TAXATION

LUTZ VS. ARANETA

GR L-7859 December 22, 1955

Reyes, J.:

FACTS:

Walter Lutz, Judicial Administrator of the intestate estate of Ledesma, sought to

recover the sum of Php14, 666.40 paid by the estate as taxes, alleging that such tax is
unconstitutional as it levied for the aid and support of the sugar industry exclusively which
is in his opinion not a public purpose.

ISSUE:

Whether or not tax is valid in supporting the sugar industry?

RULING:

The court ruled that the tax is valid as it served public purpose. The tax provided for
in CA 567 is primarily an exercise of police power since sugar is a great source of income
for the country and employs thousands of laborers. Hence, it was competent for the
legislature to find that the general welfare demanded that the sugar industry should be
stabilized in turn; and in the wide field of its police power, the lawmaking body could
provide that the distribution of benefits therefrom be readjusted among its components to
enable it to resist the added strain of the increase in taxes that it had to sustain.

COMMISSIONER OF IR VS CENTRAL LUZON DRUG CORP

GR 148512 June 26, 2006

Azcuna, J.:

FACTS:

This is a petition for review under Rule 45 of Rules of Court seeking the nullification
of CA decision granting respondent’s claim for tax equal to the amount of the 20% that it
extended to senior citizens on the latter’s purchases pursuant to Senior Citizens Act.
Respondent deducted the total amount of Php219,778 from its gross income for the
taxable year 1995 whereby respondent did not pay tax for that year reporting a net loss of
Php20,963 in its corporate income tax. In 1996, claiming that the Php219,778 should be
applied as a tax credit, respondent claimed for refund in the amount of Php150, 193.

ISSUE:

Whether or not the 20% discount granted by the respondent to qualified senior
citizens may be claimed as tax credit or as deduction from gross sales?

RULING:

“Tax credit” is explicitly provided for in Sec4 of RA 7432. The discount given to
Senior citizens is a tax credit, not a deduction from the gross sales of the establishment
concerned. The tax credit that is contemplated under this Act is a form of just
compensation, not a remedy for taxes that were erroneously or illegally assessed and
collected. In the same vein, prior payment of any tax liability is a pre-condition before a
taxable entity can benefit from tax credit. The credit may be availed of upon payment, if
any. Where there is no tax liability or where a private establishment reports a net loss for
the period, the tax credit can be availed of and carried over to the next taxable year.

APOSTOLIC PREFECT VS CITY TREASURER OF BAGUIO CITY

GR 4752 April 18, 1941

Imperial, J.:

FACTS:

The Apostolic Prefect is a corporation , of religious character, organized under the

Philippine laws, and with residence in Baguio. The City imposed a special assessment
against properties within its territorial jurisdiction, including those of the Apostolic Prefect,
which benefits from its drainage and sewerage system. The Apostolic Prefect contends
that its properties should be free of tax being of religious in character.

ISSUE:

Whether or not Apostolic Prefect, as a religious entity is exempt from the payment
of the special assessment.

RULING:

A special assessment is not a tax; and neither the decree nor the Constitution
exempt petitioner from payment of said special assessment. Although it its broad
meaning, tax includes both general taxes and special assessment, yet there is a
recognized distinction: Assessment is confined to local impositions upon property for the
payment of the cost of public improvements in its immediate vicinity and levied with
special benefits to the property assessed. Petitioner likewise, has proven that the property
in question is used exclusively for religious purposes; but that it appears the same is being
used to other non-religious purposes. Thus, petitioner is required to pay the special
assessment.

PAL VS EDU

HR L-41383 August 15, 1988

Gutierrez, J.:

FACTS:

PAL is engaged in air transportation business under a legislative franchise wherein it

is exempt from tax payment. PAL has not been paying motor vehicle registration since
1956. The Land Registration Commissioner required all tax exempt entities including PAL
to pay motor vehicle registration fees.

ISSUE:

Whether or not registration fees as to motor vehicles are taxes to which PAL is
exempted.

RULING:

Taxes are for revenue whereas fees are exactions for purposes of regulation and
inspection, and are for that reason limited in amount to what is necessary to cover the
cost of the services rendered in that connection. It is the object of the charge, and not the
name, that determines whether a charge is a tax or a fee. The money collected under
Motor Vehicle Law is not intended for the expenditures of the MV Office but accrues to the
funds for the construction and maintenance of public roads, streets and bridges.

As fees are not collected for regulatory purposes as an incident to the enforcement
of regulations governing the operation of motor vehicles on public highways but to provide
revenue with which the Government is to construct and maintain public highways for
everyone’s use, they are veritable taxes, not merely fees. PAL is thus exempt from paying
such fees, except for the period between June 27, 1968 to April 9, 1979 where its tax
exemption in the franchise was repealed.

