G.R. No.
L-29059 December 15, 1987 Here Justice Eugenio Angeles declared that "before the effectivity of Rep. Act No. 1299, amending
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS, respondents.
CRUZ, J.:
By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on
appeal by the Supreme Court on February 27, 1965, the Commissioner of Internal Revenue was
ordered to refund to the Cebu Portland Cement Company the amount of P 359,408.98,
representing overpayments of ad valorem taxes on cement produced and sold by it after October
1957. 1
On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and
the private respondent, the latter moved for a writ of execution to enforce the said judgment . 2
The motion was opposed by the petitioner on the ground that the private respondent had an
outstanding sales tax liability to which the judgment debt had already been credited. In fact, it was
stressed, there was still a balance owing on the sales taxes in the amount of P 4,789,279.85 plus
28% surcharge. 3
On April 22, 1968, the Court of Tax Appeals * granted the motion, holding that the alleged sales
tax liability of the private respondent was still being questioned and therefore could not be set-off
against the refund. 4
In his petition to review the said resolution, the Commissioner of Internal Revenue claims that the
refund should be charged against the tax deficiency of the private respondent on the sales of
cement under Section 186 of the Tax Code. His position is that cement is a manufactured and not
a mineral product and therefore not exempt from sales taxes. He adds that enforcement of the
said tax deficiency was properly effected through his power of distraint of personal property under
Sections 316 and 318 5 of the said Code and, moreover, the collection of any national internal
revenue tax may not be enjoined under Section 305, 6 subject only to the exception prescribed in
Rep. Act No. 1125. 7 This is not applicable to the instant case. The petitioner also denies that the
sales tax assessments have already prescribed because the prescriptive period should be
counted from the filing of the sales tax returns, which had not yet been done by the private
respondent.
For its part, the private respondent disclaims liability for the sales taxes, on the ground that cement
is not a manufactured product but a mineral product. 8 As such, it was exempted from sales taxes
under Section 188 of the Tax Code after the effectivity of Rep. Act No. 1299 on June 16, 1955, in
accordance with Cebu Portland Cement Co. v. Collector of Internal Revenue, 9 decided in 1968.
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Section 246 of the National Internal Revenue Code, cement was taxable as a manufactured
product under Section 186, in connection with Section 194(4) of the said Code," thereby implying
that it was not considered a manufactured product afterwards. Also, the alleged sales tax
deficiency could not as yet be enforced against it because the tax assessment was not yet final,
the same being still under protest and still to be definitely resolved on the merits. Besides, the
assessment had already prescribed, not having been made within the reglementary five-year
period from the filing of the tax returns. 10
Our ruling is that the sales tax was properly imposed upon the private respondent for the reason
that cement has always been considered a manufactured product and not a mineral product. This
matter was extensively discussed and categorically resolved in Commissioner of Internal Revenue
v. Republic Cement Corporation, 11 decided on August 10, 1983, where Justice Efren L. Plana,
after an exhaustive review of the pertinent cases, declared for a unanimous Court:
From all the foregoing cases, it is clear that cement qua cement was never
considered as a mineral product within the meaning of Section 246 of the Tax
Code, notwithstanding that at least 80% of its components are minerals, for the
simple reason that cement is the product of a manufacturing process and is no
longer the mineral product contemplated in the Tax Code (i.e.; minerals
subjected to simple treatments) for the purpose of imposing the ad valorem tax.
What has apparently encouraged the herein respondents to maintain their
present posture is the case of Cebu Portland Cement Co. v. Collector of Internal
Revenue, L-20563, Oct. 29, 1968 (28 SCRA 789) penned by Justice Eugenio
Angeles. For some portions of that decision give the impression that Republic
Act No. 1299, which amended Section 246, reclassified cement as a mineral
product that was not subject to sales tax. ...
xxx xxx xxx
After a careful study of the foregoing, we conclude that reliance on the decision
penned by Justice Angeles is misplaced. The said decision is no authority for
the proposition that after the enactment of Republic Act No. 1299 in 1955
(defining mineral product as things with at least 80% mineral content), cement
became a 'mineral product," as distinguished from a "manufactured product,"
and therefore ceased to be subject to sales tax. It was not necessary for the
Court to so rule. It was enough for the Court to say in effect that even assuming
Republic Act No. 1299 had reclassified cement was a mineral product, the
reclassification could not be given retrospective application (so as to justify the
refund of sales taxes paid before Republic Act 1299 was adopted) because laws
operate prospectively only, unless the legislative intent to the contrary is
manifest, which was not so in the case of Republic Act 1266. [The situation
would have been different if the Court instead had ruled in favor of refund, in
which case it would have been absolutely necessary (1) to make an
1
 unconditional ruling that Republic Act 1299 re-classified cement as a mineral
product (not subject to sales tax), and (2) to declare the law retroactive, as a
basis for granting refund of sales tax paid before Republic Act 1299.]
In any event, we overrule the CEPOC decision of October 29, 1968 (G.R. No. L-
20563) insofar as its pronouncements or any implication therefrom conflict with
the instant decision.
The above views were reiterated in the resolution 12 denying reconsideration of the said decision,
thus:
The nature of cement as a "manufactured product" (rather than a "mineral
product") is well-settled. The issue has repeatedly presented itself as a
threshold question for determining the basis for computing the ad
valorem mining tax to be paid by cement Companies. No pronouncement was
made in these cases that as a "manufactured product" cement is subject to
sales tax because this was not at issue.
The decision sought to be reconsidered here referred to the legislative history of
Republic Act No. 1299 which introduced a definition of the terms "mineral" and
"mineral products" in Sec. 246 of the Tax Code. Given the legislative intent, the
holding in the CEPOC case (G.R. No. L-20563) that cement was subject to
sales tax prior to the effectivity •f Republic Act No. 1299 cannot be construed to
mean that, after the law took effect, cement ceased to be so subject to the tax.
