PLDT V.

CITY OF DAVAO
FACTS: PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The
franchise tax was paid in lieu of all taxes on this franchise or earnings thereof pursuant
to RA 7082. The exemption from all taxes on this franchise or earnings thereof was
subsequently withdrawn by RA 7160 (LGC), which at the same time gave local
government units the power to tax businesses enjoying a franchise on the basis of
income received or earned by them within their territorial jurisdiction. The LGC took
effect on January 1, 1992.
The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part
provides: Notwithstanding any exemption granted by law or other special laws, there is
hereby imposed a tax on businesses enjoying a franchise, a rate of seventy-five percent
(75%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the income receipts realized within the territorial jurisdiction of Davao City.
Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corporation
(Globe) and Smart Information Technologies, Inc. (Smart) franchises which contained in
leiu of all taxes provisos.
In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines,
Sec. 23 of which provides that any advantage, favor, privilege, exemption, or immunity
granted under existing franchises, or may hereafter be granted, shall ipso facto become
part of previously granted telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such franchises. The law took effect
on March 16, 1995.
In January 1999, when PLDT applied for a mayors permit to operate its Davao Metro
exchange, it was required to pay the local franchise tax which then had amounted to
P3,681,985.72. PLDT challenged the power of the city government to collect the local
franchise tax and demanded a refund of what had been paid as a local franchise tax for
the year 1997 and for the first to the third quarters of 1998.
ISSUE: Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the
exemption from payment of the local franchise tax in view of the grant of tax exemption
to Globe and Smart?
HELD: Petitioner contends that because their existing franchises contain in lieu of all
taxes clauses, the same grant of tax exemption must be deemed to have become ipso
facto part of its previously granted telecommunications franchise. But the rule is that tax
exemptions should be granted only by a clear and unequivocal provision of law
expressed in a language too plain to be mistaken and assuming for the nonce that the
charters of Globe and of Smart grant tax exemptions, then this runabout way of granting
tax exemption to PLDT is not a direct, clear and unequivocal way of communicating the
legislative intent.
Nor does the term exemption in Sec. 23 of RA 7925 mean tax exemption. The term
refers to exemption from regulations and requirements imposed by the National
Telecommunications Commission (NTC). For instance, RA 7925, Sec. 17 provides: The
Commission shall exempt any specific telecommunications service from its rate or tariff
regulations if the service has sufficient competition to ensure fair and reasonable rates of
tariffs. Another exemption granted by the law in line with its policy of deregulation is the

exemption from the requirement of securing permits from the NTC every time a
telecommunications company imports equipment.
Tax exemptions should be granted only by clear and unequivocal provision of law on the
basis of language too plain to be mistaken.
SURIGAO CONSOLIDATED MINING V. COLLECTOR
FACTS: Before the outbreak of the War, the Surigao Consolidated Mining Co. was
operating its mining concessions in Mainit, Surigao. Due to the interruption of
communications at the outbreak of the war, the company lost contact with its mines and
never received the production reports for the 4th quarter of 1941. To avoid incurring any
tax liability or penalty, it deposited of check payable to and indorsed in favor of the City
Treasurer, in payment of ad valorem taxes for the said period. After the war, the
company filed its ad valorem tax for the said period pursuant to Commonwealth Act 772.
Its return was revised, until eventually the company claimed a refund of P17,158.01. The
collector of Internal Revenue denied the request for refund.
ISSUE: Whether Surigao Consolidated may recover its tax payment in light of the
condonation made under a subsequent law, RA 81.
HELD: RA 81, Section 1(d) provided that all unpaid royalties, ad valorem or specific
taxes on all minerals mined from mining claims or concessions existing and in force and
which minerals were lost by reason of war, of circumstance arising therefrom are
condoned
The provision refers to the condonation of unpaid taxes only. The condonation of a tax
liability is equivalent and is in the nature of tax exemption. Being so, it should be
sustained only when expressed in explicit terms, and it cannot be extended beyond the
plain meaning of those terms. He who claims an exemption from his share of the
common burden of taxation must justify his claim by showing t hat the Legislature
intended to exempt him. The company failed to show any portion of the law that explicitly
provided for a refund of those taxpayers who had paid their taxes on the items.
CIR V. CA
FACTS:GCL Retirement Plan is an employees' trust maintained by the employer, GCL
Inc., to provide retirement, pension, disability and death benefits to its employees. The
Plan as submitted was approved and qualified as exempt from income tax by Petitioner
Commissioner of Internal Revenue in accordance with Rep. Act No. 4917. Respondent
GCL made investsments and earned therefrom interest income from which was witheld
the fifteen per centum (15%) final witholding tax imposed by Pres. Decree No. 1959. It
filed for a refund of these withheld taxes. The refund requested having been denied,
Respondent GCL elevated the matter to respondent Court of Tax Appeals (CTA). The
latter ruled in favor of GCL, holding that employees' trusts are exempt from the 15% final
withholding tax on interest income and ordering a refund of the tax withheld. Upon
appeal, originally to this Court, but referred to respondent Court of Appeals, the latter
upheld the CTA Decision.

