ruling:
2. Yes. It is the sense of this Court that the BIR, represented herein by
petitioner Commissioner of Internal Revenue, was denied its day in court
by reason of the mistakes and/or negligence of its officials and employees.
It can readily be gleaned from the records that when it was herein
petitioner's turn to present evidence, several postponements were sought
by its counsel, the Solicitor General, due to the unavailability of the
necessary records which were not transmitted by the Refund Audit
Division of the BIR to said counsel, as well as the investigation report made
by the Banks/Financing and Insurance Division of the said bureau/ despite
repeated requests. 17 It was under such a predicament and in deference
to the tax court that ultimately, said records being still unavailable, herein
petitioner's counsel was constrained to submit the case for decision on
February 20, 1991 without presenting any evidence.
For that matter, the BIR officials and/or employees concerned also failed
to heed the order of the Court of Tax Appeals to remand the records to it
pursuant to Section 2, Rule 7 of the Rules of the Court of Tax Appeals
which provides that the Commissioner of Internal Revenue and the
Commissioner of Customs shall certify and forward to the Court of Tax
Appeals, within ten days after filing his answer, all the records of the case
in his possession, with the pages duly numbered, and if the records are in
separate folders, then the folders shall also be numbered.
The aforestated impassé came about due to the fact that, despite the filing
of the aforementioned initiatory petition in CTA Case No. 4099 with the
Court of Tax Appeals, the Tax Refund Division of the BIR still continued to
act administratively on the claim for refund previously filed therein, instead
of forwarding the records of the case to the Court of Tax Appeals as
ordered.
No. Further, it is also worth nothing that the Court of Tax Appeals erred in
denying petitioner's supplemental motion for reconsideration alleging
bringing to said court's attention the existence of the deficiency income
and business tax assessment against Citytrust. The fact of such deficiency
assessment is intimately related to and inextricably intertwined with the
right of respondent bank to claim for a tax refund for the same year. To
award such refund despite the existence of that deficiency assessment is
an absurdity and a polarity in conceptual effects. Herein private
respondent cannot be entitled to refund and at the same time be liable for
a tax deficiency assessment for the same year.
The grant of a refund is founded on the assumption that the tax return is
valid, that is, the facts stated therein are true and correct. The deficiency
assessment, although not yet final, created a doubt as to and constitutes
a challenge against the truth and accuracy of the facts stated in said return
which, by itself and without unquestionable evidence, cannot be the basis
for the grant of the refund.
CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE
COMMISSIONER BARTOLOME C. FERNANDEZ and HONORABLE
COMMISSIONER ALBERTO P. CRUZ, respondents.
G.R. No. 92585 May 8, 1992
Facts
 In 1989, COA sent a letter to Caltex, directing it to remit its
collection to the Oil Price Stabilization Fund (OPSF), excluding
that unremitted for the years 1986 and 1988, of the additional tax
on petroleum products authorized under the PD 1956.
 Pending such remittance, all of its claims for reimbursement from
the OPSF shall be held in abeyance. The grant total of its
unremitted collections of the above tax is P1,287,668,820.
 Caltex submitted a proposal to COA for the payment and the
recovery of claims. COA approved the proposal but prohibited
Caltex from further offsetting remittances and reimbursements for
 the current and ensuing years. Caltex moved for reconsideration
but was denied. Hence, the present petition.
ISSUE:
Whether the amounts due from Caltex to the OPSF may be offsetted
against Caltex’s outstanding claims from said funds
RULING:
No. Taxation is no longer envisioned as a measure merely to raise
revenue to support the existence of government. Taxes may be levied with
a regulatory purpose to provide means for the rehabilitation and
stabilization of a threatened industry which is affected with public interest
as to be within the police power of the State.
PD 1956, as amended by EO 137, explicitly provides that the source of
OPSF is taxation. A taxpayer may not offset taxes due from the claims he
may have against the government. Taxes cannot be subject of
compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a
debt, demand,, contract or judgment as is allowed to be set-off.