To erase any and all misconceptions that may have been spawned by reliance
on the case of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-
20563, October 29, 1968 (28 SCRA 789) penned by Justice Eugenio Angeles,
the Court has expressly overruled it insofar as it may conflict with the decision of
August 10, 1983, now subject of these motions for reconsideration.
On the question of prescription, the private respondent claims that the five-year reglementary
period for the assessment of its tax liability started from the time it filed its gross sales returns on
June 30, 1962. Hence, the assessment for sales taxes made on January 16, 1968 and March 4,
1968, were already out of time. We disagree. This contention must fail for what CEPOC filed was
not the sales returns required in Section 183(n) but the ad valorem tax returns required under
Section 245 of the Tax Code. As Justice Irene R. Cortes emphasized in the aforestated resolution:
In order to avail itself of the benefits of the five-year prescription period under
Section 331 of the Tax Code, the taxpayer should have filed the required return
for the tax involved, that is, a sales tax return. (Butuan Sawmill, Inc. v. CTA, et
al., G.R. No. L-21516, April 29, 1966, 16 SCRA 277). Thus CEPOC should have
filed sales tax returns of its gross sales for the subject periods. Both parties
admit that returns were made for the ad valorem mining tax. CEPOC argues that
said returns contain the information necessary for the assessment of the sales
tax. The Commissioner does not consider such returns as compliance with the
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requirement for the filing of tax returns so as to start the running of the five-year
prescriptive period.
We agree with the Commissioner. It has been held in Butuan Sawmill Inc. v.
CTA, supra, that the filing of an income tax return cannot be considered as
substantial compliance with the requirement of filing sales tax returns, in the
same way that an income tax return cannot be considered as a return for
compensating tax for the purpose of computing the period of prescription under
Sec. 331. (Citing Bisaya Land Transportation Co., Inc. v. Collector of Internal
Revenue, G.R. Nos. L-12100 and L-11812, May 29, 1959). There being no
sales tax returns filed by CEPOC, the statute of stations in Sec. 331 did not
begin to run against the government. The assessment made by the
Commissioner in 1968 on CEPOC's cement sales during the period from July 1,
1959 to December 31, 1960 is not barred by the five-year prescriptive period.
Absent a return or when the return is false or fraudulent, the applicable period is
ten (10) days from the discovery of the fraud, falsity or omission. The question in
this case is: When was CEPOC's omission to file tha return deemed discovered
by the government, so as to start the running of said period? 13
The argument that the assessment cannot as yet be enforced because it is still being contested
loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the
payment of taxes could be postponed by simply questioning their validity, the machinery of the
state would grind to a halt and all government functions would be paralyzed. That is the reason
why, save for the exception already noted, the Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. — No court shall
have authority to grant an injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by this Code.
It goes without saying that this injunction is available not only when the assessment is already
being questioned in a court of justice but more so if, as in the instant case, the challenge to the
assessment is still-and only-on the administrative level. There is all the more reason to apply the
rule here because it appears that even after crediting of the refund against the tax deficiency, a
balance of more than P 4 million is still due from the private respondent.
To require the petitioner to actually refund to the private respondent the amount of the judgment
debt, which he will later have the right to distrain for payment of its sales tax liability is in our view
an Idle ritual. We hold that the respondent Court of Tax Appeals erred in ordering such a charade.
WHEREFORE, the petition is GRANTED. The resolution dated April 22, 1968, in CTA Case No.
786 is SET ASIDE, without any pronouncement as to costs.
SO ORDERED.
2
G.R. No. L-31364 March 30, 1979
MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional
Director, Revenue Region No. 14, Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental,
Branch V, and FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D.
TONGOY respondents.
DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special
Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
dismissing the Motion for Allowance of Claim and for an Order of Payment of Taxes by the
Government of the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for
deficiency income taxes for the years 1963 and 1964 of the decedent in the total amount of
P3,254.80, inclusive 5% surcharge, 1% monthly interest and compromise penalties, and the
second, dated October 7, 1969, denying the Motion for reconsideration of the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June
3, 1969 in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo).
The claim represents the indebtedness to the Government of the late Luis D. Tongoy for
deficiency income taxes in the total sum of P3,254.80 as above stated, covered by Assessment
Notices Nos. 11-50-29-1-11061-21-63 and 11-50-291-1 10875-64, to which motion was attached
Proof of Claim (Annex B, Petition, pp. 21-22, Rollo). The Administrator opposed the motion solely
on the ground that the claim was barred under Section 5, Rule 86 of the Rules of Court (par. 4,
Opposition to Motion for Allowance of Claim, pp. 23-24, Rollo). Finding the opposition well-
founded, the respondent Judge, Jose F. Fernandez, dismissed the motion for allowance of claim
filed by herein petitioner, Regional Director of the Bureau of Internal Revenue, in an order dated
July 29, 1969 (Annex D, Petition, p. 26, Rollo). On September 18, 1969, a motion for
reconsideration was filed, of the order of July 29, 1969, but was denied in an Order dated October
7, 1969.
Hence, this appeal on certiorari, petitioner assigning the following errors:
1. The lower court erred in holding that the claim for taxes by the government
against the estate of Luis D. Tongoy was filed beyond the period provided in
Section 2, Rule 86 of the Rules of Court.
2. The lower court erred in holding that the claim for taxes of the government
was already barred under Section 5, Rule 86 of the Rules of Court.
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which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the
New Rule of Court, bars claim of the government for unpaid taxes, still within the period of
limitation prescribed in Section 331 and 332 of the National Internal Revenue Code.
