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Association of Customs Brokers, Inc. v. Municipal Board

G.R. No. L-4376, May 22, 1953
Bautista Angelo, J.

This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by the Municipal Board of the City of Manila on March 24, 1950.

The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor vehicles in the City of Manila, and G. Manl
association, also a public service operator of the trucks in said City, challenge the validity of said ordinance on the ground that (1) while it levies a so-called proper
tax which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance offends against the rule of uniformity of taxation; and (3) it constitutes

The respondents, represented by the city fiscal, contend on their part that the challenged ordinance imposes a property tax which is within the power of the City o
Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question does not violate the rule of uniformity of taxation, nor does it constitute double

The disputed ordinance was passed by the Municipal Board of the City of Manila under the authority conferred by section 18 (p) of Republic Act No. 409. Sa
municipal board the power "to tax motor and other vehicles operating within the City of Manila the provisions of any existing law to the contrary notwithstanding." It
is broad enough to confer upon the City of Manila the power to enact an ordinance imposing the property tax on motor vehicles operating within the city limits.

Is the ordinance null and void under the following instances?
(1) while it levies a so-called property tax it is in reality a license tax which is beyond the power of the Municipal Board of the City of Manila
(2) said ordinance offends against the rule of uniformity of taxation

The ordinance must be struck down as null and void in both accounts.

(1) While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule should not be taken in its absolute sense if the natu
gathered from the context show that it is in effect an excise or a license tax. Thus, it has been held that "If a tax is in its nature an excise, it does not become
proportioned in amount to the value of the property used in connection with the occupation, privilege or act which is taxed. Every excise necessarily must fina
property and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an occ
an excise." It has also been held that:
"The character of the tax as a property tax or a license or occupation tax must be determined by its incidents, and from the natural and legal effect of the langu
or ordinance, and not by the name by which it is described, or by the mode adopted in fixing its amount. If it is clearly a property tax, it will be so regarded, eve
in form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons on account of their business, it will be construed as a license
though it is graduated according to the property used in such business, or on the gross receipts of the business."

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The ordinance in question falls under the foregoing rules. While it refers to property tax and it is fixed ad valorem yet we cannot reject the idea that it is mere
operating within the City of Manila with the main purpose of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets a
is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act, municipal corporation already participate in the dist
are raised for the same purpose of repairing, maintaining and improving bridges and public highway (Section 73 of the Motor Vehicle Law). This prohibition is inten
the imposition of fees for the same purpose. It is for this reason that we believe that the ordinance in question merely imposes a license fee although under the c
circumvent the prohibition above adverted to.

(2) The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the ordinance exacts the tax upon all motor vehicles operat
It does not distinguish between a motor vehicle for hire and one which is purely for private use.


Eastern Theatrical Co, Inc. v. Alfonso

G.R. No. L-1104 May 31, 1949
Perfecto, J.

Twelve corporations engaged in motion picture business filed a complaint to impugn the validity of Ordinance No. 2958 of the City of Manila. The ordinance impose
admission ticket sold by cinematographs, theaters, vaudeville companies, theatrical shows and boxing exhibition. Plaintiffs contend that the ordinance violated
uniformity of taxation enjoined by the Constitution. It pointed out to the fact that the ordinance in question does not tax "many more kinds of amusements" than thos
"race tracks, cockpits, cabarets, concert halls, circuses, and other places of amusement."

Does Ordinance No. 2958 violate the principle of equality and uniformity of taxation?

No, Ordinance No. 2958 does not violate the principle of equality and uniformity of taxation. The fact that some places of amusement are not taxed while other
theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is no argument at
uniformity of the tax imposition. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same
the authority to make reasonable and natural classifications for purposes of taxation; and the appellants cannot point out what places of amusement taxed by the o
class by themselves and which can be confused with those not included in the ordinance.


Philippine Trust Company v. Yatco

G.R. Nos. L-46255, January 23, 1940

Plaintiffs-appellants paid under protest and sought to recover capital and deposit taxes under section 1499 of the Revised Administrative Code of 1917, as amen

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Appellants challenge the constitutionality of the aforesaid section of the Revised Administrative Code, principally on the grounds that it violates the rule regardin
that it is discriminatory, and therefore violative of the equal protection clause of the Constitution.
The provision of the law involved reads:
SEC. 1499. Tax on capital, deposits, and circulation of banks. — Subject to the exemption herein made there shall be collected from banks the following tax
and circulation
(d) 'Bank' as herein used, includes every incorporated or other bank, and every person, association, or company having a place of business where credits ar
or collection of money or currency subject to be paid or remitted upon draft, check, or order, or where money is advanced or loaned on stocks, bonds, bullio
promissory notes are received for discount or for sale.

Appellants stoutly maintain that although the foregoing provision is of general application and operates on all banks of the same kind doing business in the Philip
National City Bank of New York from the impositions therein specifically provided makes the law discriminatory and violates the rule of uniformity in taxation.

Does Section 1499 of the Revised Administrative Code of 1917 violate the constitutional provision on equal protection?

NO. A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. Section 1499 of the Revis
amended, applies uniformly to, and operates on, all banks in the Philippines without distinction and discrimination, and if the National City Bank of New York is
because it is a federal instrumentality subject only to the authority of Congress, that alone could have the effect of rendering it violative of the rule of uniformity.
enlightened state or government, certain descriptions of property and also certain institutions are exempt from taxation, but these exemptions have never been rega
of taxation, even where the fundamental law had ordained that it should be uniform. The rule of uniformity does not call for perfect uniformity or perfect equ

The method of assessment prescribed in section 1502, in relation to section 1499, of the Revised Administrative Code, for domestic banks while different from that
is permissible. This conclusion flows from the legal proposition that "a state may impose a different rate of taxation upon a foreign corporation for the privilege of do
than it applies to its own corporations upon the franchise which the state grants in creating them."


Churchill v. Concepcion
Trent, J.

Francis A. Churchill and Stewart Tait, owners of a sign or billboard containing an area of 52 square meters constructed on private property in the city of Manila
were taxes thereon P104. The tax was paid under protest and the plaintiffs having exhausted all their administrative remedies instituted the present action under
against the Collector of Internal Revenue to recover back the amount thus paid. From a judgment dismissing the complaint upon the merits, with costs, the plaintiffs

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Section 100 of Act No. 2339 imposed an annual tax of P4 per square meter upon "electric signs, billboards, and spaces used for posting or displaying temporary s
on premises not occupied by buildings." This section was subsequently amended by Act No. 2432, by reducing the tax on such signs, billboards, etc., to P2 p
thereof. The taxes imposed by Act No. 2432, as amended, were ratified by the Congress of the United States on March 4, 1915. The petitioners contended that the
Act No. 2339 constitutes deprivation of property without compensation or due process of law, because it is confiscatory and unjustly discriminatory and (2) in no
void for lack of uniformity, because it is not graded according to value; because the classification on which it is based on any reasonable ground; and furtherm
double taxation.

That the Philippine Legislature has the power to impose such taxes, we think there can be no serious doubt, because "the power to impose taxes is one so unlimit
in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exe
trade or occupation; to every object of industry, use, or enjoyment; to every species of possession; and it imposes a burden which, in case of failure to discharge it,
and sale or confiscation of property. No attribute of sovereignty is more pervading, and at no point does the power of the government affect more constantly and
life than through the exactions made under it."

Is the tax in question void for lack of uniformity or because it is not graded according to value or constitutes double taxation, or because the classification upo
arbitrary selection and not based on any reasonable grounds?

No. A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. The words "uniform throughout the United Sta
the Constitution, do not signify an intrinsic, but simply a geographical, uniformity, and such uniformity is therefore the only uniformity which is prescribed by the C
within the constitutional requirement, when it operates with the same force and effect in every place where the subject of it is found. "Uniformity," as applied to the
all taxes shall be uniform, means that all property belonging to the same class shall be taxed alike. The statute under consideration imposes a tax of P2 per squ
upon every electric sign, bill-board, etc., wherever found in the Philippine Islands. Or in other words, "the rule of taxation" upon such signs is uniform throughout the
have just quoted from the Philippine Bill, does not require taxes to be graded according to the value of the subject or subjects upon which they are imposed, especi
or occupation taxes. We can hardly see wherein the tax in question constitutes double taxation. The fact that the land upon which the billboards are located is ta
the billboards at so much per square meter does not constitute "double taxation." Double taxation, within the true meaning of that expression, does not necessarily
it is not for the judiciary to say that the classification upon which the tax is based "is mere arbitrary selection and not based upon any reasonable grounds." The Le
billboards as a subject for taxation and it must be presumed that it, in so doing, acted with a full knowledge of the situation.


Meralco v. Province of Laguna

G.R. No. 131359 May 5, 1999
Vitug, J.

Manila Electric Company (MERALCO) on various dates (the latest being January 19, 1983) was granted franchises by various municipalities of Laguna. On Sep
Government Code of 1991" (LGC) was enacted to take effect on Jan.1 1992 enjoining local goverment units to create their own sources of revenue and to le

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subject to the limitations, consistent with the basic policy of local autonomy. Respondent Laguna Province enacted Ordinance No. 01-92 (effective Jan. 1, 1993) pro

“Sec. 2.09. Franchise Tax. – There is hereby imposed a tax on businesses enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%)
receipts, which shall include both cash sales and sales on account realized during the preceding calendar year within this province, including the territor
located in the province”

MERALCO was then sent a demand letter to pay the corresponding tax. MERALCO paid the tax under protest (approx. Php19.5M) and later on filed a formal claim
the stated Section 2.09 of the LGC contravened the provisions of Section 1 of PD 551, which provides:

“Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchises to generate, distribute and
for light, heat and power shall be two per cent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the ge
and sale of electric current.

“Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative on or before the twentieth day of the
end of each calendar quarter or month, as may be provided in the respective franchise or pertinent municipal regulation and shall, any provision of the Loc
other law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnin
and privilege of generation, distribution and sale of electric current.”

MERALCO then filed a complaint for refund with a prayer for the issuance of a writ of preliminary injunction and/or TRO at the RTC of Sta. Cruz, Laguna. The R
and ruled that the Ordinance was valid, binding, reasonable and enforceable.