Hence, COA decision is affirmed except that Caltex’s claim for
reimbursement of underrecovery arising from sales to the National Power
Corporation is allowed.
Furthermore, even granting arguendo that LOI 1416 has force and effect,
petitioner's claim must still fail. Tax exemptions as a general rule are
construed strictly against the grantee and liberally in favor of the taxing
authority.48 The burden of proof rests upon the party claiming exemption
to prove that it is in fact covered by the exemption so claimed. The party
claiming exemption must therefore be expressly mentioned in the
exempting law or at least be within its purview by clear legislative intent.
In the case at bar, petitioner failed to prove that it is entitled, as a
consequence of its sales to ATLAS and MARCOPPER, to claim
reimbursement from the OPSF under LOI 1416. Though LOI 1416 may
suspend the payment of taxes by copper mining companies, it does not
give petitioner the same privilege with respect to the payment of OPSF
dues.
That compensation had been the practice in the past can set no valid
precedent. Such a practice has no legal basis. Lastly, R.A. No. 6952 does
not authorize oil companies to offset their claims against their OPSF
contributions. Instead, it prohibits the government from paying any amount
from the Petroleum Price Standby Fund to oil companies which have
outstanding obligations with the government, without said obligation being
offset first subject to the rules on compensation in the Civil Code.
MANILA ELECTRIC COMPANY, petitioner,
vs.
MISAEL P. VERA, in his capacity as Commissioner of Internal
Revenue, respondent.
G.R. No. L-29987 October 22, 1975
NOTES:
1. One who claims to be exempt from the payment of a particular tax must
do so under clear and unmistakable terms found in the statute. Tax
exemptions are strictly construed against the taxpayer, they being highly
disfavored and may almost be said "to be odious to the law." He who
claims an exemption must be able to print to some positive provision of
law creating the right; it cannot be allowed to exist upon a mere vague
implication or inference. 3 The right of taxation will not beheld to have been
surrendered unless the intention to surrender is manifested by words too
plain to be mistaken (Ohio Life Insurance & Trust Co. vs. Debolt, 60
Howard, 416), for the state cannot strip itself of the most essential power
of taxation by doubtful words; it cannot, by ambiguous language, be
deprived of this highest attribute of sovereignty (Erie Railway Co. vs.
Commonwealth of Pennsylvania, 21 Wallace 492, 499). So, when
exemption is claimed, it must be shown indubitably to exist, for every
presumption is against it, and a well-founded doubt is fatal to the claim
(Farrington vs. Tennessee & County of Shelby, 95 U.S. 679, 686).
Facts
 Petitioner Meralco is a holder of a franchise to construct,maintain,
and operate an electric light, heat, nd power system in theCity of
Manila.
 Meralco imported and received from abroad on various dates,
copper wires, transformers, and insulators for use in the operation
of its business which the customs levied and collected a
compensating tax.
 Meralco claims that it is entitled to a refund and tax exmeption
 Respondent claims that the basis for collection is found in Section
190 of the National Internal Revenue Code.
 Sec. 190. Compensating Tax. — All persons residing or doing
business in the Philippines, who purchase or receive from without
the Philippines any commodities, goods, wares, or merchandise,
excepting those subject to specific taxes under Title IV of this
Code, shall pay on the total value thereof at the time they are
received by such persons, including freight, postage, insurance,
commission and all similar charges, a compensating tax
equivalent to the percentage taxes imposed under this Title on
original transactions effected by merchants, importers, or
manufacturers, such tax to be paid before the withdrawal or
removal of said commodities, goods, wares, or merchandise from
the customhouse or the post office: ... 2
 The CTA followed its ruling in the case of Panay Electric Co. v CIR
and Borja v CIR where denying the exemption from paying a
compensating tax.