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion
for Allowance of Claim, etc. of the petitioners reads as follows:
All claims for money against the decedent, arising from contracts, express or
implied, whether the same be due, not due, or contingent, all claims for funeral
expenses and expenses for the last sickness of the decedent, and judgment for
money against the decedent, must be filed within the time limited in they notice;
otherwise they are barred forever, except that they may be set forth as counter
claims in any action that the executor or administrator may bring against the
claimants. Where the executor or administrator commence an action, or
prosecutes an action already commenced by the deceased in his lifetime, the
debtor may set forth may answer the claims he has against the decedents,
instead of presenting them independently to the court has herein provided, and
mutual claims may be set off against each other in such action; and in final
judgment is rendered in favored of the decedent, the amount to determined shall
be considered the true balance against the estate, as though the claim has been
presented directly before the court in the administration proceedings. Claims not
yet due, or contingent may be approved at their present value.
A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different character
from the claims expressly enumerated therein, such as: "all claims for money against the decedent
arising from contract, express or implied, whether the same be due, not due or contingent, all
claim for funeral expenses and expenses for the last sickness of the decedent and judgment for
money against the decedent." Under the familiar rule of statutory construction of expressio unius
est exclusio alterius, the mention of one thing implies the exclusion of another thing not
mentioned. Thus, if a statute enumerates the things upon which it is to operate, everything else
must necessarily, and by implication be excluded from its operation and effect (Crawford, Statutory
Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-
23081, December 30, 1969, it was held that the assessment, collection and recovery of taxes, as
well as the matter of prescription thereof are governed by the provisions of the National Internal
revenue Code, particularly Sections 331 and 332 thereof, and not by other provisions of law. (See
also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue,
G.R. No. L-10681, March 29, 1958). Even without being specifically mentioned, the provisions of
Section 2 of Rule 86 of the Rules of Court may reasonably be presumed to have been also in the
mind of the Court as not affecting the aforecited Section of the National Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes
assessed against the estate of a deceased person ... need not be submitted to the committee on
3
claims in the ordinary course of administration. In the exercise of its control over the administrator,
the court may direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate." The abolition of the Committee on Claims does not alter the basic
ruling laid down giving exception to the claim for taxes from being filed as the other claims
mentioned in the Rule should be filed before the Court. Claims for taxes may be collected even
after the distribution of the decedent's estate among his heirs who shall be liable therefor in
proportion of their share in the inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil.
13).
The reason for the more liberal treatment of claims for taxes against a decedent's estate in the
form of exception from the application of the statute of non-claims, is not hard to find. Taxes are
the lifeblood of the Government and their prompt and certain availability are imperious need.
(Commissioner of Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21
SCRA 105). Upon taxation depends the Government ability to serve the people for whose benefit
taxes are collected. To safeguard such interest, neglect or omission of government officials
entrusted with the collection of taxes should not be allowed to bring harm or detriment to the
people, in the same manner as private persons may be made to suffer individually on account of
his own negligence, the presumption being that they take good care of their personal affairs. This
should not hold true to government officials with respect to matters not of their own personal
concern. This is the philosophy behind the government's exception, as a general rule, from the
operation of the principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79
SCRA 177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks Inc. vs. Court of
Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-
41480, April 30,1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553;
Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines,
Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L-18841, January
27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36
SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L- 23041, July 31, 1969, 28 SCRA
119.) As already shown, taxes may be collected even after the distribution of the estate of the
decedent among his heirs (Government of the Philippines vs. Pamintuan, supra; Pineda vs. CFI of
Tayabas, supra Clara Diluangco Palanca vs. Commissioner of Internal Revenue, G. R. No. L-
16661, January 31, 1962).
Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last
paragraph of Section 315 of the Tax Code payment of income tax shall be a lien in favor of the
Government of the Philippines from the time the assessment was made by the Commissioner of
Internal Revenue until paid with interests, penalties, etc. By virtue of such lien, this court held that
the property of the estate already in the hands of an heir or transferee may be subject to the
payment of the tax due the estate. A fortiori before the inheritance has passed to the heirs, the
unpaid taxes due the decedent may be collected, even without its having been presented under
Section 2 of Rule 86 of the Rules of Court. It may truly be said that until the property of the estate
of the decedent has vested in the heirs, the decedent, represented by his estate, continues as if
he were still alive, subject to the payment of such taxes as would be collectible from the estate
even after his death. Thus in the case above cited, the income taxes sought to be collected were
due from the estate, for the three years 1946, 1947 and 1948 following his death in May, 1945.
TAXReview
Even assuming arguendo that claims for taxes have to be filed within the time prescribed in
Section 2, Rule 86 of the Rules of Court, the claim in question may be filed even after the
expiration of the time originally fixed therein, as may be gleaned from the italicized portion of the
Rule herein cited which reads:
Section 2. Time within which claims shall be filed. - In the notice provided in the
preceding section, the court shall state the time for the filing of claims against
the estate, which shall not be more than twelve (12) nor less than six (6) months
after the date of the first publication of the notice. However, at any time before
an order of distribution is entered, on application of a creditor who has failed to
file his claim within the time previously limited the court may, for cause shown
and on such terms as are equitable, allow such claim to be flied within a time not
exceeding one (1) month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order
of Payment of Taxes) which, though filed after the expiration of the time previously limited but
before an order of the distribution is entered, should have been granted by the respondent court,
in the absence of any valid ground, as none was shown, justifying denial of the motion, specially
considering that it was for allowance Of claim for taxes due from the estate, which in effect
represents a claim of the people at large, the only reason given for the denial that the claim was
filed out of the previously limited period, sustaining thereby private respondents' contention,
erroneously as has been demonstrated.
WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in
the total amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax
Code is a final one and the respondent estate's sole defense of prescription has been herein
overruled, the Motion for Allowance of Claim is herein granted and respondent estate is ordered to
pay and discharge the same, subject only to the limitation of the interest collectible thereon as
provided by the Tax Code. No pronouncement as to costs.
SO ORDERED.