Is the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as MERALCO is concerned, violative of the no

NO. Local Governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or
Article X of the 1987 Constitution, a general delegation of that power has been given in favor of the Local Government Units (LGU).

Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may
and guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them gen
Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional; the constitutional objective obviously is to ensure that,
units are being strengthened and made more autonomous, the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with m
impositions; (b) each local government unit will have its fair share of available resources; (c) the resources of the national government will not be undu
taxation will be fair, uniform, and just.

While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the nature of contracts and a part of the indu
franchise, these exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and w
clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bon

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entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governm
exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused w
under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution.


Province of Misamis Oriental vs. CEPALCO

G.R. No. L-45355, January 12, 1990
Griño-Aquino, J.

Cagayan Electric Power and Light Company, Inc. (CEPALCO) was granted a franchise under Republic Act No. 3247 to install, operate and maintain an electric ligh
the City of Cagayan de Oro and its suburbs. RA 3247 and its amendments uniformly provides in Sec. 3 that the franchise tax of three per centum of the gross earni
be in lieu of all taxes and assessments of whatever authority privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the
andassessments the grantee is expressly exempted. Pursuant to the promulgation of the Local Tax Code, the Province of Misamis Oriental (herein petitioner) e
Ordinance No. 19 for the collection of Franchise Tax within its jurisdiction. The Provincial Treasurer of Misamis Oriental demanded payment of the provincial franch
company refused to pay, alleging that it is exempt from all taxes except the franchise tax required by law granting its franchise.

Is CEPALCO exempted from paying the provincial franchise tax imposed by the province of Misamis Oriental?

Yes, CEPALCO is exempted from paying the provincial franchise tax. Republic Acts Nos. 3247, 3570 and 6020 are special laws applicable only to CEPALCO, w
general tax law. The presumption is that the special statutes are exceptions to the general law (P.D. No. 231) because they pertain to a special charter granted
conditions and circumstances. The franchise of respondent CEPALCO expressly exempts it from payment off "all taxes of whatever authority" except the three
gross earnings. The "in-lieu-of-all-taxes" provision had been repeatedly ruled in several cases to have expressly exempted business establishments from franchise
Regulation No. 3-75 issued by the Secretary of Finance on June 26, 1976, has made it crystal clear that the franchise tax provided in the Local Tax Code (P.D. N
imposed on companies with franchises that do not contain the exempting clause. Thus it provides: "The franchise tax imposed under local tax ordinance pursuant t
Code, as amended, shall be collected from businesses holding franchise but not from business establishments whose franchise contain the 'in-lieu-of-all-taxes-prov


Cagayan Electric Power vs. Commissioner of Internal Revenue

G.R. No. L-60126, September 25, 1985
Aquino, J.

Petitioner Cagayan Electric Power is the holder of a legislative franchise, RA 3247, under which its payment of 3% tax on its gross earnings from the sale of ele
taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from wh

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the grantee is hereby expressly exempted” (Sec. 3). On January 1, 1969, RA 5431 amended section 24 of the Tax Code by making liable for income tax all corpora
exempt under paragraph (c) (1) of said section and section 27 of the Tax Code notwithstanding the “provisions of existing special or general laws to the contrary”
were subjected to income tax in addition to franchise tax. However, in petitioner’s case, its franchise was amended by RA 6020, effective August 4, 1969, and ree
its original charter or neutralized the modification made by RA 5431 more than a year before.

Could Congress impair petitioner’s legislative franchise by making it liable for income tax from which heretofore it was exempted by virtue of the exemption pro

Yes. The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires (Section 11
Section 1 of petitioner’s franchise, RA 3247, provides that it is subject to the provisions of the Constitution and to the terms and conditions established in Act 363
whose section 12 provides that the franchise is subject to amendment, alteration or repeal by Congress. RA 5431, in amending section 24 of the Tax Code by
corporate taxpayers not expressly exempted therein and in section 27 of the Code, had the effect of withdrawing petitioner’s exemption from income tax. The
holding that the exemption was restored by the subsequent enactment on August 4, 1969 of RA 6020 which reenacted the said tax exemption. Hence, the pe
income tax for the period from January 1 to August 3, 1969 when its tax exemption was modified by RA. 5431.


Lealda v. Commissioner of Internal Revenue

G.R. No. L-16428, April 30, 1963
Dizon, J.

In 1915, Julian Locsin Anson was granted a franchise to operate an electric light and power plant in Legaspi and Daraga, in Albay province. He sold the franch
convenience, and electric plant to Saturnino Benito, who in turn sold the same to Alfredo, Mario, and Benjamin, all surnamed Benito. Later, the Benitos and other p
Lealda Electric Co., Inc. to operate the electric plant. Since 1915, the original grantee and its successors-in-interest paid a franchise tax of 2% on the gross e
business under the franchise, until 1946 when Act No. 39 amended Section 259 of the Tax Code, increasing the franchise tax to 5%. Petitioner did pay the incre
filed petitions for tax refund with the CIR. It maintains that it is only liable to 2% franchise tax, and not 5% as stated in its charter.

Is Lealda Electric Co., Inc. exempted from the tax increase in light of its franchise?

NO. Lealda Electric Co.’s franchise does not specifically state that the rate of the franchise tax to be paid shall be 2% of its gross earnings or receipts. It simply p
his successors in interest shall pay “as the other existing franchises and privileges currently operating”. The intent of the legislature was to impose upon the gr
interest, the obligation to pay the same franchise tax imposed upon other grantee or franchise holders at the time its franchise (Act 2475) was enacted. Further, L
express provision to the effect that the same may be altered or repealed by Congress, and does not contain any provision providing that the franchise tax were r
lieu of all taxes of any kind levied, established, or collected by any authority whatsoever, now or in the future” or in lieu of all taxes of every name and natur

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central…” Lastly, petitioner’s contention would, in effect, establish an exception in its favour from the provision of Act 39. That would be improper, as tax exemptions

NOTE: Although it was not discussed in the case, Sec. 11, Art. XII of the Constitution, supported by long line of cases, provides that “no public utility franchise or r
under the condition that it shall be subject to amendment, alteration or repeal by the Congress..” Hence, the legislature can impair a grantee’s franchise (as in
franchise tax) since a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires. In this case, Lealda Electric C
an electric plant.


Casanovas v. Hord
G.R. No. 3473, March 22, 1907

The plaintiff brought this action against the defendant, the Collector of Internal Revenue, to recover the sum of P9,600, paid by him under protest as taxes on cert
him in the Province of Ambos Camarines.

In January, 1897, the Spanish Government, in accordance with the provisions of the royal decree of the 14th of May, 1867, granted to the plaintiff certain mines in
Camarines, of which mines the plaintiff is now the owner.
That there were valid perfected mining concessions granted prior to the 11th of April, 1899, is conceded. They were so considered by the Collector of Internal Re
to fall within the provisions of section 134 of Act No. 1189, known as the Internal Revenue Act. That section is as follows:
SEC. 134.On all valid perfected mining concessions granted prior to April eleventh, eighteen hundred and ninety-nine, there shall be levied and collected o
nineteen hundred and five, the following taxes:
2. (a) On each claim containing an area of sixty thousand square meters, an annual tax of one hundred pesos; (b) and at the same rate proportionately on e
area in excess of, or less than, sixty thousand square meters.
3. On the gross output of each an ad valorem tax equal to three per centum of the actual market value of such output.
The defendant accordingly imposed upon these properties the tax mentioned in section 134, which tax, as has before been stated, plaintiff paid under protest.

Is section 134 of Act 1189 valid?

NO. The fact that this concession was made by the Government of Spain,and not by the Government of the United States, is not important. Ourconclusion is that
the Government of Spain to theplaintiff, constitute contracts between the parties; that section 134 of theInternal Revenue Law impairs the obligation of these contr
to them.We think that this section is also void because in conflict with section 60 of theact of Congress of July 1, 1902. This section is as follows: That nothing in t
effect the rights of anyperson, partnership, or corporation, having a valid, perfected miningconcession granted prior to April eleventh, eighteen hundred an
concessions shall be conducted under the provisions of the law in force at the time they were granted, subject at all times tocancellation by reason of illegality in t
wereobtained, or for failure to comply with the conditions prescribed asrequisite to their retention in the laws under which they were granted: Provided, That the ow
concession shall causethe corners made by its boundaries to be distinctly marked withpermanent monuments within six months after this act has beenpromulgat
and that any concessions, theboundaries of which are not so marked within this period shall be freeand open to explorations and purchase under the provisions of t

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This section seems to indicate that concessions, like those in question, can becancelled onlyby reason of illegality in the procedure by which they wereobtained, or
conditions prescribed as requisitefor their retention in the laws under which they were granted. There is nothingin the section which indicates that they can
complywith the conditions prescribed by subsequent legislation. In fact, the realintention of the act seems to be that such concession should be subject to theform
subsequent legislation. There is no claim inthis case that there was any illegality in the procedure by which theseconcessions were obtained, nor is there any
notcomplied with the conditions prescribed in the said royal decree of 1867. The judgment of the court below is reversed, and judgment is ordered in favorof
defendant for P9,600, with interest thereon, at6 per cent, from the 21st day of February, 1906, and the costs of the Court of First Instance. No costs will be allowed


American Bible Society v. City of Manila

GR L-9637 April 30, 1957
Felix, J.:

American Bible Society is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the Philippines through its Phili
Manila in November 1898. The City of Manila, on the other hand, is a municipal corporation with powers that are to be exercised in conformity with the provisi
Charter of the City of Manila).

The Soceity has been distributing and selling bibles and/or gospel portions throughout the Philippines and translating the same into several Philippine dialect. T
informed the Society that it was violating several ordinances for operating without the necessary permit and license, thereby requiring the corporation to sec
covering the period from the fourth quarter of 1945 to the second quarter of 1953.

To avoid closing of its business, the Society paid the City of Manila its permit and license fees under protest. The Society filed a complaint questioning the co
Ordinances 2529 and 3000, and prayed for a refund of the payment made to the City of Manila. They contended that they had been in the Philippines since 1899 a
any license fee or sales tax, and that it never made any profit from the sale of its bibles.