HELD:It is to be noted that the exemption from withholding tax on interest on bank
deposits previously extended by Pres. Decree No. 1739 if the recipient (individual or
corporation) of the interest income is exempt from income taxation, and the imposition of
the preferential tax rates if the recipient of the income is enjoying preferential income tax
treatment, were both abolished by Pres. Decree No. 1959. Petitioner thus submits that
the deletion of the exempting and preferential tax treatment provisions under the old law
is a clear manifestation that the single 15% (now 20%) rate is impossible on all interest
incomes from deposits, deposit substitutes, trust funds and similar arrangements,
regardless of the tax status or character of the recipients thereof. In short, petitioner's
position is that from 15 October 1984 when Pres. Decree No. 1959 was promulgated,
employees' trusts ceased to be exempt and thereafter became subject to the final
withholding tax.
Upon the other hand, GCL contends that the tax exempt status of the employees' trusts
applies to all kinds of taxes, including the final withholding tax on interest income.
We uphold the exemption.
To begin with, it is significant to note that the GCL Plan was qualified as exempt from
income tax by the Commissioner of Internal Revenue in accordance with Rep. Act No.
4917 approved on 17 June 1967. This law specifically provided:
Sec. 1. Any provision of law to the contrary notwithstanding, the retirement
benefits received by officials and employees of private firms, whether individual
or corporate, in accordance with a reasonable private benefit plan maintained by
the employer shall be exempt from all taxes and shall not be liable to attachment,
levy or seizure by or under any legal or equitable process whatsoever except to
pay a debt of the official or employee concerned to the private benefit plan or that
arising from liability imposed in a criminal action; . . . (emphasis ours).
In so far as employees' trusts are concerned, the foregoing provision should be taken in
relation to then Section 56(b) (now 53[b]) of the Tax Code, as amended by Rep. Act No.
1983, supra, which took effect on 22 June 1957. This provision specifically exempted
employee's trusts from income tax and is repeated hereunder for emphasis:
Sec. 56. Imposition of Tax. (a) Application of tax. The taxes imposed by this Title
upon individuals shall apply to the income of estates or of any kind of property
held in trust.
(b) Exception. The tax imposed by this Title shall not apply to employee's trust
which forms part of a pension, stock bonus or profit- sharing plan of an employer
for the benefit of some or all of his employees . . .
The tax-exemption privilege of employees' trusts, as distinguished from any other kind of
property held in trust, springs from the foregoing provision. It is unambiguous. Manifest
therefrom is that the tax law has singled out employees' trusts for tax exemption.
The deletion in Pres. Decree No. 1959 of the provisos regarding tax exemption and
preferential tax rates under the old law, therefore, can not be deemed to extent to
employees' trusts. Said Decree, being a general law, can not repeal by implication a
specific provision, Section 56(b) now 53 [b]) in relation to Rep. Act No. 4917 granting