4
G.R. Nos. 89898-99 October 1, 1990
MUNICIPALITY OF MAKATI, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. SALVADOR P. DE GUZMAN, JR., as Judge
RTC of Makati, Branch CXLII ADMIRAL FINANCE CREDITORS CONSORTIUM, INC., and
SHERIFF SILVINO R. PASTRANA, respondents.
Defante & Elegado for petitioner.
Roberto B. Lugue for private respondent Admiral Finance Creditors' Consortium, Inc.
RESOLUTION
CORTÉS, J.:
The present petition for review is an off-shoot of expropriation proceedings initiated by petitioner
Municipality of Makati against private respondent Admiral Finance Creditors Consortium, Inc.,
Home Building System & Realty Corporation and one Arceli P. Jo, involving a parcel of land and
improvements thereon located at Mayapis St., San Antonio Village, Makati and registered in the
name of Arceli P. Jo under TCT No. S-5499.
It appears that the action for eminent domain was filed on May 20, 1986, docketed as Civil Case
No. 13699. Attached to petitioner's complaint was a certification that a bank account (Account No.
S/A 265-537154-3) had been opened with the PNB Buendia Branch under petitioner's name
containing the sum of P417,510.00, made pursuant to the provisions of Pres. Decree No. 42. After
due hearing where the parties presented their respective appraisal reports regarding the value of
the property, respondent RTC judge rendered a decision on June 4, 1987, fixing the appraised
value of the property at P5,291,666.00, and ordering petitioner to pay this amount minus the
advanced payment of P338,160.00 which was earlier released to private respondent.
After this decision became final and executory, private respondent moved for the issuance of a
writ of execution. This motion was granted by respondent RTC judge. After issuance of the writ of
execution, a Notice of Garnishment dated January 14, 1988 was served by respondent sheriff
Silvino R. Pastrana upon the manager of the PNB Buendia Branch. However, respondent sheriff
was informed that a "hold code" was placed on the account of petitioner. As a result of this, private
respondent filed a motion dated January 27, 1988 praying that an order be issued directing the
bank to deliver to respondent sheriff the amount equivalent to the unpaid balance due under the
RTC decision dated June 4, 1987.
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Petitioner filed a motion to lift the garnishment, on the ground that the manner of payment of the
expropriation amount should be done in installments which the respondent RTC judge failed to
state in his decision. Private respondent filed its opposition to the motion.
Pending resolution of the above motions, petitioner filed on July 20, 1988 a "Manifestation"
informing the court that private respondent was no longer the true and lawful owner of the subject
property because a new title over the property had been registered in the name of Philippine
Savings Bank, Inc. (PSB) Respondent RTC judge issued an order requiring PSB to make
available the documents pertaining to its transactions over the subject property, and the PNB
Buendia Branch to reveal the amount in petitioner's account which was garnished by respondent
sheriff. In compliance with this order, PSB filed a manifestation informing the court that it had
consolidated its ownership over the property as mortgagee/purchaser at an extrajudicial
foreclosure sale held on April 20, 1987. After several conferences, PSB and private respondent
entered into a compromise agreement whereby they agreed to divide between themselves the
compensation due from the expropriation proceedings.
Respondent trial judge subsequently issued an order dated September 8, 1988 which: (1)
approved the compromise agreement; (2) ordered PNB Buendia Branch to immediately release to
PSB the sum of P4,953,506.45 which corresponds to the balance of the appraised value of the
subject property under the RTC decision dated June 4, 1987, from the garnished account of
petitioner; and, (3) ordered PSB and private respondent to execute the necessary deed of
conveyance over the subject property in favor of petitioner. Petitioner's motion to lift the
garnishment was denied.
Petitioner filed a motion for reconsideration, which was duly opposed by private respondent. On
the other hand, for failure of the manager of the PNB Buendia Branch to comply with the order
dated September 8, 1988, private respondent filed two succeeding motions to require the bank
manager to show cause why he should not be held in contempt of court. During the hearings
conducted for the above motions, the general manager of the PNB Buendia Branch, a Mr. Antonio
Bautista, informed the court that he was still waiting for proper authorization from the PNB head
office enabling him to make a disbursement for the amount so ordered. For its part, petitioner
contended that its funds at the PNB Buendia Branch could neither be garnished nor levied upon
execution, for to do so would result in the disbursement of public funds without the proper
appropriation required under the law, citing the case of Republic of the Philippines v. Palacio [G.R.
No. L-20322, May 29, 1968, 23 SCRA 899].
Respondent trial judge issued an order dated December 21, 1988 denying petitioner's motion for
reconsideration on the ground that the doctrine enunciated in Republic v. Palacio did not apply to
the case because petitioner's PNB Account No. S/A 265-537154-3 was an account specifically
opened for the expropriation proceedings of the subject property pursuant to Pres. Decree No. 42.
Respondent RTC judge likewise declared Mr. Antonio Bautista guilty of contempt of court for his
inexcusable refusal to obey the order dated September 8, 1988, and thus ordered his arrest and
detention until his compliance with the said order.
5
Petitioner and the bank manager of PNB Buendia Branch then filed separate petitions
for certiorari with the Court of Appeals, which were eventually consolidated. In a decision
promulgated on June 28, 1989, the Court of Appeals dismissed both petitions for lack of merit,
sustained the jurisdiction of respondent RTC judge over the funds contained in petitioner's PNB
Account No. 265-537154-3, and affirmed his authority to levy on such funds.
Its motion for reconsideration having been denied by the Court of Appeals, petitioner now files the
present petition for review with prayer for preliminary injunction.
On November 20, 1989, the Court resolved to issue a temporary restraining order enjoining
respondent RTC judge, respondent sheriff, and their representatives, from enforcing and/or
carrying out the RTC order dated December 21, 1988 and the writ of garnishment issued pursuant
thereto. Private respondent then filed its comment to the petition, while petitioner filed its reply.