The City of Manila prayed that the complaint be dismissed, reiterating the constitutionality of the ordinances in question.

Is American Bible Society liable to pay sales tax for the distribution and sale of bibles?

NO. Sec 1 of Ordinance 3000 provides that it shall be unlawful for any person or entity to conduct or engage in any of the businesses, trades, or occupations
Ordinance without first having obtained a permit therefor from the mayor and the necessary license from the City Treasurer. American Bible Society’s bu
enumerated. However, item 79 of Sec 3 of the Ordinance provides that “all other businesses, trade, or occupation not mentioned, except those upon which th
license or tax P5.00.” Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said business, trade, or occupation.

As held in Murdock vs Pennsylvania, the power to impose a license tax on the exercise of these freedoms provided for in the Bill of Rights is indeed as potent

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which this Court has repeatedly struck down. It is not a nominal fee imposed as a regulatory measure to defray the expenses of policing the activities in question. I
is a flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of press and reli
suppress their exercise. That is almost uniformly recognized as the inherent vice and evil of this flat license tax.

Further, the power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Those who can tax the exercise of this religious practice can
as to deprive it of the resources necessary for its maintenance. Those who can tax the privilege of engaging in this form of missionary evangelism can close all its d
have a full purse.

Under Sec 27(e) of CA No 466 or the National Internal Revenue Code, corporations or associations organized and operated exclusively for religious, charitab
provided, that the income of whatever kind and character from any of its properties, real and personal, or from any activity conducted for profit, regardless of th
income, shall be liable to the tax imposed under the Code shall not be taxed.

The price asked for the bibles and other religious pamphlets was in some instances a little bit higher than the actual cost of the same but this cannot mean that
engaged in business or occupation of selling said “merchandise” for profit.

Therefore, the Ordinance cannot be applied for in doing so, it would impair American Bible Society’s free exercise and enjoyment of its religious profession and w
dissemination of religious beliefs.


Abra Valley College v. Aquino

G.R. No. L-39086 June 15, 1988
Paras, J.

Petitioner, an educational corporation and institution of higher learning filed a complaint in the court a quo to annul and declare void the "Notice of Seizure' and the
building, for non-payment of real estate taxes and penalties amounting to P5,140.31. The Respondent Paterno Millare, the purchaser of the lot in the auction s
motion to dismiss the complaint.

The trial court among others, found the following: (a) that the school is recognized by the government and is offering Primary, High School and College Courses,
of more than one thousand students all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and about 120 meters from
building; (c) that the elementary pupils are housed in a two-storey building across the street; (d) that the high school and college students are housed in the main b
with his family is in the second floor of the main building; and (f) that the annual gross income of the school reaches more than one hundred thousand pesos.

The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a Memorandum for the Government and a Supplem
they opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school building and school lot used for educational purposes
Inc., are exempted from the payment of taxes." Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school
thus ruled for the government and rendered the assailed decision.

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Are the lot and building in question used exclusively for educational purposes?

The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. It must be stressed however, that while this Court allo
restrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippi
emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purp
use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence.

Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under th
which is complimentary to the main or primary purpose—educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any s
considered incidental to the purpose of education.

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot where it is built, should be taxed, not bec
same is being used by the Director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes. However, sin
purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved.


Commissioner of Internal Revenue v. Bishop of the Missionary District

G.R. No. L-19445, August 31, 1965
Regala, J.

The Missionary District received from the Missionary Society in the United States various shipments of materials, supplies, equipment and other articles intende
and operation of St. Luke’s Hospital, among others. On these shipments, the Commissioner of Internal Revenue levied and collected the total amount of P11
Respondent Bishop filed claims for refund of the amount he had paid on the ground that under Republic Act No. 1916, the materials and articles received by
payment of compensating tax.

The CIR denied respondent's claim for refund on the ground that St. Luke's Hospital was not a charitable institution, as it is a hospital that admits patients, wh
issued by the Sec. of Finance is not a charitable institution. Therefore, was not exempt under the law. After trial, the Tax Court rendered a decision holding

Is St. Luke's Hospital a charitable institution and, therefore, exempt from taxation?


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YES. This Court has already held that the following requisites must concur in order that a taxpayer may claim exemption under the law (1) the imported articles m
the donee must be a duly incorporated or established international civic organization, religious or charitable society, or institution for civic religious or charitable p
so imported must have been donated for the use of the organization, society or institution or for free distribution and not for barter, sale or hire. (Commissioner v. C
Jerusalem," G.R. No. L- 15772, Oct. 31, 1961)

The elements are clearly established: (1) The materials and supplies were purchased by the Missionary Society with money obtained from contributions from o
considered the real donors; (2) Respondent Bishop is admitted to be a corporation sole duly registered with the Securities and Exchange Commission and that the
incorporated and established religious society." They are, therefore, entities separate and distinct from the Missionary Society and (3) The various deeds of donat
the "Missionary Society is a non-profit organization and derives its support from voluntary contributions."

Again, it should be enough to point out that the admission of pay patients does not detract from the charitable character of a hospital, if, as in the case of St. L
devoted exclusively to the Maintenance of the institution (e.g., Herrera v. Quezon City Board of Assessment Appeals, G.R. No. 15270, September 30, 1961). The
limit or otherwise qualify the enjoyment of this exemption granted under Republic Act No. 1916 in implementing the law


Lladoc v. Commissioner of Internal Revenue

G.R. No. L-19201; June 16, 1965
Paredes, J.

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidenta
petitioner, for the construction of a new Catholic Church in the locality. The total amount was actually spent for the purpose intended.

On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29, 1960, the respondent Commissioner of Internal Revenu
donee's gift tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest. The tax amounted to P1,370.00 including surcharg
from May 15, 1958 to June 15, 1960, and the compromise for the late filing of the return.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and the motion for reconsideration presented to the Commission
denied. The petitioner appealed to the Court of Tax Appeals on November 2, 1960. In the petition for review, the Rev. Fr. Casimiro Lladoc claimed, among ot
donation, he was not the parish priest in Victorias; that there is no legal entity or juridical person known as the "Catholic Parish Priest of Victorias," and, therefore, h
donee's gift tax. It was also asserted that the assessment of the gift tax, even against the Roman Catholic Church, would not be valid, for such would be a clear
the Constitution.

After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below: the petitioner, the Rev. Fr. Casimiro Lladoc is hereby ordered to pay to
gift tax, plus the surcharge of five per centum (5%) as ad valorem penalty under Section 119 (c) of the Tax Code, and one per centum (1%) monthly interest from
actual payment.

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Is the petitioner liable for the assessed donee's gift tax on the P10,000.00 donated for the construction of the Victorias Parish Church?

YES. Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches and parsonages or convents, appurtenant thereto,
improvements used exclusively for religious purposes. The exemption is only from the payment of taxes assessed on such properties enumerated, as property ta
from excise taxes.

In the present case, what the Collector assessed was a donee's gift tax; the assessment was not on the properties themselves. It did not rest upon general owne
the use made of the properties, upon the exercise of the privilege of receiving the properties.

Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of
vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an impairment of the Constitution. As well observed by the le
phrase "exempt from taxation," as employed in the Constitution (supra) should not be interpreted to mean exemption from all kinds of taxes. And there being no cle
of such privilege by law, in favor of petitioner, the exemption herein must be denied.

The decision appealed from should be, as it is hereby affirmed insofar as tax liability is concerned; it is modified, in the sense that petitioner herein is not persona
and that the Head of the Diocese, herein substitute petitioner, should pay, as he is presently ordered to pay, the said gift tax, without special, pronouncement as to


Herrera vs. The Quezon City Board of Assessments Appeals

G.R. No. L-15270, September 30, 1961
Concepcion, J.

On July 24, 1952, the Director of the Bureau of Hospitals authorized the petitioners to establish and operate the "St. Catherine's Hospital". The petitioners sent
Assessor requesting exemption from payment of real estate tax on the lot, building and other improvements comprising the hospital stating that the same was es
humanitarian purposes and not for commercial gain. After an inspection of the premises in question and after a careful study of the case, the exemption from real
effective the years 1953, 1954 and 1955.

Subsequently, however, in a letter the Quezon City Assessor notified the petitioners that the aforesaid properties were re-classified from exempt to "taxable"
property taxes effective 1956.

The building involved in this case is principally used as a hospital. The hospital has thirty-two (32) beds, of which twenty (20) are for charity-patients and twelve (12
two kinds of charity patients — (a) those who come for consultation only ("out-charity patients"); and (b) those who remain in the hospital for treatment ("lying-in-pat

Although no condition is imposed by the hospital on the admission of charity lying-in-patients, they however, usually give donations to the hospital. On the othe
required to pay for hospital services ranging from the minimum charge of P5.00 to the maximum of P40.00 for each day of stay in the hospital. The income realize

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for the improvement of the charity wards.

Petitioners also operate within the premises of the hospital the "St. Catherine's School of Midwifery". This school has an enrollment of about two hundred students.
matriculation fee of P300.00 for 1-½ years, plus P50.00 a month for board and lodging, which includes transportation to the St. Mary's Hospital.

Are the lot, building and other improvements occupied by the St. Catherine Hospital exempt from the real property tax?

Yes. The admission of pay-patients does not detract from the charitable character of a hospital, if all of its funds are devoted “exclusively to the maintenance o
charity”. In other words, “where rendering charity is its primary object, and the funds derived from payments made by patients able to pay are devoted to the
institution, the mere fact that a profit has been made will not deprive the hospital of its benevolent character” . The fact, therefore, that in the case at bar, St. Cat
charitable institution, admits pay-patients, does not bar it from claiming that it is devoted exclusively to benevolent purposes, it being admitted that the income
devoted to the improvement of the charity wards, which represent almost two-thirds (2/3) of the bed capacity of the hospital, aside from “out-charity patients” who co

The existence of “St. Catherine’s School of Midwifery”, with an enrollment of about 200 students, does not, and cannot affect the exemption to which St. Catherine
the Constitution. The fact that the size of the enrollment and the students, aside from the amount they paid for board and lodging, warrant the belief that a substan
operation of the said school, is immaterial to the issue of whether or not real estate taxes should be paid, because “all lands, buildings and improvements us
charitable or educational purposes shall be exempt from taxation”, pursuant to the Constitution, regardless of whether or not material profits are derived from the o
question. In other words, Congress may, if it deems fit to do so, impose taxes upon such “profits”, but said “lands, buildings and improvements” are beyond its taxin


Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte

G.R. No. L-27588, December 31, 1927
Avancena, J.