exemption from income tax to employees' trusts. Rep. Act 1983, which excepted
employees' trusts in its Section 56 (b) was effective on 22 June 1957 while Rep. Act No.
4917 was enacted on 17 June 1967, long before the issuance of Pres. Decree No. 1959
on 15 October 1984. A subsequent statute, general in character as to its terms and
application, is not to be construed as repealing a special or specific enactment, unless
the legislative purpose to do so is manifested. This is so even if the provisions of the
latter are sufficiently comprehensive to include what was set forth in the special act
(Villegas v. Subido, G.R. No. L-31711, 30 September 1971, 41 SCRA 190).
Notably, too, all the tax provisions herein treated of come under Title II of the Tax Code
on "Income Tax." Section 21 (d), as amended by Rep. Act No. 1959, refers to the final
tax on individuals and falls under Chapter II; Section 24 (cc) to the final tax on
corporations under Chapter III; Section 53 on withholding of final tax to Returns and
Payment of Tax under Chapter VI; and Section 56 (b) to tax on Estates and Trusts
covered by Chapter VII, Section 56 (b), taken in conjunction with Section 56 (a), supra,
explicitly excepts employees' trusts from "the taxes imposed by this Title." Since the final
tax and the withholding thereof are embraced within the title on "Income Tax," it follows
that said trust must be deemed exempt therefrom. Otherwise, the exception becomes
meaningless.
There can be no denying either that the final withholding tax is collected from income in
respect of which employees' trusts are declared exempt (Sec. 56 [b], now 53 [b], Tax
Code). The application of the withholdings system to interest on bank deposits or yield
from deposit substitutes is essentially to maximize and expedite the collection of income
taxes by requiring its payment at the source. If an employees' trust like the GCL enjoys a
tax-exempt status from income, we see no logic in withholding a certain percentage of
that income which it is not supposed to pay in the first place.
CIR V. MARUBENI
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.
Petitioner found that the NDC and Philphos contracts were made on a "turn-key" basis
and that the gross income from the two projects amounted to P967,269,811.14. Each
contract was for a piece of work and since the projects called for the construction and
installation of facilities in the Philippines, the entire income therefrom constituted income
from Philippine sources, hence, subject to internal revenue taxes. The assessment letter

further stated that the same was petitioner's final decision and that if respondent
disagreed with it, respondent may file an appeal with the Court of Tax Appeals within
thirty (30) days from receipt of the assessment.
Earlier, on August 2, 1986, Executive Order (E.O.) No. 412 declaring a one-time
amnesty covering unpaid income taxes for the years 1981 to 1985 was issued. Under
this E.O., a taxpayer who wished to avail of the income tax amnesty should, on or before
October 31, 1986: (a) file a sworn statement declaring his net worth as of December 31,
1985; (b) file a certified true copy of his statement declaring his net worth as of
December 31, 1980 on record with the Bureau of Internal Revenue (BIR), or if no such
record exists, file a statement of said net worth subject to verification by the BIR; and (c)
file a return and pay a tax equivalent to ten per cent (10%) of the increase in net worth
from December 31, 1980 to December 31, 1985.
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.
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 contractor's 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.
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.
HELD: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 contractor's 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.
The same ruling also applies to the deficiency branch profit remittance tax assessment.
A branch profit remittance tax is defined and imposed in Section 24 (b) (2) (ii), Title II,