Petitioner not only reiterates the arguments adduced in its petition before the Court of Appeals, but
also alleges for the first time that it has actually two accounts with the PNB Buendia Branch, to wit:
xxx xxx xxx
(1) Account No. S/A 265-537154-3 — exclusively for the expropriation of the
subject property, with an outstanding balance of P99,743.94.
(2) Account No. S/A 263-530850-7 — for statutory obligations and other
purposes of the municipal government, with a balance of P170,098,421.72, as
of July 12, 1989.
xxx xxx xxx
[Petition, pp. 6-7; Rollo, pp. 11-12.]
Because the petitioner has belatedly alleged only in this Court the existence of two bank accounts,
it may fairly be asked whether the second account was opened only for the purpose of
undermining the legal basis of the assailed orders of respondent RTC judge and the decision of
the Court of Appeals, and strengthening its reliance on the doctrine that public funds are exempted
from garnishment or execution as enunciated in Republic v. Palacio [supra.] At any rate, the Court
will give petitioner the benefit of the doubt, and proceed to resolve the principal issues presented
based on the factual circumstances thus alleged by petitioner.
Admitting that its PNB Account No. S/A 265-537154-3 was specifically opened for expropriation
proceedings it had initiated over the subject property, petitioner poses no objection to the
garnishment or the levy under execution of the funds deposited therein amounting to P99,743.94.
However, it is petitioner's main contention that inasmuch as the assailed orders of respondent
RTC judge involved the net amount of P4,965,506.45, the funds garnished by respondent sheriff in
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excess of P99,743.94, which are public funds earmarked for the municipal government's other
statutory obligations, are exempted from execution without the proper appropriation required under
the law.
There is merit in this contention. The funds deposited in the second PNB Account No. S/A 263-
530850-7 are public funds of the municipal government. In this jurisdiction, well-settled is the rule
that public funds are not subject to levy and execution, unless otherwise provided for by statute
[Republic v. Palacio, supra.; The Commissioner of Public Highways v. San Diego, G.R. No. L-
30098, February 18, 1970, 31 SCRA 616]. More particularly, the properties of a municipality,
whether real or personal, which are necessary for public use cannot be attached and sold at
execution sale to satisfy a money judgment against the municipality. Municipal revenues derived
from taxes, licenses and market fees, and which are intended primarily and exclusively for the
purpose of financing the governmental activities and functions of the municipality, are exempt from
execution [See Viuda De Tan Toco v. The Municipal Council of Iloilo, 49 Phil. 52 (1926): The
Municipality of Paoay, Ilocos Norte v. Manaois, 86 Phil. 629 (1950); Municipality of San Miguel,
Bulacan v. Fernandez, G.R. No. 61744, June 25, 1984, 130 SCRA 56]. The foregoing rule finds
application in the case at bar. Absent a showing that the municipal council of Makati has passed
an ordinance appropriating from its public funds an amount corresponding to the balance due
under the RTC decision dated June 4, 1987, less the sum of P99,743.94 deposited in Account No.
S/A 265-537154-3, no levy under execution may be validly effected on the public funds of
petitioner deposited in Account No. S/A 263-530850-7.
Nevertheless, this is not to say that private respondent and PSB are left with no legal recourse.
Where a municipality fails or refuses, without justifiable reason, to effect payment of a final money
judgment rendered against it, the claimant may avail of the remedy of mandamus in order to
compel the enactment and approval of the necessary appropriation ordinance, and the
corresponding disbursement of municipal funds therefor [See Viuda De Tan Toco v. The Municipal
Council of Iloilo, supra; Baldivia v. Lota, 107 Phil. 1099 (1960); Yuviengco v. Gonzales, 108 Phil.
247 (1960)].
In the case at bar, the validity of the RTC decision dated June 4, 1987 is not disputed by
petitioner. No appeal was taken therefrom. For three years now, petitioner has enjoyed
possession and use of the subject property notwithstanding its inexcusable failure to comply with
its legal obligation to pay just compensation. Petitioner has benefited from its possession of the
property since the same has been the site of Makati West High School since the school year
1986-1987. This Court will not condone petitioner's blatant refusal to settle its legal obligation
arising from expropriation proceedings it had in fact initiated. It cannot be over-emphasized that,
within the context of the State's inherent power of eminent domain,
. . . [j]ust compensation means not only the correct determination of the amount
to be paid to the owner of the land but also the payment of the land within a
reasonable time from its taking. Without prompt payment, compensation cannot
be considered "just" for the property owner is made to suffer the consequence of
being immediately deprived of his land while being made to wait for a decade or
more before actually receiving the amount necessary to cope with his loss
[Cosculluela v. The Honorable Court of Appeals, G.R. No. 77765, August 15,
6
 1988, 164 SCRA 393, 400. See also Provincial Government of Sorsogon v. Vda.
de Villaroya, G.R. No. 64037, August 27, 1987, 153 SCRA 291].

The State's power of eminent domain should be exercised within the bounds of fair play and
justice. In the case at bar, considering that valuable property has been taken, the compensation to
be paid fixed and the municipality is in full possession and utilizing the property for public purpose,
for three (3) years, the Court finds that the municipality has had more than reasonable time to pay
full compensation.

WHEREFORE, the Court Resolved to ORDER petitioner Municipality of Makati to immediately pay
Philippine Savings Bank, Inc. and private respondent the amount of P4,953,506.45. Petitioner is
hereby required to submit to this Court a report of its compliance with the foregoing order within a
non-extendible period of SIXTY (60) DAYS from the date of receipt of this resolution.

The order of respondent RTC judge dated December 21, 1988, which was rendered in Civil Case
No. 13699, is SET ASIDE and the temporary restraining order issued by the Court on November
20, 1989 is MADE PERMANENT.