The Roman Catholic Apostolic Church, represented by the Bishop of Nueva Segovia, is the owner of a parcel of land in the municipality of San Nicolas, Ilocos N
part of the churchyard, the convent and an adjacent lot used for a vegetable garden in which there is a stable and a well for the use of the convent. On the north is
its walls still standing, and a portion where formerly stood a tower.

As required by the defendants, the plaintiff paid, under protest, the land tax on the lot adjoining the convent and the lot which formerly was the cemetery. The p
recovery of the sum paid to the defendants alleging that the collection of this tax is illegal.

The lower court absolved the defendants from the complaint in regard to the lot adjoining convent and declared that the tax collected on the lot, which formerly w
portion where the lower stood, was illegal. Both parties appealed from this judgment.


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Are the subject lots exempted from land tax?

Yes, both lots are exempt from land tax. The exemption in favor of the convent in the payment of the land tax (sec. 344 [c] Administrative Code) refers to the home
over the church and who has to take care of himself in order to discharge his duties. In therefore must include not only the land actually occupied by the church, b
destined to the ordinary incidental uses of man. Except in large cities where the density of the population and the development of commerce require the use
buildings, a vegetable garden belongs to a house and, in the case of a convent, it use is limited to the necessities of the priest, which comes under the exemption.

In regard to the lot which formerly was the cemetery, while it is no longer used as such, neither is it used for commercial purposes and, according to the eviden
lodging house by the people who participate in religious festivities, which constitutes an incidental use in religious functions, which also comes within the exemption

MALCOLM, J., dissenting:

The Assessment Law exempts from taxation "Cemeteries or burial grounds and all lands, buildings, and improvements use exclusively for religious . . . purposes,
extend to property held for investment, or which produces income, even though the income be devoted to some one or more of the purposes above specified." (Ad
Act No. 2749, sec. 1.) The testimony and the inspection disclosed that the lot Known as "huerta" was not devoted to religious purposes, and that the old cemetery
used as such and had been planted to corn. A "huerta" not needed or used exclusively for religious purposes is not thus exempt. A cemetery or burial ground no l
ground is not thus exempt.


Commissioner of Internal Revenue v. Court of Appeals and YMCA

G.R. No. 124043. October 14, 1998
Panganiban, J.

Private Respondent Young Mens Christian Association of the Philippines, Inc (YMCA) is a non-stock, non-profit institution, which conducts various programs and a
the public, especially the young people, pursuant to its religious, educational and charitable objectives.

In 1980, YMCA earned, among others, an income of P676,829.80 from leasing out a portion of its premises to small shop owners, like restaurants and canteen ope
parking fees collected from non-members. Thereafter, the commissioner of internal revenue (CIR) issued an assessment to YMCA with regard to its income tax def

Is the income derived from rentals of real property owned by the Young Mens Christian Association of the Philippines, Inc. (YMCA) established as a welfare, edu
profit corporation -- subject to income tax under the National Internal Revenue Code (NIRC) and the Constitution?

YES. While the income received by the organizations enumerated in Section 27 (now Section 26) of the NIRC is, as a rule, exempted from the payment of tax in re
them as such, the exemption does not apply to income derived from any if their properties, real or personal, or from any of their activities conducted for profit, r
made of such income.

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The rented income derived by a tax-exempt organization from the lease of its properties, real or personal, is not, therefore, exempt from income taxation, even i
used for the accomplishment of its objectives.

Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict interpretation in construing tax exemptions. Furthermore, a claim
taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption must expressly be granted in a stat
clear to be mistaken.

Accordingly, what is exempted is not the institution itself; those exempted from real estate taxes are lands, buildings and improvements actually, directly and ex
charitable or educational purposes.


Lung Center of the Philippines v. Quezon City

G.R. No. 144104. June 29, 2004.
Callejo, Sr., J

The petitioner Lung Center of the Philippines is a non-stock and non-profit entity by virtue of Presidential Decree No. 1823. It is the registered owner of a parcel
middle, located at Quezon City. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or profession
same as their private clinics. A big portion of the land is being leased for commercial purposes to private enterprise. The petitioner accepts paying and non-pay
medical services to out-patients, both paying and non-paying. It also receives annual subsidies from the government. On June 7, 1993, both the land and the hosp
were assessed for real property taxes.

The petitioner filed a Claim for Exemption from real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The petitioner's
petition was, thereafter, filed before the Local Board of Assessment Appeals of Quezon City (QC-LBAA). The petitioner alleged that under Section 28, paragraph 3
property is exempt from real property taxes. The QC-LBAA dismissed the petition and held the petitioner liable for real property taxes. The Central Board of Asse
City and the Court of Appeals (CBAA) affirmed QC-LBAA’s decision.

1.Is petitioner a charitable institution within the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No
2.Are the real properties of the petitioner exempt from real property taxes?

1.YES. To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterp
its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of th
and occupation of the properties. Charity may be applied to almost anything that tend to promote the well-doing and well-being of social man. It embraces the im
the happiness of man. The word "charitable" is not restricted to relief of the poor or sick. The test of a charity and charitable organization are in law the same. The
charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage.

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Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which was organized for the welfare and benefit of the Filipino people principa
incidence of lung and pulmonary diseases in the Philippines. The medical services of the petitioner are to be rendered to the public in general in any and all walk
are poor and the needy without discrimination.

As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying pati
confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is
money inures to the private benefit of the persons managing or operating the institution. The fundamental ground upon which all exemptions in favor of charitable
benefit conferred upon the public by them, and a consequent relief, to some extent, of the burden upon the state to care for and advance the interests of its citizens

2. NO. Even though the petitioner is a charitable institution, those portions of its real property that are leased to private entities are not exempt from real prop
actually, directly and exclusively used for charitable purposes. The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissim
and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence
tax payments must be clearly shown and based on language in the law too plain to be mistaken.

The tax exemption under Section 28(3), Article VI of the 1987 Philippine Constitution covers property taxes only. What is exempted is not the institution itself; thos
taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes. Under the 1973 and 1987 Co
7160 in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is charitable institution; and (b) its rea
DIRECTLY and EXCLUSIVELY used for charitable purposes. If real property is used for one or more commercial purposes, it is not exclusively used for the exem
to taxation. The words "dominant use" or “principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitution and the la
direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for whic
organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.



Republic Bank v. CTA and CIR

G.R. Nos. 62554-55, September 2, 1992
Nocon, J.

Respondent CIR assessed petitioner Republic Bank for reserve deficiency tax for taxable years 1969 and 1970. Republic Bank requested reconsideration of the a
Section 249 of the Tax Code is no longer enforceable, because Section 126 of Act 1459, which was allegedly the basis for the imposition of the 1% reserve defi
Section 90 of Republic Act 337, the General Banking Act, and by Sections 100 and 101 of Republic Act 265. The CIR denied such request prompting Republic Ban
before the CTA. The CTA upheld the validity of the assessments, hence this petition for review.

Petitioner Republic argues that in case of a reserve deficiency, the violating bank would be liable at the same time for a tax of 1% a month (Second paragraph, Se

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the Bureau of Internal Revenue as well as a penalty of 1/10 of 1% a day (Section 106, Central Bank Act) payable to the Central Bank.

Is the petitioner being taxed twice under Section 249 of the Tax Code and Section 106 of the Central Bank Act?

No. It is clear from the statutes then in force that there was no double taxation involved — one was a penalty and the other was a tax. At any rate, [the Court has]
taxation. The payment of 1/10 of 1% for incurring reserve deficiencies (Section 106, Central Bank Act) is a penalty as the primary purpose involved is regulation,
the same violation (Second Paragraph, Section 249, NIRC) is a tax for the generation of revenue which is the primary purpose in this instance. Petitioner should
asked to pay twice for incurring reserve deficiencies. It can always avoid this predicament by not having reserve deficiencies. Petitioner’s case is covered by two sp
law and the other, a tax law. These two laws should receive such construction as to make them harmonize with each other and with the other body of pre-existing la


Procter & Gamble Philippine Manufacturing Corporation v. Municipality of Jagna

G.R. No. L-24265 December 28, 1979

In December 13, 1957, the Municipal Council of Jagna enacted Municipal Ordinance No. 4, Series of 1957, imposing storage fees on all exportable copra deposi
jurisdiction of the Municipality of Jagna, Bohol. From 1958 to 1963, plaintiff paid defendant Municipality, allegedly under protest, storage fees in the total sum o
1964, plaintiff filed this suit in the Court of First Instance of Manila, with the following prayers: 1) Ordinance No. 4 be declared inapplicable to it, or in the alternative
vires and void for being beyond the power of the Municipality to enact; and 2) that defendant Municipality be ordered to refund to it the amount of P42,265.13 which

The plaintiff avers that the Ordinance is inapplicable to it as it is not engaged in the business or trade of storing copra for others for compensation or profit and that
its exclusive use in connection with its business as manufacturer of soap, edible oil, margarine and other similar products; that the levy is intended as an "exp
"exportable copra’, and, therefore, beyond the power of the Municipality to enact. It also contended that the fee of P0.10 for every 100 kilos of copra stored
unreasonable and oppressive and is imposed more for revenue than as a regulatory fee. It also avers that the Ordinance, even if presumed valid, is inapplicable to
in the business or occupation of buying or selling of copra but is only storing copra in connection with its main business of manufacturing soap and other simi
compelled to pay the storage fees would amount to double taxation.

The CFI upheld defendant Municipality's power to enact the Ordinance in question under section 2238 of the Revised Administrative Code, otherwise known as
Hence, this direct appeal to the Supreme Court.