Chapter III of the National Internal Revenue Code.6 In the tax code, this tax falls under
Title II on Income Tax. It is a tax on income. Respondent therefore did not fall under the
exception in Section 4 (b) when it filed for amnesty of its deficiency branch profit
remittance tax assessment.
The difficulty herein is with respect to the contractor's tax assessment and respondent's
availment of the amnesty under E.O. No. 64.
In view of the amendment introduced by E.O. No. 64, Section 4 (b) cannot be construed
to refer to E.O. No. 41 and its date of effectivity. The general rule is that an amendatory
act operates prospectively. While an amendment is generally construed as becoming a
part of the original act as if it had always been contained therein,10 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.
There is nothing in E.O. No. 64 that provides that it should retroact to the date of
effectivity of E.O. No. 41, the original issuance. Neither is it necessarily implied from
E.O. No. 64 that it or any of its provisions should apply retroactively. Executive Order No.
64 is a substantive amendment of E.O. No. 41. It does not merely change provisions in
E.O. No. 41. It supplements the original act by adding other taxes not covered in the
first.12 It has been held that where a statute amending a tax law is silent as to whether it
operates retroactively, the amendment will not be given a retroactive effect so as to
subject to tax past transactions not subject to tax under the original act.13 In an
amendatory act, every case of doubt must be resolved against its retroactive effect.14
Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty is a general
pardon or intentional overlooking by the State of its authority to impose penalties on
persons otherwise guilty of evasion or violation of a revenue or tax law. It partakes of an
absolute forgiveness or waiver by the government of its right to collect what is due it and
to give tax evaders who wish to relent a chance to start with a clean slate. A tax
amnesty, much like a tax exemption, is never favored nor presumed in law. If granted,
the terms of the amnesty, like that of a tax exemption, must be construed strictly against
the taxpayer and liberally in favor of the taxing authority. For the right of taxation is
inherent in government. The State cannot strip itself of the most essential power of
taxation by doubtful words. He who claims an exemption (or an amnesty) from the
common burden must justify his claim by the clearest grant of organic or state law. It
cannot be allowed to exist upon a vague implication. If a doubt arises as to the intent of
the legislature, that doubt must be resolved in favor of the state.
E. RODRIGUEZ INC. V. COLLECTOR OF INTERNAL REVENUE
FACTS: Expropriation proceedings were done for a parcel of land for the construction of
a new capital city. This land was owned by the petitioner. The court then ordered for the
expropriation of the same and the parties then entered into a compromise agreement for
the payment terms. Part of the forms of payment would be the issuance of bonds. And
when the petitioner filed its income tax return, it reported a loss and didnt consider in its
return the value of the bonds received by it from the government, thinking that it was
exempt from taxation. It was then assessed for the deficiency tax payment and for it, the
petitioner moved for reconsideration but was eventually denied. It tried to enter into
compromise with the BIR but again was denied.

ISSUE: Whether or not in determining the profit realized from the payment of the
purchase price of its (petitioners) expropriated property, for income tax purposes portion
of the purchase price paid in the form of tax-exempt bonds issued under Republic Act
No. 333 should be included?
HELD: The pertinent provisions of law involved are found in Section 9 of the Act
abovementioned, which reads as follows:
SEC. 9. The President of the Philippines is authorized to issue, in the name and
behalf of the Republic of the Philippines, bonds in an amount of twenty million
pesos, the proceeds of which shall be used as a revolving fund for the acquisition
of private estates, the subdivision of the area, and the construction of streets,
bridges, waterworks, sewerage and other municipal improvements in the Capital
City of the Philippines. The bonds so authorized to be issued shall bear such
date and in such form as the President of the Philippines may determine and
shall bear such rate of interest and run for such length of time as may be
determined by the President. Both principal and interest shall be payable in
Philippine currency or its equivalent in the United States currency, in the
discretion of the Secretary of Finance, at the Treasury of the Philippines, and the
interest shall be payable at such periods as the President of the Philippines may
determine.
Said bonds shall be exempt from taxation by the Government of the Republic of the
Philippines or by any political or municipal subdivisions thereof, which fact shall be
stated upon their face, in accordance with this Act, under which the said bonds are
issued.
There can be no question that petitioner is taxable on its income derived from the sale of
its property to the Government. The fact that a portion of the purchase price of the
property was paid by the Government in the form of tax exempt bonds does not operate
to exempt said income from income tax. The income from the sale of the land in
question and the bond are two different and distinct taxable items so that the exemption
of one does not operate to exempt the other, unless the law expressly so provides.
It is alleged that to deny exemption from income tax on the amount represented by the
said bonds would be to nullify the purpose of the law in granting exemption. The
question has been asked: If income or gain derived from the acceptance of such bonds
in exchange for private estates would be taxed, what inducement did such provision of
Republic Act No. 333 give to landowners to accept payment in bonds for their properties
in the proposed site of the Capital City? To our mind, there is sufficient inducement, and
that is, the exemption not only of the bonds from documentary stamp tax but also of the
interest derived from such bonds.
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. It cannot be allowed to exist upon a vague
implication. 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.
The above rules should be applied to the case at bar where the law invoked (Section 9