SO ORDERED.

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G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA,
Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy
Commissioner, Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget,
FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A. VIRATA,
Minister of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on
the validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional
infirmity. The assailed provision further amends Section 21 of the National Internal Revenue Code
of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation
income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank
deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and
similar arrangements, (e) dividends and share of individual partner in the net profits of taxable
partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he
would be unduly discriminated against by the imposition of higher rates of tax upon his income
arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or
salaried individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class
legislation, oppressive and capricious in character 5 For petitioner, therefore, there is a
transgression of both the equal protection and due process clauses 6 of the Constitution as well as
of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10
days from notice. Such an answer, after two extensions were granted the Office of the Solicitor
General, was filed on May 28, 1982. 8 The facts as alleged were admitted but not the allegations
which to their mind are "mere arguments, opinions or conclusions on the part of the petitioner, the
truth [for them] being those stated [in their] Special and Affirmative Defenses." 9 The answer then
affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities
and cases cited while correctly quoted or paraghraph do not support petitioner's stand." 10 The
prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
TAXReview
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was
so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to
private enterprise and initiative and which the government was called upon to enter optionally, and
only 'because it was better equipped to administer for the public welfare than is any private
individual or group of individuals,' continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign capacity if it is to
meet the increasing social challenges of the times." 11 Hence the need for more revenues. The
power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state
functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being
the lifeblood of the government, their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is
the strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its
plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets forth
such limits . Adversely affecting as it does properly rights, both the due process and equal
protection clauses inay properly be invoked, all petitioner does, to invalidate in appropriate cases a
revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief Justice
Marshall that "the power to tax involves the power to destroy." 14 In a separate opinion in Graves
v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized
it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use
of absolutes." 16 This is merely to emphasize that it is riot and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun
from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The
power to tax is not the power to destroy while this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any
legislative or executive, act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision — as petitioner here alleges — fails to abide
by its command, then this Court must so declare and adjudge it null. The injury thus is centered on
the question of whether the imposition of a higher tax rate on taxable net income derived from
business or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation,
as here. does not suffice. There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as void or its face, he has not
made out a case. This is merely to adhere to the authoritative doctrine that were the due process
and equal protection clauses are invoked, considering that they arc not fixed rules but rather broad
standards, there is a need for of such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so
arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown
to amount to the confiscation of property. That would be a clear abuse of power. It then becomes
the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not
conferred. That properly calls for the application of the Holmes dictum. It has also been held that
where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public
8
purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on
due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of
this constitutional mandate whether the assailed act is in the exercise of the lice power or the
power of eminent domain is to demonstrated that the governmental act assailed, far from being
inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the
very least, discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different, both in the privileges conferred and
the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is
that equal protection and security shall be given to every person under circumtances which if not
Identical are analogous. If law be looked upon in terms of burden or charges, those that fall within
a class should be treated in the same fashion, whatever restrictions cast on some in the group
equally binding on the rest." 20 That same formulation applies as well to taxation measures. The
equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of
the laws benefits being available to all and the affairs of men being governed by that serene and
impartial uniformity, which is of the very essence of the Idea of law. There is, however, wisdom, as
well as realism in these words of Justice Frankfurter: "The equality at which the 'equal protection'
clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal
protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units
A, B and C, but are expressions of policy arising out of specific difficulties, address to the
attainment of specific ends by the use of specific remedies. The Constitution does not require
things which are different in fact or opinion to be treated in law as though they were the
same." 21 Hence the constant reiteration of the view that classification if rational in character is
allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice
J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be
free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which
result from a singling out of one particular class for taxation, or exemption infringe no constitutional
limitation.'" 23
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration
the distinction between a tax rate and a tax base. There is no legal objection to a broader tax base
or taxable income by eliminating all deductible items and at the same time reducing the applicable
tax rate. Taxpayers may be classified into different categories. To repeat, it. is enough that the
classification must rest upon substantial distinctions that make real differences. In the case of the
gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of
classification is the susceptibility of the income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be
applied to all of them. Taxpayers who are recipients of compensation income are set apart as a
class. As there is practically no overhead expense, these taxpayers are e not entitled to make
deductions for income tax purposes because they are in the same situation more or less. On the
other hand, in the case of professionals in the practice of their calling and businessmen, there is
no uniformity in the costs or expenses necessary to produce their income. It would not be just then
to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all
alike the same tax rates on the basis of gross income. There is ample justification then for the
Batasang Pambansa to adopt the gross system of income taxation to compensation income, while
continuing the system of net income taxation as regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack
of factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of
controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the
reasonableness of the distinction between compensation and taxable net income of professionals
and businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.

7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The
rule of taxation shag be uniform and equitable." 24 This requirement is met according to Justice
Laurel in Philippine Trust Company v. Yatco,25 decided in 1940, when the tax "operates with the
same force and effect in every place where the subject may be found. " 26 He likewise added: "The
rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly
attainable." 27 The problem of classification did not present itself in that case. It did not arise until
nine years later, when the Supreme Court held: "Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for purposes of taxation, ...
. 28 As clarified by Justice Tuason, where "the differentiation" complained of "conforms to the
practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause
and is therefore uniform." 29 There is quite a similarity then to the standard of equal protection for
all that is required is that the tax "applies equally to all persons, firms and corporations placed in
similar situation."30

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G.R. No. L-10405 December 29, 1960
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-
appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-
appellees.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.
CONCEPCION, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued,
without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this
action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled
"An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section
1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair,
extension and improvement" of Pasig feeder road terminals (Gen. Roxas — Gen. Araneta — Gen.