Does the storage fee provided in Ordinance No. 4 amount to double taxation?


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No. Plaintiff's averment that the Ordinance, even if presumed valid, is inapplicable to it because it is not engaged in the business or occupation of buying or selling
copra in connection with its main business of manufacturing soap and other similar products, and that to be compelled to pay the storage fees would amount t
inspire assent. The question of whether appellant is engaged in that business or not is irrelevant because the storage fee is an imposition on the privilege of stori
defendant municipality by persons, firms or corporations. Section 1 of the Ordinance in question does not state that said persons, firms or corporations should be
occupation of buying or selling copra. Moreover, by plaintiff's own admission that it is a consolidated corporation with its trading company, it will be hard to seg
trading from that it utilizes for manufacturing.

Thus, it can be said that plaintiff's payment of storage fees imposed by the Ordinance in question does not amount to double taxation. Double taxation has also
same person twice by the same jurisdiction for the same thing. The tax on plaintiff's products is different from a tax on the privilege of storing copra in a bodega
boundary of defendant municipality.
Hence, the validity of Ordinance No. 4, Series of 1957 is sustained.


Pepsi-Cola Bottling Company v. Municipality of Tanauan

February 27, 1976

Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for that c
Republic Act No. 2264. 1 otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinance
1962, of the municipality of Tanauan, Leyte, null and void.

Municipal Ordinance No. 23, levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft
hand, Municipal Ordinance No. 27, levies and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE
gallon (128 fluid ounces, U.S.) of volume capacity." The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'

1) Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and oppressive?
2) Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes?
3) Are Ordinances Nos. 23 and 27 unjust and unfair?

1. NO. Under the New Constitution, local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. Section
local government unit shall have the power to create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal, it can
Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of local taxation. The plenar
thus delegated, contrary to plaintiff-appellant's pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the
measure of that which is exercised by itself. When it is said that the taxing power may be delegated to municipalities and the like, it is meant that there may be

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power to impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public polic
wise to tax for more general purposes.

2. NO. Ordinance No. 23, which was approved on September 25, 1962, levies or collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16)
corked, irrespective of the volume contents of the bottle used. When it was discovered that the producer or manufacturer could increase the volume contents o
same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 f
capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every
No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting Ordin
was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect.

3. NO. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced or manufactured, or an equivalent of 1-½ ce
considered unjust and unfair. an increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal corporations ar
determining the rates of imposable taxes. This is in line with the constitutional policy of according the widest possible autonomy to local governments in matters of l
is given expression in the Local Tax Code (PD No. 231, July 1, 1973). Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an
Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were to be reali


Villanueva v. City of Iloilo

G.R. No. L – 26521, December 28, 1968
Castro, J.

Spouses Villanueva are owners of five tenement houses, aggregately containing 43 apartments. Each apartment has a door leading to a street and is rented by
merchant. Villanueva has likewise been paying real estate taxes on his property. The municipal board enacted an ordinance imposing license tax fees on (a) ten
house, partly or wholly engaged to business in particular streets. The Court, in a different case declared the ordinance ultra vires “it not appearing that the powe
houses is one among those clearly an expressly granted to the City of Iloilo by its Charter.”

Later, the municipality board relying on the passage of the Local Autonomy Act enacted Ordinance No. 11, imposing a municipal license tax on tenement house
Court as ultra vires.
Petitioners avers that the ordinance is invalid for being beyond the powers of the Municipal Council of the City to enact and unconstitutional for RA 2264 does n
apartment taxes. Also, the same is oppressive and unreasonable for it penalizes those who fail to pay. That it constitutes not only double but triple taxation. L
uniformity of taxation. They prayed that the City be ordered to refund the amounts collected from them under the said ordinance.

Does the ordinance impose double taxation?


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No. 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 subjec
constitute double taxation, the property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property, for the same
authority, within the same jurisdiction, during the same taxing period and they must be the same kind or character of tax. The contention that petitioners are dou
paying real estate taxes and the tenement tax is devoid of merit. It has been shown that the taxes imposed are not of the same kind or character. There is no cons
double taxation, it is something not favored but is permissible.


Victorias Milling Co. v. Municipality of Victorias

G.R. No. L-21183, December 27, 1968
Sanchez, J.:

Ordinance 1 (1956) was approved by the municipal council of Victorias by way of an amendment to two municipal ordinances separately imposing license taxes on
and sugar refineries. The changes were: (1) with respect to sugar centrals, by increasing the rates of license taxes; and (2) as to sugar refineries, by increasing t
well as the range of graduated schedule of annual output capacity. Victorias Milling questioned the validity of Ordinance 1 as it, among others, the ordinance
taxation. Its reason is that in computing the amount of taxes to be paid by the sugar refinery the cost of the raw sugar coming from the sugar central is not dedu
twice on the raw sugar.

Does Ordinance No. 1 constitute double taxation?

No. Double taxation has been otherwise described as "direct duplicate taxation." For double taxation to exist, "the same property must be taxed twice, when it
Double taxation has also been "defined as taxing the same person twice by the same jurisdiction for the same thing." With the foregoing precepts in mind, we fin
plaintiff's argument on double taxation does not inspire assent. First. The two taxes cover two different objects. Section 1 of the ordinance taxes a person operatin
in the manufacture of centrifugal sugar. While under Section 2, those taxed are the operators of sugar refinery mills. One occupation or business is different f
disputed taxes are imposed on occupation or business. Both taxes are not on sugar. The amount thereof depends on the annual output capacity of the mills c
actual sugar milled. Plaintiff's argument perhaps could make out a point if the object of taxation here were the sugar it produces, not the business of producing it.


Compañia General de Tabacos de Filipinas v. City of Manila

G.R. No. 16619. June 29, 1963
Dizon, J.

Compañia General de Tabacos de Filipinas (Tabacalera) filed an action for refund of the overpayment it effected as taxes on its wholesale and retail sales of
Ordinances of the City of Manila, Tabacalera paid the City (a) fixed license fees and (b) sales taxes as a wholesale and retail dealer of general merchandise. Includ

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its sales of general merchandise is the tax corresponding to the liquor sales.

Tabacalera contended that in connection with its liquor sales, it should pay the license fees but not the municipal sales taxes. The payment of sales taxes anent th
overpayment made by mistake because it already paid the license fees. Tabacalera also contended that it was subjected to double taxation and hence, refund shou

The City Government of Manila argued that for the permit it issued to Tabacalera granting proper authority to conduct or engage in the sale of alcoholic beverages
the license fees.

Was Tabacalera subjected to double taxation by the imposition of sales taxes on its liquor sales despite having already paid the license fees for sale thereof?

No, Tabacalera was not subjected to double taxation. A license fee is collected for the privilege of engaging in the sale of liquor, a calling in which not anyone or a
considering that the sale of liquor indiscriminately may endanger public health and morals. The sales taxes imposed were for revenue purposes based on the sale
or merchandise. Already settled is the rule that both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article,
the rule against double taxation.

Therefore, the imposition of license fee and a tax and payment thereof by Tabacalera did not amount to double taxation.


Province of Bulacan v. CA
G.R. No. 126232; November 27, 1998
Romero, J.

The Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance No. 3, known as "An ordinance Enacting the Revenue Code of the Bulacan Province,"
July 1, 1992, section 21 of the ordinance provides as follows:
Section 21. Imposition of Tax. There is hereby levied and collected a tax of 10% of the fair market value in the locality per cubic meter of ordinary stones, sand
quarry resources, such, but not limited to marble, granite, volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or from beds of seas
creeks and other public waters within its territorial jurisdiction.

Pursuant thereto, the Provincial Treasurer of Bulacan assessed private respondent Republic Cement Corporation P2,524,692.13 for extracting limestone, shale an
of private land in the province during the third quarter of 1992 until the second quarter of 1993. Believing that the province, on the basis of above-said ordinance
taxes on quarry resources extracted from private lands, Republic Cement formally contested the same on December 23, 1993. The same was, howeve
Treasurer.Republic Cement, consequently filed a petition for declaratory relief with the Regional Trial Court of Bulacan. The province filed a motion to dismiss
which was granted by the trial court, which ruled that declaratory relief was improper, allegedly because a breach of the ordinance had been committed by Republic

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Republic Cement filed a petition for certiorari with the Supreme Court seeking to reverse the trial court's dismissal of their petition. The Court, in a resolution, refer
Appeals. The CA ruled that the assessment of the Province of Bulacan was null and void and it has no legal authority to impose and assess traxes on quarry reso

Could the provincial government impose taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands?

NO. A province has no authority to impose taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands. The pertinent provisio
Code are as follows:
Sec. 134. Scope of Taxing Powers. - Except as otherwise provided in this Code, the province may levy only the taxes, fees, and charges as provided in this Art
Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. - The province may levy and collect not more than ten percent (10%) of fair market value in the lo
ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as amended, extracted from public la
seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction.

Although , Section 186 allows a province to levy taxes other than those specifically enumerated under the Code, subject to the conditions specified therein, this f
cold comfort to petitioners as they are still prohibited from imposing taxes on stones, sand, gravel, earth and other quarry resources extracted from private lan
Province of Bulacan is an excise tax, being a tax upon the performance, carrying on, or exercise of an activity. The Local Government Code provides:
Section 133. - Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing pow
municipalities, and barangays shall not extend to the levy of the following:
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products;

In the case at bar, the province may not, therefore, levy excise taxes on articles already taxed by the National Internal Revenue Code. Unfortunately for petit
Revenue Code provides:
Section 151. - Mineral Products. -
(A) Rates of Tax. - There shall be levied, assessed and collected on minerals, mineral products and quarry resources, excise tax as follows:
(2) On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based on the actual market value of the gross output thereof at the time of re
locally extracted or produced; or the values used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in th

Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the National I
province can, however, impose a tax on stones, sand, gravel, earth and other quarry resources extracted from public land because it is expressly empowere
Government Code. As to stones, sand, gravel, earth and other quarry resources extracted from private land, however, it may not do so, because of the limitation pr
Code in relation to Section 151 of the National Internal Revenue Code.