of Republic Act No. 333) does not make any reference whatsoever to exemption of
income derived from sale of expropriated property thereunder unlike under Republic Act
No. 1400 where relative to the price paid by the Government for any agricultural land
acquired for resale to tenants there is an express declaration that the same shall not be
considered as income of the landowner concerned for purposes of the income tax. Nor
are We convinced by the argument that the particular provision of Republic Act No. 333
relied upon which grants exemption on bonds issued thereunder for purposes of
inducement to private landowners within the new capital site to part away with their
properties in favor of the Government other than for cash should be taken to mean that
said property owners need not pay income tax on their income derived from the sale of
such properties. The pertinent Congressional Record of the proceedings held during the
consideration of the bill which later became Republic Act No. 333, does not show that
Congress had intended to exempt said property owners from the payment of income tax
on the proceeds of the sale of their properties when the same is paid in government
bonds issued under the said law.
REPUBLIC FLOUR MILLS V. CIR
FACTS: In 1957, the Republic Flour Mills, Inc., a domestic corporation engaged in the
business of manufacturing flour, was granted tax-exemption privileges as a new and
necessary industry pursuant to Republic Act 901, commencing on 28 January 1957 to
continue as a diminishing exemption until 31 December 1962.
In 1958, the corporation imported a quantity of wheat grains, part of which it was not
able to mill and use in the business that year, so that by 1 January 1959 the corporation
carried a surplus of Pl,486,616.41 worth of wheat grains from the previous years
importation. These surplus grains were finally utilized and manufactured into flour and
sold in 1959. For the year 1959, the corporation paid manufacurers sales tax on its
produc
The Commissioner of Internal Revenue assessed the corporation of deficiency tax for
1959. The corporation requested a reinvestigation of the assessment, and when it was
denied filed a petition for review in the Court of Tax Appeals. Respondent Commissioner
of Internal Revenue defended and maintained the assessment, on the ground that by
1959 the raw materials used by petitioner in its tax-exempt industry were already subject
to payment of 10% tax thereon.
The Court of Tax Appeals sustained the correctness of the disputed assessment, and
petitioner corporation was ordered to pay the sum of P24,587.98 as deficiency sales tax
and surcharge.
Petitioner insists that the cost of imported tax-free wheat grains is a deductible item from
its gross sales of the flour pursuant to Section 186-A of the Internal Revenue Code,
which reads:
SEC. 186-A. Whenever a tax free product is utilized in the manufacture or production of
any article, in the determination of the value of such finished article, the value of such tax
free product shall be deducted.