Lucban — Gen. Capinpin — Gen. Segundo — Gen. Delgado — Gen. Malvar — Gen. Lim)"; that,
at the time of the passage and approval of said Act, the aforementioned feeder roads were
"nothing but projected and planned subdivision roads, not yet constructed, . . . within the Antonio
Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as
Annexes A and B, near Shaw Boulevard, not far away from the intersection between the latter and
Highway 54), which projected feeder roads "do not connect any government property or any
important premises to the main highway"; that the aforementioned Antonio Subdivision (as well as
the lands on which said feeder roads were to be construed) were private properties of respondent
Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a member of the
Senate of the Philippines; that on May, 1953, respondent Zulueta, addressed a letter to the
Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the municipality
of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the
condition "that the donor would submit a plan of the said roads and agree to change the names of
two of them"; that no deed of donation in favor of the municipality of Pasig was, however,
executed; that on July 10, 1953, respondent Zulueta wrote another letter to said council, calling
attention to the approval of Republic Act. No. 920, and the sum of P85,000.00 appropriated therein
for the construction of the projected feeder roads in question; that the municipal council of Pasig
endorsed said letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present
"has not made any endorsement thereon" that inasmuch as the projected feeder roads in question
were private property at the time of the passage and approval of Republic Act No. 920, the
appropriation of P85,000.00 therein made, for the construction, reconstruction, repair, extension
and improvement of said projected feeder roads, was illegal and, therefore, void ab initio"; that
said appropriation of P85,000.00 was made by Congress because its members were made to
believe that the projected feeder roads in question were "public roads and not private streets of a
private subdivision"'; that, "in order to give a semblance of legality, when there is absolutely none,
to the aforementioned appropriation", respondents Zulueta executed on December 12, 1953, while
he was a member of the Senate of the Philippines, an alleged deed of donation — copy of which is
annexed to the petition — of the four (4) parcels of land constituting said projected feeder roads, in
favor of the Government of the Republic of the Philippines; that said alleged deed of donation was,
on the same date, accepted by the then Executive Secretary; that being subject to an onerous
condition, said donation partook of the nature of a contract; that, such, said donation violated the
provision of our fundamental law prohibiting members of Congress from being directly or indirectly
financially interested in any contract with the Government, and, hence, is unconstitutional, as well
as null and void ab initio, for the construction of the projected feeder roads in question with public
funds would greatly enhance or increase the value of the aforementioned subdivision of
respondent Zulueta, "aside from relieving him from the burden of constructing his subdivision
streets or roads at his own expense"; that the construction of said projected feeder roads was then
being undertaken by the Bureau of Public Highways; and that, unless restrained by the court, the
respondents would continue to execute, comply with, follow and implement the aforementioned
illegal provision of law, "to the irreparable damage, detriment and prejudice not only to the
petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and
void; that the alleged deed of donation of the feeder roads in question be "declared
unconstitutional and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of
Public Works and Communications, the Director of the Bureau of Public Works and Highways and
Jose C. Zulueta from ordering or allowing the continuance of the above-mentioned feeder roads
project, and from making and securing any new and further releases on the aforementioned item
of Republic Act No. 920, and the disbursing officers of the Department of Public Works and
Highways from making any further payments out of said funds provided for in Republic Act No.
920; and that pending final hearing on the merits, a writ of preliminary injunction be issued
enjoining the aforementioned parties respondent from making and securing any new and further
releases on the aforesaid item of Republic Act No. 920 and from making any further payments out
of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity
to sue", and that the petition did "not state a cause of action". In support to this motion, respondent
Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the
Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said
respondent is " not aware of any law which makes illegal the appropriation of public funds for the
improvements of . . . private property"; and that, the constitutional provision invoked by petitioner is
inapplicable to the donation in question, the same being a pure act of liberality, not a contract. The
other respondents, in turn, maintained that petitioner could not assail the appropriation in question
because "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is
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10
necessarily involved" and petitioner "has not shown that he has a personal and substantial
interest" in said Act "and that its enforcement has caused or will cause him a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated
October 29, 1953, holding that, since public interest is involved in this case, the Provincial
Governor of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite
personalities" to question the constitutionality of the disputed item of Republic Act No. 920; that
"the legislature is without power appropriate public revenues for anything but a public purpose",
that the instructions and improvement of the feeder roads in question, if such roads where private
property, would not be a public purpose; that, being subject to the following condition:
The within donation is hereby made upon the condition that the Government of the
Republic of the Philippines will use the parcels of land hereby donated for street
purposes only and for no other purposes whatsoever; it being expressly understood that
should the Government of the Republic of the Philippines violate the condition hereby
imposed upon it, the title to the land hereby donated shall, upon such violation, ipso facto
revert to the DONOR, JOSE C. ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is
"absolutely forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil
Code of the Philippines, declares in existence and void from the very beginning contracts "whose
cause, objector purpose is contrary to law, morals . . . or public policy"; that the legality of said
donation may not be contested, however, by petitioner herein, because his "interest are not
directly affected" thereby; and that, accordingly, the appropriation in question "should be upheld"
and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the
aforementioned motions to dismiss, which as much, are deemed to have admitted hypothetically
the allegations of fact made in the petition of appellant herein. According to said petition,
respondent Zulueta is the owner of several parcels of residential land situated in Pasig, Rizal, and
known as the Antonio Subdivision, certain portions of which had been reserved for the projected
feeder roads aforementioned, which, admittedly, were private property of said respondent when
Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair,
extension and improvement" of said roads, was passed by Congress, as well as when it was
approved by the President on June 20, 1953. The petition further alleges that the construction of
said roads, to be undertaken with the aforementioned appropriation of P85,000.00, would have the
effect of relieving respondent Zulueta of the burden of constructing his subdivision streets or roads
at his own expenses, 1and would "greatly enhance or increase the value of the subdivision" of said
respondent. The lower court held that under these circumstances, the appropriation in question
was "clearly for a private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However,
respondent Zulueta contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal because
Congress is the source of all laws . . . Aside from the fact that movant is not aware of any
law which makes illegal the appropriation of public funds for the improvement of what we,
in the meantime, may assume as private property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature of
the Government established under the Constitution of the Republic of the Philippines and the
system of checks and balances underlying our political structure. Moreover, it is refuted by the
decisions of this Court invalidating legislative enactments deemed violative of the Constitution or
organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose, the principle
according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. . . . It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of
the interest to be affected nor the degree to which the general advantage of the
community, and thus the public welfare, may be ultimately benefited by their
promotion. Incidental to the public or to the state, which results from the promotion of
private interest and the prosperity of private enterprises or business, does not justify their
aid by the use public money. (25 R.L.C. pp. 398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes
only, discussed supra sec. 14, money raised by taxation can be expended only for public
purposes and not for the advantage of private individuals. (85 C.J.S. pp. 645-646;
emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may
be used only for public purpose. The right of the legislature to appropriate funds is
correlative with its right to tax, and, under constitutional provisions against taxation
except for public purposes and prohibiting the collection of a tax for one purpose and the
devotion thereof to another purpose, no appropriation of state funds can be made for
other than for a public purpose.