 Petitioner meralco anchors its claim on Pragraph 9 its franchise
PARAGRAPH 9. The grantee shall be liable to
pay the same taxes upon its real estate, buildings, plant
(not including poles, wires, transformers, and insulators),
machinery, and personal property as other persons are or
may be hereafter by law to pay. Inconsideration of Part
Two of the franchise herein granted, to wit, the right to
build and maintain in the City of Manila and its suburbs a
plant for the conveying and furnishing of electric current
for light, heat, and power, and to charge for the same, the
grantee shall pay to the City of Manila a five per centum
of the gross earnings received form its business under
this franchise in the City and its suburbs: PROVIDED,
That two and one-half per centum of the gross earnings
received from the business of the line to Malabon shall be
paid to the Province of Rizal. Said percentage shall be
due and payable at the times stated in paragraph
nineteen of Part One hereof, and after an audit, like that
provided in paragraph twenty of Part One hereof, and
shall be in lieu of all taxes and assessments of
whatsoever nature, and by whatsoever authority upon the
privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee, from which
taxes and assessments the grantee is hereby expressly
exempted. (Petitioner's brief, p. 4, G.R. No. L-29987; see
also pp. 3-4, petitioner's brief, L-23847)
 Petitioner adds that the ruling of the two cases mentioned by the
CTA is not applicable to their case. Petitioner's submission that its
right to exemption is supported by the "plain and unambiguous"
term of paragraph 9 of its franchise is positively without basis.
Issue: Is petitioner entitled to exemption from paying compensating tax?
Ruling: No. The compensating tax being imposed upon petitioner herein,
MERALCO, is an impost on its use of imported articles and is not in the
nature of a direct tax on the articles themselves, the latter tax falling within
the exemption. T
It is true that upon the collection of a compensating tax on petitioner's
poles, wires, transformers, and insulators purchased from abroad, the tax
falls on the goods themselves; this fact leads petitioner to claim that what
is being imposed upon it is a property tax. But petitioner loses sight of the
principle that "every excise necessarily must finally fall upon and be paid
by property, and so may be indirectly a tax upon property; but if it is really
imposed upon the performance of an act, the enjoyment of a privilege, or
the engaging in an occupation, it will be considered an excise." (51 Am.
Jur. 1d, Taxation, Sec. 34, emphasis supplied) And so, to reiterate, what
is being taxed here is the use of goods purchased from out of the country,
and the imposition is in the nature of an excise tax.
On this point, the Government correctly argues that the provision in
petitioner's franchise that the payment of the percentage tax on the gross
earnings shall be "in lieu of all taxes and assessments of whatsoever
nature, and whatsoever authority" is not to be given a literal meaning as
to preclude the imposition of the compensating tax in this particular case
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
FIREMAN'S FUND INSURANCE COMPANY and the COURT OF TAX
APPEALS, respondents.
G.R. No. L-30644 March 9, 1987
Facts
  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.
 Respondent is involved the business of insurance contracts
involving casualty, fire and marine risks. It was regular for
respondent to purchase documentary stamps and fixed them on
the monthly statements of policies and in their policy register. On
1959, respondent lost their monthly statements of business and
policy registry. This was duly reported to petitioner along with the
NBI.
 Petitioner in its investigation found that respondent failed to affix
the required documentary stamps to the insurance policies as
demanded by Section 337 of the Revenue Code. Hence, on 1962,
petitioner demanded from respondent the payment of
documentary stamp taxes.
 Respondent contested the assessment and because of its denial,
the case reached the CA where the court ruled in respondents
favor, hence the petition.
 Issue: can respondent company be required to pay again
documentary stamps it has actually purchase, affixed and
cancelled?
Ruling: No.
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.
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
NOTE: 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]).
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MARUBENI
CORPORATION,respondent.
G.R. No. 137377. December 18, 2001
Facts
Respondent Marubeni Corporation is a foreign corporation organized
and existing under the laws of Japan. It is engaged in general import and
export trading, financing and the construction business. It is duly
registered to engage in such business in the Philippines and maintains a
branch office in Manila.