ISSUE: Whether or not the cost of the tax-free wheat grains used in the manufacture of
flour, which is also tax-exempt, is a deductible item for purposes of computing the
percentage tax (10%) admittedly due on the said manufactured product in 1959?
HELD: Prior to 22 June 1957 the prevailing rule on the matter was to allow the cost of
raw materials used in the manufacture of another article to be deducted from gross
sales, whenever such raw materials had been subjected to sales tax. The reason
therefor was to preclude a second assessment of the percentage tax on the raw
materials (Tan Chiu v. Collector, L-15008, 28 Feb. 1961, 1 SCRA 301). This ruling finds
basis in Section 186 of the Tax Code. With the establishment of tax-exempt industries in
the mid-50s, enforcement of the foregoing provision must have created a peculiar
problem, so much so that on 22 June 1957 the legislature enacted Republic Act 2025,
which inserted Section 186-A in the Tax Code, expressly constituting the value of taxfree products to be a deductible item from the gross sales of the finished goods
manufactured out of the same.
Wheat grains imported for the use of an industry such as flour industry which enjoys taxexemption privilege under our laws, is covered in the term tax-free product mentioned
in Section 186-A, and therefore, the cost of the tax-free wheat grains used in the
manufacture of flour, is a deductible item for purposes of computing the percentage tax
(10%) admittedly due on the manufactured product.
In the construction of tax statutes tax exemptions (and deductions) are not favored in the
law, and are construed strictissimi juris against the taxpayer. However, it is equally a
recognized principle that where the provision of the law is clear and unambiguous, so
that there is no occasion for the courts seeking the legislative intent, the law must be
taken as it is, devoid of judicial addition or subtraction. In this case, the provision of
Section 186-A of the Tax Codewhenever a tax-free product is utilized, etc.is
interpreted as all encompassing to comprehend tax-free raw materials, even if imported.
Where the law provided no qualification for the granting of the privilege, the court is not
at liberty to supply any.
WONDER MECHANICAL ENGINEERING V. CTA
FACTS:Wonder Mechanical Engineering Corp. was granted tax exemption privilege
under RA 35 in respect to the manufacture of machines for making cigarette papers,
pails, washers, rivets, nails, candies, chairs, etc. The tax exemption expired on 30 May
1951. In 1953, the company applied with the secretary of Finance for the reinstatement
of the exemption privilege under the provisions of RA 901, the reinstatement to
commence on the date RA 901 took effect. The company was given a Certificate of Tax
Exemption on 7 July 1954, exemption it similarly as in RA 35 until 31 December 1958,
with diminishing exemption until 20 June 1955. The Commissioner assessed sales tax
on gross sales of articles manufactured by it, including steel chairs. The company
appealed to the Court of Tax Appeals.
ISSUE: Whether or not the company was granted tax exemption?
HELD:The company was granted tax exemption in the manufacture and sale of
machines for making cigarette paper, pails, etc. but not for the manufacture and sale of
articles produced by those machines. The manufacture of steel chairs, jeep parts, and
other articles not constituting machines for making certain products would not fall under

the classification of new and necessary industries envisioned in RA 35 and 901 as to

entitle the company to tax exemption. Exemptions are highly disfavored in law and he
who claims tax exemption must be able to justify his claim or right thereto by the clearest
grant of organic or statute law. Tax exemption must be clearly expressed and cannot be
established by implication.
LUZON STEVEDORING CORP. V. CTA
FACTS:For the repair and maintenance of its tugboats, petitioner imported various
engine parts and other equipment for which it paid, under protest, the assessed
compensating tax. It filed for refund but was denied the same because of lack of legal
justification.
The petition hinges on the issue on whether tugboats of petitioner come within the
purview of vessels, which are considered as exempted from tax in the NIRC. Petitioner
contends that tugboats are embraced and included in the term cargo vessel under the
tax exemption provisions of Section 190 of the Revenue Code, as amended by Republic
Act. No. 3176. He argues that in legal contemplation, the tugboat and a barge loaded
with cargoes with the former towing the latter for loading and unloading of a vessel in
part, constitute a single vessel. Accordingly, it concludes that the engines, spare parts
and equipment imported by it and used in the repair and maintenance of its tugboats are
exempt from compensating tax.
HELD:This Court has laid down the rule that as the power of taxation is a high
prerogative of sovereignty, the relinquishment is never presumed and any reduction or
dimunition thereof with respect to its mode or its rate, must be strictly construed, and the
same must be coached in clear and unmistakable terms in order that it may be applied.
The general rule is that any claim for exemption from the tax statute should be strictly
construed against the taxpayer.
In order that the importations in question may be declared exempt from the
compensating tax, it is indispensable that the requirements of the amendatory law be
complied with, namely: (1) the engines and spare parts must be used by the importer
himself as a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo
vessel must be used in coastwise or oceangoing navigation. The imported items to be
exempted must be used by the importer himself as operator of passenger and/or cargo
vessel.
A tugboat is defined as followsA tugboat is a strongly built, powerful steam or power
vessel, used for towing and, now, also used for attendance on vessel. a tugboat is a
diesel or steam power vessel designed primarily for moving large ships to and from piers
for towing barges and lighters in harbors, rivers and canals. (Encyclopedia International
Grolier, Vol. 18, p. 256); a tug is a steam vessel built for towing, synonymous with
tugboat. (Bouviers Law Dictionary.)
Under the foregoing definitions, petitioners tugboats clearly do not fall under the
categories of passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory
construction that where a provision of law speaks categorically, the need for
interpretation is obviated, no plausible pretense being entertained to justify noncompliance. All that has to be done is to apply it in every case that falls within its terms.