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Delpher Trades Corporation v. IAC

G.R. No. L-69259, January 26, 1988

On April 3, 1974, Delfin Pacheco and his sister, Pelagia Pacheco leased to Construction Components International, Inc. their real property. Their agreement provid
On August 3, 1974, the lessee assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the consent of the les
deed of exchange was executed between the lessorsand defendant Delpher Trades Corporation whereby the Pachecos conveyed to Delpher Trades the leased pr
parcel of land for 2,500 shares of stock which are equivalent to a 55% majority in the corporation.

Hydro Pipes Philippines, Inc., filed a complaint for reconveyance of the property in its favor under conditions similar to those whereby Delpher Trades Corporation
Pelagia Pacheco and Delfin Pacheco.

The petitioners argued that Delpher Trades Corporation is a family corporation of the Pachecos and that the corporation was organized in order to perpetuate th
through the corporation and to avoid taxes. They contended that there was no sale of the leased property since they just exchanged the land for shares in their own

Are the means employed by the Pachecos in avoiding their taxes valid?

YES. Section 35 of the National Internal Revenue Code under par. C-sub-par. (2) provides: "No gain or loss shall also be recognized if a person exchanges
corporation of which as a result of such exchange said person alone or together with others not exceeding four persons gains control of said corporation."

In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and change the natu
unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes. S
die it can continue to hold on to the property indefinitely for a period of at least 50 years. On the other hand, if the property is held by the spouse, the property w
proceedings and the consequential payments of estate and inheritance taxes when an owner dies.

The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to d
otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted."


Heng Tong Textiles Co, Inc. v. Commissioner of Internal Revenue

G.R. No. L-19737; August 26, 1968

Petitioner was assessed with deficiency taxes on importations of textiles from abroad. The goods were withdrawn from Customs by its sister company Pan-Asiatic
the petitioner, the corresponding advance sales tax. The assessment for the deficiency, however, was made against the petitioner on the ground that it was the re

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did not pay the taxes due on the basis of the gross selling prices thereof. Petitioner insists, that it was Pan-Asiatic that financed the importations but placed them
as a matter of accommodation. The CTA found the petitioner guilty of fraud and thereby imposed a 50% penalty on the deficiency taxes.

Is the petitioner guilty of fraud to warrant the imposition of 50% penalty on the deficiency?

No. The Court perceived in the entire set-up an arrangement through which the sales taxes due could be minimized, by having Pan-Asiatic, as indorsee of the goo
Customs upon payment of the advance sales tax and then execute a sale thereof to Heng Tong Textiles at cost, or at a negligible profit.

The arrangement resorted to does not by itself alone justify the penalty imposed because the provision speaks of willful neglect to file the return or willful making o
An attempt to minimize one's tax does not necessarily constitute fraud. It is a settled principle that a taxpayer may diminish his liability by any means, which the law
legal viewpoint and as far as the right of the Government to collect the taxes was concerned the petitioner was the real importer and hence must shoulder the tax
CTA is modified, by eliminating therefrom the penalty of 50% on the amount of deficiency sales taxes imposed.


Commissioner of Internal Revenue v. Toda

G.R. No. 147188, September 14, 2004
Davide Jr., C.J.

On 2 March 1989, Cibeles Insurance Corporation (CIC) authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding capit
Building and the two parcels of land on which the building stands for an amount of not less than P90 million. On 30 August 1989, Toda purportedly sold the proper
A. Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced by Deeds o
the same day by the same notary public. Altonaga paid capital gains tax in the amount of P10 million, for the sale of the property to RMI.

CIC filed its corporate annual income tax return for the year 1989, declaring, among other things, its gain from the sale of real property in the amount of P
withholding taxes of P254,497.00, it paid P26,341,207 for its net taxable income of P75,987,725.

Thereafter, Toda sold his entire shares of stocks in CIC to Le Hun Choa for P12.5 million. He undertook in said sale that he holds the buyer and Cibeles free from
the years 1987 to 1989. Three (3) years thereafter, Toda died.

In 1994, the Bureau of Internal Revenue (BIR) sent an assessment notice and demand letter to the CIC for deficiency income tax for the year 1989 in the amount
CIC asked for reconsideration, claiming that the assessment should be directed to the old CIC, as the new CIC is owned by entirely different stockholders, and tha
tax liabilities.

Thus, the Estate of Toda received a Notice of Assessment from the BIR dated 9 January 1995. The Estate filed a letter of protest. The CIR dismissed the p

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deliberately perpetrated a fraudulent scheme, by covering up the additional gain of P100 million, which resulted in the change in the income structure of the pro
parcels of land and the building thereon to an individual capital gains, thus evading the higher corporate income tax rate of 35%.

The Estate thus filed a petition for review, claiming that the inference of fraud was unsupported, and that the CIR’s right to assess had already prescribed. The Co
two transactions actually constituted a single sale of the property by CIC to RMI, the first sale being a simulated one, in order that the P100 million gain would b
purportedly as capital gains tax of Altonaga, instead of at the rate of 35% as corporate income tax of CIC. Furthermore, since the fraud was discovered only on 8 M
on 9 January was well within the prescriptive period of ten (10) years. It also argued that since the sale was tainted with fraud, the separate corporate personality of
and Toda, the registered owner, shall be held liable. The CTA ruled in favor of the Estate, ruling that the transaction was mere tax avoidance and not tax evasion
affirmed the CTA.

Did respondent commit fraud with intent to evade the tax on the sale of the properties of Cibeles Insurance Corporation?

Yes. Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due
when it is shown that a tax is due; (2) an accompanying state of mind which is described as being evil, in bad faith, willful, or deliberate and not accidental; and (3)
of action which is unlawful.

All these factors are present in the instant case. It is significant to note that prior to the purported sale of the Cibeles property by CIC to Altonaga, CIC receivedP
from Altonaga. That P40 million was debited by RMI and reflected in its trial balance as other inv. Cibeles Bldg. Also, as of 31 July 1989, another P40 million was d
trial balance as other inv. Cibeles Bldg. This would show that the real buyer of the properties was RMI, and not the intermediary Altonaga.

Further, the facts that Altonaga was a mere conduit is admitted in the Memorandum of respondent Estate. This scheme resorted to by CIC in making it appear tha
subject properties,i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud.

Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then su
individual capital gains tax, and not the 35% corporate income tax. Altonagas sole purpose of acquiring and transferring title of the subject properties on the sa
shelter. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale to him was merely a tax ploy, a sham, an
and economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax l

To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is proved that the latter was merel
circumvention of our tax laws. Hence, the sale to Altonaga should be disregarded for income tax purposes. The two sale transactions should be treated as a singl
Thus the 35% corporate tax should be applied.



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Davao Gulf Lumber Corp. v. Commissioner of Internal Revenue
G.R. No. 117359, July 23, 1998
Panganiban, J.

Petitioner is a licensed forest concessionaire possessing a Timber License Agreement granted by the Ministry of Natural Resources (now Department of Environm
From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies, refined and manufactured mineral oils as well as motor and diesel fuels,
the exploitation and operation of its forest concession. Said oil companies paid the specific taxes imposed, under Sections 153 and 156 of the 1977 National Inte
on the sale of said products. Being included in the purchase price of the oil products, the specific taxes paid by the oil companies were eventually passed on to th
case. Petitioner then filed before Respondent Commissioner of Internal Revenue (CIR) a claim for refund in the amount of P120,825.11, representing 25% of the sp
the abovementioned fuels and oils that were used by petitioner in its operations as forest concessionaire. The claim was based on Insular Lumber Co. vs. Court o
of RA 1435.

Section 5. The proceeds of the additional tax on manufactured oils shall accrue to the road and bridge funds of the political subdivision for whose benefit the
however, That whenever any oils mentioned above are used by miners or forest concessionaires in their operations, twenty-five per centum of the specific tax pa
by the Collector of Internal Revenue upon submission of proof of actual use of oils and under similar conditions enumerated in subparagraphs one and two of se
section one hundred forty-two of the Internal Revenue Code: Provided, further, That no new road shall be constructed unless the routes or location thereof shall
Commissioner of Public Highways after a determination that such road can be made part of an integral and articulated route in the Philippine Highway System, as r
of the Philippine Highway Act of 1953.

It is an unquestioned fact that petitioner complied with the procedure for refund, including the submission of proof of the actual use of the aforementioned oils
required by the law.
Petitioner filed with the CTA a petition for review and the CTA rendered its decision finding petitioner entitled to a partial refund of specific taxes the latter had paid i

Petitioner argues that the refund should be based on the increased rates of specific taxes which it actually paid, as prescribed in Sections 153 and 156 of the NIRC
other hand, contends that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435.

The Court of Appeals held that the claim for refund should indeed be computed on the basis of the amounts deemed paid under Sections 1 and 2 of RA 14
pronouncement in Commissioner of Internal Revenue v. Rio Tuba Nickel Mining Corporation and our subsequent Resolution dated June 15, 1992 clarifying the said

Is petitioner entitled under Republic Act No. 1435 to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured minera
taxed under Sec. 153 and Sec. 156 of the 1977 (Sec. 142 and Sec. 145 of the 1939) National Internal Revenue Code?

No. At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5 of RA 1435, which was enacted to provide means for increasing th

Petitioner submits that it is entitled to the refund of 25 percent of the specific taxes it had actually paid for the petroleum products used in its operations. Petition
grant of the refund privilege, specifically the phrase twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue

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enough to require construction or qualification thereof.The Court is not persuaded. The relevant statutory provisions do not clearly support petitioners claim for refun
unless it is supported by the clear and express language of a statute; on the other hand, once the tax is unquestionably imposed, a claim of exemption from ta
shown and based on language in the law too plain to be mistaken.

Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, it must be construed strictissimi juris against the grantee. Hence
on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken.