Sometime in November 1985, petitioner Commissioner of Internal
Revenue issued a letter of authority to examine the books of accounts of
the Manila branch office of respondent corporation for the fiscal year
ending March 1985. In the course of the examination, petitioner found
respondent to have undeclared income from two (2) contracts in the
Philippines, both of which were completed in 1984. One of the contracts
was with the National Development Company (NDC) in connection with
the construction and installation of a wharf/port complex at the Leyte
Industrial Development Estate in the municipality of Isabel, province of
Leyte. The other contract was with the Philippine Phosphate Fertilizer
Corporation (Philphos) for the construction of an ammonia storage
complex also at the Leyte Industrial Development Estate.
On March 1, 1986, petitioners revenue examiners recommended an
assessment for deficiency income, branch profit remittance, contractors
and commercial brokers taxes. Respondent questioned this assessment
in a letter dated June 5, 1986.
On August 27, 1986, respondent corporation received a letter dated
August 15, 1986 from petitioner assessing respondent several deficiency
taxes.
Petitioner focuse on the NDC and Philpos projects each one consisting of
the construction and installation of facilities in the Philippines, hence
subject to internal revenue taxes.
Later on E.O. no. 41 was passed declaring a one-time amnesty covering
unpaid income taxes for the yers 1981 and 1985. This came before
respondent filed a case with the CTA question the assement made by
petitioner.
In accordance with the terms of E.O. No. 41, respondent filed its tax
amnesty return dated October 30, 1986 and attached thereto its sworn
statement of assets and liabilities and net worth as of Fiscal Year (FY)
1981 and FY 1986. The return was received by the BIR on November 3,
1986 and respondent paid the amount of P2,891,273.00 equivalent to ten
percent (10%) of its net worth increase between 1981 and 1986.
EO. 41 was later expanded by E.O no. 64
n December 15, 1986, respondent filed a supplemental tax amnesty
return under the benefit of E.O. No. 64 and paid a further amount
of P1,445,637.00 to the BIR equivalent to five percent (5%) of the increase
of its net worth between 1981 and 1986.
On July 29, 1996, almost ten (10) years after filing of the case, the
Court of Tax Appeals rendered a decision in CTA Case No. 4109. The tax
court found that respondent had properly availed of the tax amnesty under
E.O. Nos. 41 and 64 and declared the deficiency taxes subject of said
case as deemed cancelled and withdrawn.
The main controversy in this case lies in the interpretation of the
exception to the amnesty coverage of E.O. Nos. 41 and 64. There are
three (3) types of taxes involved herein income tax, branch profit
remittance tax and contractors tax. These taxes are covered by the
amnesties granted by E.O. Nos. 41 and 64. Petitioner claims, however,
that respondent is disqualified from availing of the said amnesties because
the latter falls under the exception in Section 4 (b) of E.O. No. 41.
Section 4 of E.O. No. 41 enumerates which taxpayers cannot avail of
the amnesty granted thereunder, viz:
Sec. 4. Exceptions.The following taxpayers may not avail themselves of
the amnesty herein granted:
b) Those with income tax cases already filed in Court as of the
effectivity hereof;
Petitioner argues that at the time respondent filed for income tax amnesty
on October 30, 1986, CTA Case No. 4109 had already been filed and was
pending before the Court of Tax Appeals. Respondent therefore fell under
the exception in Section 4 (b) of E.O. No. 41.
Issue: Is respondent company covered the E.O. no. 41 therefore
exempted in paying taxes for the aforementioned periods provided by the
law?
Issue: Yes.
Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts
from income tax amnesty those taxpayers with income tax cases already
filed in court as of the effectivity hereof. The point of reference is the date
of effectivity of E.O. No. 41. The filing of income tax cases in court must
have been made before and as of the date of effectivity of E.O. No. 41.