CALTEX PHILIPPINES VS CA

G.R. 925585 MAY 8, 1992

Davide, J.:

FACTS:

In 1989, COA sent a letter to Caltex directing it to remit to OPSF its collection of the
additional tax on petroleum authorized under PD 1956 and pending such remittance, all of
its claims from the OPSF shall be held in abeyance. Petitioner requested COA for the early
release of its reimbursement certificates from the OPSF covering claims with the Office of
Energy Affairs. COA denied the same.

ISSUE:

Whether of not petitioner can avail of the right to offset any amount that it may be
required under the law to remit to the OPSF against any amount that it may receive by
way of reimbursement.

RULING:

It is a settled rule that 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 debtors and creditors of each other and a
claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-
off.

The oil companies merely acted as agents for the government in the latter’s
collection since taxes are passed unto the end-users, the consuming public.

DOMINGO VS GARLITOS

G.R. NO. 18993 June 29, 1963

Labrador, J.:

FACTS:

In Domingo vs. Moscoso, the Supreme Court declared as final and executor the
order of the lower court for the payment of estate and inheritance taxes, charges and
penalties amounting to Php 40,058.55 by the estate of the of the late Walter Price. The
petitioner for execution filed by the fiscal was denied by the lower court. The court held
that the execution is unjustified as the Government is indebted to the estate for
Php262,200 and ordered the amount of inheritance taxes can be deducted from the
Government’s indebtedness to the estate.

ISSUE:

Whether of not a tax and a debt may be compensated.

RULING:

The court having jurisdiction of the Estate had found that the claim of the Estate
against the government has been recognized and the amount has already been
appropriated by a corresponding law. Both the claim of the Government for inheritance
taxes and the claim of the intestate for services rendered have already become overdue
and demandable is well as fully liquidated. Compensation takes place by operation of law
and both debts are extinguished to the concurrent amount. Therefore the petitioner has no
clear right to execute the judgment for taxes against the estate of the deceased Walter
Price.

GARCIA VS. EXECUTIVE SECRETARY

211 SCRA 219 July 3, 1992

Feliciano, J.:

FACTS:

The President issued an EO which imposed, across the board, including crude oil and
other oil products, additional duty ad valorem. The Tariff Commission held public hearings
on said EO and submitted a report to the President for consideration and appropriate
action. The President, on the other hand issued an EO which levied a special duty of P0.95
per liter of imported crude oil and P1.00 per liter of imported oil products.

ISSUE:

Whether of not the President may issue an EO which is tantamount to enacting a bill
in the nature of revenue-generating measures.

RULING:

The Court said that although the enactment of appropriation, revenue and tariff bills
is within the province of the Legislative, it does not follow that EO in question, assuming
they may be characterized as revenue measure are prohibited to the President, that they
must be enacted instead by Congress. Section 28 of Article VI of the 1987 Constitution
provides:

“The Congress may, by law authorize the President to fix… tariff rates and other
duties or imposts…”

The relevant Congressional statute is the Tariff and Customs Code of the Philippines
and Sections 104 and 401, the pertinent provisions thereof.

BENGZON VS. DRILON

G.R. 103524 April 15, 1992 208 SCRA 133

Gutierrez, J.:

FACTS:

Petitioners are retired justices of the Supreme Court and Court of Appeals who are
currently receiving pensions under RA 910 as amended by RA 1797. President Marcos
issued a decree repealing section 3-A of RA 1797 which authorized the adjustment of the
pension of retired justices and officers and enlisted members of the AFP. PD 1638 was
eventually issued by Marcos which provided for the automatic readjustment of the pension
of officers and enlisted men was restored, while that of the retired justices was not. RA
1797 was restored through HB 16297 in 1990. When her advisers gave the wrong
information that the questioned provisions in 1992 GAA were an attempt to overcome her
earlier veto in 1990, President Aquino issued the veto now challenged in this petition.

It turns out that PD 644 which repealed RA 1797 never became a valid law absent
its publication, thus there was no law. It follows that RA 1797 was still in effect and HB
16297 was superfluous because it tried to restore benefits which were never taken away
validly. The veto of HB 16297 did not also produce any effect.

ISSUE:

Whether or not the veto of the President of certain provisions in the GAA of FY 1992
relating to the payment of the adjusted pensions of retired Justices is constitutional or
valid.

RULING:

The veto of these specific provisions in the GAA is tantamount to dictating to the
Judiciary ot its funds should be utilized, which is clearly repugnant to fiscal autonomy.
Pursuant to constitutional mandate, the Judiciary must enjoy freedom in the disposition of
the funds allocated to it in the appropriations law.

Any argument which seeks to remove special privileges given by law to former
Justices on the ground that there should be no grant of distinct privileges or “preferential
treatment” to retired Justices ignores these provisions of the Constitution and in effect
asks that these Constitutional provisions on special protections for the Judiciary be
repealed.

The petition is granted and the questioned veto is illegal and the provisions of 1992
GAA are declared valid and subsisting.