FLORO CEMENT V. HEN. GOROSPE

FACTS:The municipality of Lugait, province of Misamis Oriental, represented jointly in
this action by its Municipal Treasurer and the Provincial Treasurer of the said province,
filed with this Court a verified complaint for collection of taxes against the defendant
Floro Cement Corporation, a company engaged in mining operations. Beforehand, when
it was granted authority to operate mines, it was given tax exemption for a period of five
years. After expiration of the first period, it was extended. This was opposed to by the
municipal government.
The defendant set up the defense that it is not liable to pay manufacturers and
exporters taxes alleging among others that the plaintiffs power to levy and collect taxes,
fees, rentals, royalties or charges of any kind whatsoever on defendant has been limited
or withdrawn by Section 52 of Presidential Decree No. 463 which provides: Sec. 52.
Power to Levy Taxes on Mines, Mining Corporation and Mineral Products.Any law to the
contrary notwithstanding, no province, city, municipality, barrio or municipal district shall
levy and collect taxes, fees, rentals, royalties or charges of any kind whatsoever on
mines, mining claims, mineral products, or on any operation, process or activity
connected therewith.
ISSUE: Is petitioner exempted from the said tax?
HELD:On the exemption claimed by petitioner, this Court has laid down the rule that as
the power of taxation is a high prerogative of sovereignty, the relinquishment is never
presumed and any reduction or diminution thereof with respect to its mode or its rate,
must be strictly construed, and the same must be coached in clear and unmistakable
terms in order that it may be applied. More specifically stated, the general rule is that any
claim for exemption from the tax statute should be strictly construed against the taxpayer
(Luzon Stevedoring Corporation vs. Court of Appeals, 163 SCRA 647 [1988]). He who
claims an exemption must be able to point out some provision of law creating the right; it
cannot be allowed to exist upon a mere vague implication or inference. It must be shown
indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal
to the claim (Manila Electric Company vs. Ver, 67 SCRA 351 [1975]). The petitioner
failed to meet this requirement.
As held by the lower court, the exemption mentioned in Sec. 52 of P.D. No. 463 refers
only to machineries, equipment, tools for production, etc., as provided in Sec. 53 of the
same decree. The manufacture and the export of cement does not fall under the said
provision for it is not a mineral product.
It is not cement that is mined only the mineral products composing the finished product.
CIR V. LEDESMA
FACTS: Respondents, Carlos Ledesma, Julieta Ledesma and the spouses Amparo
Ledesma and Vicente Gustilo, Jr., purchased from their parents, Julio Ledesma and
Florentina de Ledesma, the sugar plantation known as Hacienda Fortuna. After their
purchase of the plantation, herein respondents took over the sugar cane farming on the
plantation. The respondents shared equally the expenses of production, on the basis of
their respective one-third undivided portions of the plantation. The San Carlos Milling
Co., Ltd. issued to respondents separate quedans for the sugar produced, based on the