Thus, for a taxpayer not to be disqualified under Section 4 (b) there must
have been no income tax cases filed in court against him when E.O. No.
41 took effect. This is regardless of when the taxpayer filed for income tax
amnesty, provided of course he files it on or before the deadline for filing.
E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109
questioning the 1985 deficiency income, branch profit remittance and
contractors tax assessments was filed by respondent with the Court of Tax
Appeals on September 26, 1986. When E.O. No. 41 became effective on
August 22, 1986, CTA Case No. 4109 had not yet been filed in court.
Respondent corporation did not fall under the said exception in Section 4
(b), hence, respondent was not disqualified from availing of the amnesty
for income tax under E.O. No. 41.
HOWEVER
The difficulty herein is with respect to the contractor’s tax assessment
(business tax) and respondent’s availment of the amnesty under EO 64,
which expanded EO 41’s coverage. When EO 64 took effect on Nov 17,
1986, it did not provide for exceptions to the coverage of the amnesty for
business, estate and donor’s taxes. Instead, Section 8 said EO provided
that:
“Section 8. The provisions of Executive Orders Nos. 41 and 54 which are
not contrary to or inconsistent with this amendatory Executive Order shall
remain in full force and effect.”
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to
EO 41 and its date of effectivity. The general rule is that an amendatory
act operates prospectively. It may not be given a retroactive effect unless
it is so provided expressly or by necessary implication and no vested
right or obligations of contract are thereby impaired.
FURTHERMORE
Marubeni contends that assuming it did not validly avail of the amnesty, it
is still not liable for the deficiency tax because the income from the projects
came from the “Offshore Portion” as opposed to “Onshore Portion”. It
claims all materials and equipment in the contract under the
“Offshore Portion” were manufactured and completed in Japan, not
in the Philippines, and are therefore not subject to Philippine taxes.
(BG: Marubeni won in the public bidding for projects with government
corporations NDC and Philphos. In the contracts, the prices were broken
down into a Japanese Yen Portion (I and II) and Philippine Pesos Portion
and financed either by OECF or by supplier’s credit. The Japanese Yen
Portion I corresponds to the Foreign Offshore Portion, while Japanese
Yen Portion II and the Philippine Pesos Portion correspond to the
Philippine Onshore Portion. Marubeni has already paid the Onshore
Portion, a fact that CIR does not deny.)
CIR argues that since the two agreements are turn-key, they call for the
supply of both materials and services to the client, they are contracts for
a piece of work and are indivisible. The situs of the two projects is in the
Philippines, and the materials provided and services rendered were all
done and completed within the territorial jurisdiction of the Philippines.
Accordingly, respondent’s entire receipts from the contracts, including its
receipts from the Offshore Portion, constitute income from Philippine
sources. The total gross receipts covering both labor and materials
should be subjected to contractor’s tax (a tax on the exercise of a
privilege of selling services or labor rather than a sale on products).
Marubeni, however, was able to sufficiently prove in trial that not all its
work was performed in the Philippines because some of them were
completed in Japan (and in fact subcontracted) in accordance with the
provisions of the contracts. All services for the design, fabrication,
engineering and manufacture of the materials and equipment under
Japanese Yen Portion I were made and completed in Japan. These
services were rendered outside Philippines’ taxing jurisdiction and
are therefore not subject to contractor’s tax. Petition denied.
 PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC.,
Petitioner,
- versus -
PROVINCE OF LAGUNA and MANUEL E. LEYCANO, JR., in his
capacity as the Provincial Treasurer of the Province of Laguna,
Respondents.