REYES VS. ALMANZOR

GR 43839-46 April 26, 1991 196 SCRA 322

Paras, J.:

FACTS:

Petitioner are owners of parcels of land leased to tenants. RA 6359 was enacted
prohibiting for one year an increase in monthly rentals of dwelling units and said Act also
disallowed ejectment of lessees upon the expiration of the usual period of lease. City
assessor of Manila assessed the value of petitioner’s property based on the schedule of
market values duly reviewed by the Secretary of Finance. The revision entailed an
increase to the tax rates and petitioners averred that the reassessment imposed upon
them greatly exceeded the annual income derived from their properties.

ISSUE:

Whether or not income approach is the method to be used in the tax assessment
and not the comparable sales approach.

RULING:

By no stretch of the imagination can the market value of properties covered by PD

20 be equated with the market value of properties not so covered. In the case at bar, not
even factors determinant of the assessed value of subject properties under the
comparable sales approach were presented by respondent namely:

1. That the sale must represent a bonafide arm’s length transaction between a willing
seller and a willing buyer

2. The property must be comparable property.

As a general rule, there were no takers so that there can be no reasonable basis for
the conclusion that these properties are comparable.

Taxes are lifeblood of government, however, such collection should be made in

accordance with the law and therefore necessary to reconcile conflicting interests of the
authorities so that the real purpose of taxation, promotion of the welfare of common good
can be achieved.

LLADOC V CIR & CTA

GR 19201 June 16, 1965 14 SCRA 293

Paredes, J.:

FACTS:

MB Estate of Bacolod City donated Php 10,000 in cash to Fr. Ruiz, then the Parish
Priest of Victorias, who was the predecessor of petitioner. MB Estate filed their donor’s gift
tax but petitioner is on protest regarding donee’s tax claiming that assessment of gift tax
against the Catholic Church is against the law; that when the donation was made. He was
not yet the parish priest.

ISSUE:

Whether or not petitioner should be liable for assessed donee’s gift tax dontated.

RULING:

A gift tax is not a property tax, but an excise tax imposed on the transfer of
property by way of gift inter vivos, the imposition of which on property used exclusively for
religious purposes, does not constitute an impairment of Constitution… “exempt from
taxation” as employed in the Constitution should not be interpreted to mean exemption
from all kinds of taxes. And there being no clear, positive or express grant of such
privilege by law, in favor of petitioner, the exemption herein must be denied.

Lung Center vs. Quezon City

GR 144104 June29, 2004

En Banc, Callejo J:

Facts:

The lung center is a charitable institution within the context of 1973 and 1987
constitutions. The elements considered in determining a charitable institution are: the
statue creating the enterprise; its corporate purposes; constitution and by-laws, methods
of administration, nature of actual work performed, character of the services rendered,
indefiniteness of the beneficiaries, and the use occupation of properties. As a gen.
principle, a charitable institution doe not lose its character as such and its exemption form
taxes simply because it derives income from paying patients, or receives subsidies from
government; and no money insures to the private benefit of the persons managing or
operating the institution.

Issue:

Whether or not the real properties of the lung center are exempt from real property
taxes.

Ruling.

Partly No. Those portions of its real property that are leased to private entities are
not exempt from actually, direct and exclusively used for charitable purpose. Under PD
1823, the lung center does not enjoy any property tax exemption privileges for its real
properties as well as the building constructed thereon.

The property tax exemption under Sec. 28(3), Art. Vi of the property taxes only. This
provision was implanted by Sec.243 (b) of RA 7160.which provides that in order to be
entitled to the exemption, the lung center must be able to prove that: it is a charitable
institution and; its real properties are actually, directly and exclusively used for charitable
purpose. Accordingly, the portions occupied by the hospital used for its patients are
exempt from real property taxes while those leased to private entities are not exempt from
such taxes.

Taxation

City Assessore of Cebu vs.

Association of Benevola De Cebu

G.R 152904 June 28, 2007

Velasco, Jr. J.:

FACTS:

Benevola de Cebu is a non-stock non-profit organization which in 1990, a medical

arts building was constructed and in 1998 was issued with a certification classifying the
building as commercial. City assessor of Cebu assessed the building with a market value of
Php 28,060,520 and on assessed value of Php 9,821,180 at the assessment level of 35%
and not 10% which is currently imposed on private respondent herein. Petitioner claimed
that the building is used as commercial clinic/spaces for renting out to physicians and thus
classified as commercial. Benevola de Cebu contended that the building is used actually,
directly and exclusively part of hospital and should have an assessment level of 10%

ISSUE:

Whether or not the new building is liable to pay the 35% assessment level?

RULING:

We hold that the new building is an intergical part of the hospital and should not be
assessed as commercial. Being a tertiary hospital, it is mandated to fully departmentalized
and the be equipped with the service capabilities needed to support certified medical
specialist and other licensed physicians. The fact that they are holding office is a separate
building does not take away the essence and nature of their services vis-avis the overall
operation of the hospital and to its patients.

Under the Local Government Code, Sec. 26: All lands, buildings and other
improvements thereon actually, directly and exclusively used for hospitals, cultural or
scientific purposes and those owned and used by local water districts… shall be classified
as special.