Carefully scrutinizing RA 1435 and the subsequent pertinent statutes, the Supreme Court found no expression of a legislative will authorizing a refund based on
petitioner. The mere fact that the privilege of refund was included in Section 5, and not in Section 1, is insufficient to support petitioners claim. When the law itse
that a refund under RA 1435 may be based on higher rates which were nonexistent at the time of its enactment, this Court cannot presume otherwise. A legislativ


Philippine Acetylene v. Commissioner of Internal Revenue

August 17, 1967

The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. During the period from June 2, 1953 to June 30, 1958,
products to the National Power Corporation, an agency of the Philippine Government, and to the Voice of America an agency of the United States Governm
amounted to P145,866.70, while those to the VOA amounted to P1,683, on account of which the respondent Commission of Internal Revenue assessed again
petitioner the payment of P12,910.60 as deficiency sales tax and surcharge, pursuant to the following-provisions of the National Internal Revenue Code:
Sec. 186. Percentage tax on sales of other articles.—There shall be levied, assessed and collected once only on every original sale, barter, exchange, and sim
nominal or valuable considerations, intended to transfer ownership of, or title to, the articles not enumerated in sections one hundred and eighty-four and one h
tax equivalent to seven per centum of the gross selling price or gross value in money of the articles so sold, bartered exchanged, or transferred, such
manufacturer or producer: . . . .
Sec. 183. Payment of percentage taxes.—(a) In general.—It shall be the duty of every person conducting business on which a percentage tax is imposed un
true and complete return of the amount of his, her, or its gross monthly sales, receipts or earnings, or gross value of output actually removed from the factor
within twenty days after the end of each month, pay the tax due thereon: Provided, That any person retiring from a business subject to the percentage tax
internal revenue officer thereof, file his return or declaration and pay the tax due thereon within twenty days after closing his business.

If the percentage tax on any business is not paid within the time specified above, the amount of the tax shall be increased by twenty-five per centum, the increment

The petitioner denied liability for the payment of the tax on the ground that both the NPC and the VOA are exempt from taxation. It asked for a reconsideration of th
secure one, appealed to the Court of Tax Appeals.

Is petitioner exempt from payment of taxes?

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Thus only sales made "for exclusive use in the construction, maintenance, operation or defense of the bases," in a word, only sales to the quartermaster, are e
taxation. Sales of goods to any other party even if it be an agency of the United States, such as the VOA, or even to the quartermaster but for a different pur
payment of the tax.

On the other hand, article XVIII exempts from the payment of the tax sales made within the base by (not sales to) commissaries and the like in recognition of the p
tax on the seller and not on the purchaser.

It is a familiar learning in the American law of taxation that tax exemption must be strictly construed and that the exemption will not be held to be conferred unles
granted clearly and distinctly show that such was the intention of the parties.17 Hence, in so far as the circular of the Bureau of Internal Revenue would giv
Agreement an expansive construction it is void.


Commissioner v. CA, CTA and Ateneo De Manila University

G.R. No. 115349, April 18, 1997
Panganiban, J.:

Private respondent is a non-stock, non-profit educational institution with auxiliary units and branches all over the Philippines. One such auxiliary unit is the Institute
which has no legal personality separate and distinct from that of private respondent. The IPC is a Philippine unit engaged in social science studies of Ph
Occasionally, it accepts sponsorships for its research activities from international organizations, private foundations and government agencies.

Private respondent was assessed by the petitioner for deficiency in contractors tax at the final amount of P46,516.41, exclusive of surcharge and interest. Private
do not fall under the purview of an independent contractor pursuant to Section 205 of the Tax Code. Hence, they are not subject to 3% contractor’s tax. Petitioner,
otherwise and states that the term independent contractor is not specifically defined so as to delimit the scope thereof, so much so that any person who x x x r
service for a fee, is now indubitably considered an independent contractor liable to 3% contractors tax. According to petitioner, Ateneo has the burden of proof to
coverage of the law.

Does Ateneo, private respondent, have to show its exemption from the coverage of law?

NO. Petitioner erred in applying the principles of tax exemption without first applying the well-settled doctrine of strict interpretation in the imposition of taxes. It is
impractical to determine who are exempted without first determining who are covered by the aforesaid provision. Petitioner should have determined first if private
Section 205, applying the rule of strict interpretation of laws imposing taxes and other burdens on the populace, before asking Ateneo to prove its exemption the
occasion to reiterate the hornbook doctrine in the interpretation of tax laws that (a) statute will not be construed as imposing a tax unless it does so clearly, express
(A) tax cannot be imposed without clear and express words for that purpose.

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To fall under its coverage, Section 205 of the National Internal Revenue Code requires that the independent contractor be engaged in the business of selling its ser
three percent contractors tax on Ateneos Institute of Philippine Culture, it should be sufficiently proven that the private respondent is indeed selling its service
independent business. And it is only after private respondent has been found clearly to be subject to the provisions of Sec. 205 that the question of exemption there
such coverage is shown does the rule of construction -- that tax exemptions are to be strictly construed against the taxpayer -- come into play, contrary to petitioner


Caltex Philippines, Inc. v Commission on Audit

GR No. 92585, May 8, 1992

COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund excluding that unremitted for the years 1986 and 1988, of the
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
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 remittan
the current and ensuing years. Caltex moved for reconsideration but was denied. Hence, the present petition.

May the amounts due from Caltex to the OPSF be offsetted against Caltex’s outstanding claims from said funds?

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 purpo
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 aga
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
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.

Luzon Stevedoring Corporation v. Court of Tax Appeals

G.R. No. L-30232, July 29, 1988
Paras, J.

Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats, imported various engine parts and other equipment for which it paid,
compensating tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, on January 2, 1964, it filed a Petition for Review with the Court of Ta

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as CTA Case No. 1484, praying among others, that it be granted the refund of the amount of P33,442.13. The Court of Tax Appeals, however, in a Decision date
the various claims for tax refund.

Can petitioner's tugboats" be interpreted to be included in the term "cargo vessels" for purposes of the tax exemption provided for in Section 190 of the National
amended by Republic Act No. 3176?

No. 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 reductio
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 sp
rule is that any claim for exemption from the tax statute should be strictly construed against the taxpayer.

As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be declared exempt from the compensating tax, it is indispensa
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
cargo vessel must be used in coastwise or oceangoing navigation.

As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic Act No. 3176 limit tax exemption from the compensating tax to imported items
himself as operator of passenger and/or cargo vessel. As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows:

A 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 v
moving large ships to and from piers for towing barges and lighters in harbors, rivers and canals.

Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of passenger and/or cargo vessels. Thus, it is a cardinal principle o
where a provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense being entertained to justify non-compliance.


National Development Company v. Commissioner of Internal Revenue

G.R. No. L-53961 June 30, 1987
Cruz, J.

The National Development Company entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of twelve ocean-going ve
made in cash and through irrevocable letters of credit. Fourteen promissory notes were signed for the balance by NDC and was guaranteed by the Republic of the
payments and interests thereon were remitted in due time by the NDC to Tokyo. No tax was withheld. The Commissioner held that the NDC is liable on such
115,234.74. The BIR served on the NDC a warrant of distraint and levy to enforce collection of the claimed amount. The petitioner argues that the Japanese ship
tax because all the related activities- the signing of the contract, construction of vessels, payment of price and delivery to NDC- were done in Tokyo.The petitio
payments were obligations of the Republic of the Philippine and that the promissory notes of the NDC were government securities exempt from taxation under
Code. Furthermore, petitioner contends that the Republic of the Philippines could not collect taxes on the interest remitted because of the undertaking signed by the

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promissory notes.

1. Is NDC liable for deficiency tax?
2. Are the interests on the promissory notes exempt from tax?

1. Yes, NDC is liable for deficiency tax. The Japanese shipbuilders were liable to tax on the interest remitted to them under Sec. 37 of the Tax Code which provides
within the Philippines. Although the related activities mentioned by petitioner were done in Tokyo, the law, however, does not speak of activity but of “source” which
a domestic and resident corporation with principal offices in Manila. The imposition of the deficiency taxes on the NDC is a penalty for its failure to withhold th
shipbuilders. Such liability is imposed by Section 53(c) of the Tax Code.

2. No, the interests on the promissory notes are not exempt from tax.The law invoked by the petitioner as authorizing the issuance of securities is R.A. No. 1407,
matter. C.A. No. 182 as amended by C.A. No. 311 does carry such authorization but, like R.A. No. 1407, does not exempt from taxes the interests on such se
nothing in the undertaking signed by the Secretary of Finance in each promissory note which exempts the interests from taxes. Petitioner has not established a cle
to tax interests. Tax exemptions cannot be merely implied but must be categorically and unmistakably expressed. Any doubt concerning this question must be re
power. The undertaking does not contain any inhibition against the collection of the disputed taxes. The said undertaking of the Republic of the Philippines merely g
the NDC but without diminution of its taxing power under existing laws.


Manila Electric Company v. Vera

G.R. No. L-29987, October 20, 1975

Petitioner Meralco, holder of a franchise to construct, maintain and operate an electric light, heat and power system in the City of Manila, imported copper wires, tra
use in the operation of its business in 1962. In 1963, it again imported copper wires, transformers and insulators to be used therein. Both importations were subjec
VAT). So Meralco, after payment thereof claimed its refund which was denied first by the BIR and later, on appeal, by the CTA. Meralco claims that the importatio

Is Meralco correct?
NO. One who claims to be exempt from payment of a particular tax must do so under clear and unmistakable terms found in the statute. Tax exemptions are s
taxpayer, they being highly disfavoured and may almost be said to be odious to the law.

Petitioner’s franchise exempts it from the payment of property tax on its poles, wires, transformers and insulators, but not from payment of taxes, like the one
necessity or consequence alone, fall upon property.

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It is a well settled rule that a compensating tax is not a property tax but an excise tax. An excise tax is one that is not imposed on the performance of an act, the en
the enjoyment of a privilege. A property tax is a direct tax, whereas one levied on property because of its use, is an excise tax.


Maceda v. Macaraig
G.R. No. 88291, May 31, 1991

This petition seeks to nullify certain decisions, orders, rulings, and resolutions of respondents Executive Secretary, Secretary of Finance, Commissioner of Interna
Customs and the Fiscal Incentives Review Board FIRB for exempting the National Power Corporation (NPC) from indirect tax and duties.