G.R. No. 151899
August 16, 2005
NOTES:
To begin with, tax exemptions are highly disfavored. The
reason for this was explained by this Court in Asiatic
Petroleum Co. v. Llanes, in which it was held:
. . . Exemptions from taxation are highly
disfavored, so much so that they may almost be said to
be odious to the law. He who claims an exemption must
be able to point to some positive provision of law creating
the right. . . As was said by the Supreme Court of
Tennessee in Memphis vs. U. & P. Bank (91 Tenn., 546,
550), 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. Other utterances equally or more
emphatic come readily to hand from the highest authority.
In Ohio Life Ins. and Trust Co. vs. Debolt (16 Howard,
416), it was said by Chief Justice Taney, that the right of
taxation will not be held to have been surrendered, unless
the intention to surrender is manifested by words too plain
to be mistaken. In the case of the Delaware Railroad
Tax (18 Wallace, 206, 226), the Supreme Court of the
United States said that the surrender, when claimed, must
be shown by clear, unambiguous language, which will
admit of no reasonable construction consistent with the
reservation of the power. If a doubt arises as to the intent
of the legislature, that doubt must be solved in favor of the
State. In Erie Railway Company vs. Commonwealth of
Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt,
speaking of exemptions, observed that a State cannot
strip itself of the most essential power of taxation by
doubtful words. It cannot, by ambiguous language, be
deprived of this highest attribute of sovereignty.
In Tennessee vs. Whitworth (117 U.S., 129, 136), it was
said: In all cases of this kind the question is as to the intent
of the legislature, the presumption always being against
any surrender of the taxing power. In Farrington vs.
Tennessee and County of Shelby (95 U.S., 379, 686), Mr.
Justice Swayne said: . . . 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.
The tax exemption must be expressed in the
statute in clear language that leaves no doubt of the
intention of the legislature to grant such exemption. And,
even if it is granted, the exemption must be interpreted
in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority.
Facts
PLDT is a holder of a legislative franchise under Act No. 3436, as
amended, to render local and international telecommunications services.
On August 24, 1991, the terms and conditions of its franchise were
consolidated under Republic Act No. 7082,[5] Section 12 of which
embodies the so-called in-lieu-of-all taxes clause, whereunder PLDT shall
pay a franchise tax equivalent to three percent (3%) of all its gross
receipts, which franchise tax shall be in lieu of all taxes.
Meanwhile, or on January 1, 1992, Republic Act No. 7160, otherwise
known as the Local Government Code, took effect. Section 137 of the
Code, in relation to Section 151 thereof, grants provinces and other local
government units the power to impose local franchise tax on businesses
enjoying a franchise
By Section 193 of the same Code, all tax exemption privileges then
enjoyed by all persons, whether natural or juridicial, save those expressly
mentioned therein, were withdrawn, necessarily including those taxes
from which PLDT is exempted under the in-lieu-of-all taxes clause in its
charter.
nvoking its authority under Section 137, supra, of the Local Government
Code, the Province of Laguna, through its local legislative assembly,
enacted Provincial Ordinance No. 01-92, made effective January 1, 1993,
imposing a franchise tax upon all businesses enjoying a franchise, PLDT
included.
Prior thereto, Congress, aiming to level the playing field among
telecommunication companies, enacted Republic Act No. 7925, otherwise
known as the Public Telecommunications Policy Act of the Philippines,
which took effect on March 16, 1995.
To achieve the legislative intent, Section 23 thereof, also known as the
most-favored treatment clause, provides for an equality of treatment in the
telecommunications industry,
Then, on June 2, 1998, the Department of Finance, thru its Bureau of
Local Government Finance (BLGF), issued a ruling to the effect that as
of March 16, 1995, the effectivity date of the Public Telecommunications
Policy Act of the Philippines,[6] PLDT, among other telecommunication
companies, became exempt from local franchise tax.
On the basis of the aforequoted ruling, PLDT refused to pay
the Province of Laguna its local franchise tax liability for 1999. And,
on December 22, 1999, it even filed with the Office of the Provincial
Treasurer a written claim for refund of the amount it paid as local franchise
tax for 1998.