quota under the plantation audits respectively issued to them. In their individual income
tax returns for the year 1949 the respondents included as part of their income their
respective net profits derived from their individual sugar production from the Hacienda
Fortuna, as herein-above stated.
Respondents organized themselves into a general co-partnership under the firm name
Hacienda Fortuna, for the production of sugar cane for conversion into sugar, palay
and corn and such other products as may profitably be produced on said hacienda,
which products shall be sold or otherwise disposed of for the purpose of realizing profit
for the partnership.
The Collector assessed it for corporate income tax to which the respondents opposed to.
Respondents averred that they were operating merely as co-owners of the plantation
known as Hacienda Fortuna, so that the case of the Hacienda Fortuna was really one
of co-ownership and not that of an unregistered co-partnership which was subject to
corporate tax.
HELD:The provision of law that is relevant to this question is, that portion of Section 24
of the National Internal Revenue Code which reads as follows:
Sec. 24. Rate of tax on corporation. (a) Tax on domestic corporations. In general,
there shall be levied, collected, and paid annually upon the total net income
received in the preceding taxable year from all sources by every corporation
organized in, or existing under the laws of, the Philippines, no matter how
created or organized, but not including duly registered general co-partnerships
( rystalli colectivas), domestic life insurance companies and foreign life insurance
companies doing business in the Philippines, a tax upon such income equal to
the sum of the following: (Italics supplied.).
It is the contention of the Commissioner that it is only from the date of the registration of
the articles of general co- partnership in the mercantile register when a co-partnership is
exempt from the payment of corporate income tax under Section 24 of the Tax Code. It
is the position of the Commissioner, in the present case, that the partnership known as
Hacienda Fortuna is exempt from the payment of corporate income tax due only on
income received from July 14, 1949, the date of the registration of its articles of general
co-partnership. In other words, from January 1 to July 13, 1949 the partnership
Hacienda Fortune should be considered still an unregistered co-partnership for the
purposes of the assessment of the corporate income tax, notwithstanding the fact that
paragraph 14 of its articles of co-partnership provides that the partnership agreement
should retroact to January 1, 1949. Thus, as stated at the earlier part of this decision, the
Commissioner instructed the provincial revenue agent in Negros Occidental to determine
the net income of the Hacienda Fortuna for the period from January 1 to July 13, 1949,
said agent having reported that the net income of the partnership during that period
amounted to P131,477.20, and that the corporate income tax due on that net income
was P15,777.26. It is this amount of P15,777.26 which the Commissioner insists in
collecting from the respondents.
On the other hand, the respondents contend that prior to July 14, 1949 they were
operating the sugar plantation that they bought from their parents under a system of coownership, and not as a partnership, so that they were not under obligation to pay the
corporate income tax assessed by the Commissioner on the alleged income of the

partnership Hacienda Fortuna from January 1 to July 13, 1949. The respondents
further contend that even assuming that they were operating the sugar plantation as a
partnership the registration of the articles of general co- partnership on July 14, 1949
had operated to exempt said partnership from corporate income tax on its net income
during the entire taxable year, from January 1 to December 31, 1949.
RESINS INC. V. AUDITOR GENERAL
FACTS:Petitioner here, as did petitioner in Casco Philippine Chemical Co., Inc. v.
Gimenez,1 would seek a refund2 from respondent Central Bank on the claim that it was
exempt from the margin fee under Republic Act No. 2609 for the importation of urea and
formaldehyde, as separate units, used for the production of synthetic glue of which it
was a manufacturer. Since the specific language of the Act speak of urea
formaldehyde,3 and petitioner admittedly did import urea and formaldehyde separately,
its plea could be granted only if it could be construed to read urea and formaldehyde.
HELD:Urea formaldehyde is clearly a finished product, which is patently distinct and
different from urea and formaldehyde, as separate articles used in the manufacture of
the synthetic resins known as urea formaldehyde. Petitioner contends, however, that
the bill approved in Congress contained the copulative conjunction and between the
terms urea and formaldehyde, and that the members of Congress intended to exempt
urea and formaldehyde separately as essential elements in the manufacture of the
synthetic resin glue called urea formaldehyde not the latter as a finished product, citing
in support of this view the statements made on the floor of the Senate, during the
consideration of the bill before said House, by members thereof but following the
enrolled bill doctrine, the law is binding upon the courts.
As a refund undoubtedly partakes of a nature of an exemption, it cannot be allowed
unless granted in the most explicit and categorical language. It has been the constant
and uniform holding that exemption from taxation is not favored and is never presumed,
so that if granted it must be strictly construed against the taxpayer. Affirmatively put, the
law frowns on exemption from taxation, hence, an exempting provision should be
construed strictissimi juris. Certainly, whatever may be said of the statutory language
found in Republic Act 2609, it would be going too far to assert that there was such a
clear and manifest intention of legislative will as to compel such a refund.