The National Power Corporation (NAPOCOR) was created by Commonwealth Act No. 120. In 1949, it was given tax exemption by Republic Act No. 358. In 19
1931 was passed removing the tax exemption of NAPOCOR and other government owned and controlled corporations (GOCCs). There was a reservation, howev
Minister of Finance, upon recommendation by the Fiscal Incentives Review Board (FIRB), may restore or modify the exemption.

In 1985, the tax exemption was revived. It was again removed in 1987 by virtue of Executive Order 93 which again provided that upon FIRB recommendation it c
same year, FIRB resolved to restore the exemption. The same was approved by President Corazon Aquino through Executive Secretary Catalino Macaraig,
Ernesto Maceda assailed the FIRB resolution averring that the power granted to the FIRB is an undue delegation of legislative power. Maceda’s claim was strengt
by then DOJ Secretary Sedfrey Ordoñez. Macaraig however did not give credence to the opinion issued by the DOJ secretary.

Is NPC subject to tax exemptions?

Yes.. Presidential Decree No. 938 amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from “all forms of taxes, d
as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings.” The use of the phrase “all form
intention of the law to give NPC all the tax exemptions it has been enjoying before.

The preamble of P.D. No. 938 states—

WHEREAS, in the application of the tax exemption provision of the Revised Charter, the non-profit character of the NPC has not been fully utilized because of res
taxing agencies of the government on said provisions. .

It is evident from the foregoing that the lawmaker did not intend that the said provisions of P.D. No. 938 shall be construed strictly against NPC. On the contra
should be interpreted liberally so as to enhance the tax exempt status of NPC. Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the interp
tax exemptions to NPC.

Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of a government political subdivision or i

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applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even more obvious than with reference to the affirmative
statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect o
reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to go
construed liberally, in favor of non tax liability of such agencies.

In the case of property owned by the state or a city or other public corporations, the express exemption should not be construed with the same degree of strictnes
contrary to the policy of the state, since as to such property “exemption is the rule and taxation the exception.


Commissioner of Internal Revenue v. Gotamco & Sons, Inc.

G.R. No. L-31092, February 27, 1987

The World Health Organization (WHO), an international organization, entered into a Host Agreement with the Republic of the Philippines on July 22, 1951. In the
income and other properties shall be exempt from all direct and indirect taxes. WHO decided to construct a building to house its own offices, as well as the o
stationed in Manila. In inviting bids for the construction of the building, WHO informed the bidders that the building to be constructed belonged to an international
status and thus exempt from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and should not include items
other payments to Government agencies." The construction contract was awarded to respondent John Gotamco & Sons, Inc. on February 10, 1958.

On June 3, 1958, the Commissioner of Internal Revenue stated that "as the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is prima
the same is not covered by . . . the Host Agreement."

On January 2, 1960, the WHO issued a certification that the bid of Gotamco should be exempted from any taxes in connection with the construction of the WHO o
or fees in connection with the construction of the building is an indirect tax to WHO.

On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of P 16,970.40, representing the 3% contrac
the gross receipts it received from the WHO in the construction of the latter's building.
Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which after trial rendered a decision, in favor of Gotamco and reversed th

a) Is the 3% contractor’s tax assessed on Gotamco an “indirect tax”?
b) Should respondent John Gotamco & Sons, Inc. pay the 3% contractor's tax under Section 191 of the National Internal Revenue Code on the gross receipts it re
of the World Health Organization office building in Manila?

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a) NO. The Petitioner’s position is that the contractor's tax "is in the nature of an excise tax which is a charge imposed upon the performance of an act, the enj
engaging in an occupation. . . It is a tax due primarily and directly on the contractor, not on the owner of the building. Since this tax has no bearing upon the WH
indirect taxation upon it."

The Court agreed with the Court of Tax Appeals in rejecting this contention of the petitioner. The CA stated: The contractor's tax is of course payable by the contra
is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus,
an indirect tax on the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO. In the last analysis it is the WHO that will p
the contractor and it certainly cannot be said that 'this tax has no bearing upon the World Health Organization.

b) YES. The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which, although not imposed upon or paid by the Organ
the price paid or to be paid by it. The 3% contractor's tax would be within this category and should be viewed as a form of an "indirect tax" On the Organization, a
inclusion in the bid price would have meant an increase in the construction cost of the building.


Commissioner of Internal Revenue vs. CA and YMCA

G.R. No. 124043, October 14, 1998
Panganiban, J.

YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuan
and charitable objectives. In 1980, it earned income from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and
from nonmembers. The commissioner of internal revenue (CIR) issued an assessment to private respondent, in the total amount of P415,615.01 including
deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA formally protest
denied their claims. In their appeal with the Court of Tax Appeals, the CTA and CA ruled that income of YMCA from rentals of small shops and parking fees exe
appealed such finding with the Supreme Court.

Is the YMCA exempted from aforementioned income tax?

No, YMCA is not exempted. The claim of exemption "must expressly be granted in a statute stated in a language too clear to be mistaken." In this instant case, th
YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (s
of their properties, real or personal, be subject to the imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the rent
rental property, the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction.

Neither does the income tax exemption claimed by YMCA finds basis in Article VI, Section 28, par. 3 of the Constitution for such tax exemption covers property taxe

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YMCA also invokes Article XIV, Section 4, par. 3 of the Constitution, claiming that the it "is a nonstock, non-profit educational institution whose revenues and asse
and exclusively for educational purposes so it is exempt from taxes on its properties and income." While YMCA is exempt from the payment of property tax, it is
income tax on the rentals from its property. The bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption

As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted the exemption it claims under the aforec
with substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxat
and exclusively for educational purposes. However, the Court notes that not a scintilla of evidence was submitted by private respondent to prove that it met the said


Nitafan v. Commissioner of Internal Revenue

G.R. No. L-78780 July 23, 1987
Melencio-Herrera, J.

Petitioners, the duly appointed and qualified Judges presiding over Branches 52, 19 and 53, respectively, of the Regional Trial Court, National Capital Judicia
Manila, seek to prohibit and/or perpetually enjoin respondents, the Commissioner of Internal Revenue and the Financial Officer of the Supreme Court, from
withholding taxes from their salaries. They submit that "any tax withheld from their emoluments or compensation as judicial officers constitutes a decrease or
contrary to the provision of Section 10, Article VIII of the 1987 Constitution mandating that 'during their continuance in office, their salary shall not be decreased,' e
ideal of an independent judiciary envisioned in and by said Constitution."

Are the members of judiciary exempt from payment of income taxation?

No. The clear intent of the Constitutional Commission was to delete the proposed express grant of exemption from payment of income tax to members of t
substance to equality among the three branches of Government". The Court discarded the ruling in Perfecto vs. Meer and Endencia vs. David, that declared the
Judiciary exempt from payment of the income tax and considered such payment as a diminution of their salaries during their continuance in office. The Court re
Justices and Judges are properly subject to a general income tax law applicable to all income earners and that the payment of such income tax by Justices and Ju
constitutional protection against decrease of their salaries during their continuance in office. What the Constitution authorizes is that the Congress may pass
compensation of Justices and Judges but such rate must be higher than that which they are receiving at the time of enactment, or if lower, it would be applicable o
its approval.


Province of Abra v. Hernando

G.R. No. L-49336 August 31, 1981

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Fernando, C.J.

The Provincial Assessormade a tax assessment on the properties of the Roman Catholic Bishop of Bangued (RCBB). Claiming that the property of the Catholic Ch
real estate tax under the provisions of Sec. 17, par. 3, Art. VII of the 1973 Constitution, RCBB filed an action for declaratory relief in the CIF of Abra, of wh
Hernando is the presiding judge. However, without any hearing, the trial court adjudged said property as tax-exempt under the Constitution. Hence, the insta
mandamus by the Province of Abra, represented by the Provincial Assessor, was filed seeking to review the lower court’s decision.

Whether the Trial Court is correct in declaring RCBB exempted from payment of real property tax without conducting any hearing.

NO. To be exempt under the Constitution, lands, buildings, and improvements of religious and charitable institutions must not only be exclusively, but also ac
religious and charitable purposes. This is the difference between the 1973 Constitution and the 1935 Constitution, which requires only that the property be exclus
indicated. Hence, it was error for the trial court to declare said property exempt without first conducting a hearing to determine the factual question of actual and

Further, there was a denial of due process to the Province of Abra when respondent Judge made a summary finding of the tax exempt status of the RCBB’s proper
ordered to hear the case on the merits.


CIR v. Mitsubishi Metal Corporation

G.R. No. L-54908, January 22, 1990

Atlas Consolidated entered into a loan and sales contract with Mitsubishi Corp. Mitsubishi agreed to extend a loan to the latter undertook to sell to the former all th
produce for 15 years. Mitsubishi applied for a loan with Eximbank in order to comply with its contractual obligations. The total amount of the loans amounted to $20
were made by Atlas to Mitsubishi and the corresponding 15% tax thereon was withheld pursuant to Section 24(b)(1) and Section 53 (2) of the NIRC as amended b
to the government. On March 5,1976 private respondents filed a claim for tax credit requesting that the sum of P1,971,595.01 be applied against their existing a
CIR, not having acted on the claim, private respondents filed a petition for review with respondent court. The respondent court promulgated its decision ordering p
in favor of Atlas. The petitioner appealed. While the case was pending, Atlas again filed a claim for tax credit.

Is the interest income from the loans extended to Atlas by Mitsubishi excludible from gross income taxation pursuant to Section 29 b) (7) (A) of the tax code a
withholding tax?


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Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption i
of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed, which onus petitioners have failed to disc
respondents are not even among the entities which, under Section 29 (b) (7) (A) of the tax code, are entitled to exemption and which should indispensably be the
The taxability of a party cannot be blandly glossed over on the basis of a supposed "broad, pragmatic analysis" alone without substantial supportive evidence.

While international comity is invoked in this case on the nebulous representation that the funds involved in the loans are those of a foreign government, scrupulous
opening the floodgates to the violation of our tax laws. Otherwise, the mere expedient of having a Philippine corporation enter into a contract for loans or other dom
foreign entities, which in turn will negotiate independently with their governments, could be availed of to take advantage of the tax exemption law under discussion.