With no refund having been made, PLDT instituted with the
Regional Trial Court at Laguna a petition therefor against the Province and
its Provincial Treasurer, which petition was thereat docketed as Civil Case
No. SC-3953.
As before, PLDT argues that because Smart Communications, Inc.
(SMART) and Globe Telecom (GLOBE) under whose respective
franchises granted after the effectivity of the Local Government Code, are
exempt from franchise tax, it follows that petitioner is likewise exempt from
the franchise tax sought to be collected by the Province of Laguna, on the
reasoning that the grant of tax exemption to SMART and GLOBE ipso
facto applies to PLDT, consistent with the most-favored-treatment clause
found in Section 23 of the Public Telecommunications Policy Act of the
Philippines (Rep. Act No. 7925).
This was denied, hence the petition
Issue: is PLDT entitled to exemption?
Ruling: No.
We note, quite interestingly, that except for the particular local
government units involved in the earlier case of PLDT vs. City of
Davao[7] and the very recent case of PLDT vs. City of Bacolod, et al.,[8] the
arguments presently advanced by petitioner on the issues raised herein
are but a mere reiteration if not repetition of the very same arguments it
has already raised in the two (2) earlier PLDT cases. For sure, the errors
presently assigned are substantially the same as those in Davao and
in Bacolod, all of which have been adequately addressed and passed
upon by this Court in its decisions therein as well as in its en
banc Resolution in Davao.
In PLDT vs. City of Davao, and again in PLDT vs. City of Bacolod,
et al., this Court has interpreted Section 23 of Rep. Act No. 7925. There,
we ruled that Section 23 does not operate to exempt PLDT from the
payment of franchise tax. We quote what we have said in Davao and
reiterated in Bacolod.
In sum, it does not appear that, in approving 23
of R.A. No. 7925, Congress intended it to operate as a
blanket tax exemption to all telecommunications entities.
Applying the rule of strict construction of laws granting tax
exemptions and the rule that doubts should be resolved
in favor of municipal corporations in interpreting statutory
provisions on municipal taxing powers, we hold that 23 of
R.A. No. 7925 cannot be considered as having amended
petitioner's franchise so as to entitle it to exemption from
the imposition of local franchise taxes. Consequently, we
hold that petitioner is liable to pay local franchise taxes in
the amount of P3,681,985.72 for the period covering the
first to the fourth quarter of 1999 and that it is not entitled
 to a refund of taxes paid by it for the period covering the
first to the third quarter of 1998.[9]
even as it is a state policy to promote a level playing field in the
communications industry, Section 23 of Rep. Act No. 7925 does not refer
to tax exemption but only to exemption from certain regulations and
requirements imposed by the National Telecommunications Commission:

xxx. The records of Congress are bereft of any

discussion or even mention of tax exemption.

The Court rejected PLDTs contention that the in-lieu-of-all-taxes

clause does not refer to tax exemption but to tax exclusion and hence,
the strictissimi juris rule does not apply. The en banc explains that these
two terms actually mean the same thing, such that the rule that tax
exemption should be applied in strictissimi jurisagainst the taxpayer and
liberally in favor of the government applies equally to tax exclusions:

Indeed, both in their nature and in their effect

there is no difference between tax exemption and tax
exclusion. Exemption is an immunity or privilege; it is
freedom from a charge or burden to which others are
subjected. Exclusion, on the other hand, is the removal of
otherwise taxable items from the reach of taxation, e.g.,
exclusions from gross income and allowable deductions.
Exclusion is thus also an immunity or privilege which frees
a taxpayer from a charge to which others are subjected.
Consequently, the rule that tax exemption should be
applied in strictissimi juris against the taxpayer and
liberally in favor of the government applies equally to tax
exclusions. To construe otherwise the in lieu of all taxes
provision invoked is to be inconsistent with the theory that
R.A. No. 7925, 23 grants tax exemption because of a
similar grant to Globe and Smart.[12]