xxx xxx xxx
The test of the constitutionality of a statute requiring the use of public funds is whether
the statute is designed to promote the public interest, as opposed to the furtherance of
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11
 the advantage of individuals, although each advantage to individuals
might incidentally serve the public. (81 C.J.S. pp. 1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being
patently sound, are a necessary corollary to our democratic system of government, which, as
such, exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the
established jurisprudence in the United States, after whose constitutional system ours has been
patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional
law.lawphil.net
This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon
the ground that petitioner may not contest the legality of the donation above referred to because
the same does not affect him directly. This conclusion is, presumably, based upon the following
premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of the
aforementioned appropriation; (2) that the latter may not be annulled without a previous
declaration of unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421
of the Civil Code is absolute, and admits of no exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter
consists of an amendment of the organic law, removing, with retrospective operation, the
constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for the
projected feeder roads in question, the legality thereof depended upon whether said roads were
public or private property when the bill, which, latter on, became Republic Act 920, was passed by
Congress, or, when said bill was approved by the President and the disbursement of said sum
became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on
which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the
result is that said appropriation sought a private purpose, and hence, was null and void. 4 The
donation to the Government, over five (5) months after the approval and effectivity of said Act,
made, according to the petition, for the purpose of giving a "semblance of legality", or legalizing,
the appropriation in question, did not cure its aforementioned basic defect. Consequently, a
judicial nullification of said donation need not precede the declaration of unconstitutionality of said
appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to
exceptions. For instance, the creditors of a party to an illegal contract may, under the conditions
set forth in Article 1177 of said Code, exercise the rights and actions of the latter, except only
those which are inherent in his person, including therefore, his right to the annulment of said
contract, even though such creditors are not affected by the same, except indirectly, in the manner
indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a
direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the
instance of taxpayers, laws providing for the disbursement of public funds, 5upon the theory that
"the expenditure of public funds by an officer of the State for the purpose of administering
an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the
request of a taxpayer. 6Although there are some decisions to the contrary, 7the prevailing view in
the United States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite standing to
attack the constitutionality of a statute, the general rule is that not only persons
individually affected, but also taxpayers, have sufficient interest in preventing the illegal
expenditure of moneys raised by taxation and may therefore question the constitutionality
of statutes requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon
(262 U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a
taxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a municipal
corporation to its government. Indeed, under the composite system of government existing in the
U.S., the states of the Union are integral part of the Federation from an international viewpoint,
but, each state enjoys internally a substantial measure of sovereignty, subject to the limitations
imposed by the Federal Constitution. In fact, the same was made by representatives of each
state of the Union, not of the people of the U.S., except insofar as the former represented the
people of the respective States, and the people of each State has, independently of that of the
others, ratified said Constitution. In other words, the Federal Constitution and the Federal statutes
have become binding upon the people of the U.S. in consequence of an act of, and, in this
sense, through the respective states of the Union of which they are citizens. The peculiar nature of
the relation between said people and the Federal Government of the U.S. is reflected in the
election of its President, who is chosen directly, not by the people of the U.S., but by electors
chosen by each State, in such manner as the legislature thereof may direct (Article II, section 2, of
the Federal Constitution).lawphi1.net
The relation between the people of the Philippines and its taxpayers, on the other hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people and
taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that
existing between the people and taxpayers of each state and the government thereof, except that
the authority of the Republic of the Philippines over the people of the Philippines is more fully
direct than that of the states of the Union, insofar as the simple and unitary type of our national
government is not subject to limitations analogous to those imposed by the Federal Constitution
upon the states of the Union, and those imposed upon the Federal Government in the interest of
the Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality
of a legislation appropriating local or state public funds — which has been upheld by the Federal
Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) — has greater application in the
Philippines than that adopted with respect to acts of Congress of the United States appropriating
federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land
by the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of
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contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in
Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the
Government was not permitted to question the constitutionality of an appropriation for backpay of
members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and
Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action
of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the
same. Moreover, the reason that impelled this Court to take such position in said two (2) cases —
the importance of the issues therein raised — is present in the case at bar. Again, like the
petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The
Province of Rizal, which he represents officially as its Provincial Governor, is our most populated
political subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of
taxation, in the Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify
petitioners action in contesting the appropriation and donation in question; that this action should
not have been dismissed by the lower court; and that the writ of preliminary injunction should have
been maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the
lower court for further proceedings not inconsistent with this decision, with the costs of this
instance against respondent Jose C. Zulueta. It is so ordered.
Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David,
Paredes, and Dizon, JJ., concur.
G.R. No. L-7859 December 22, 1955
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio
Jayme Ledesma, plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E.
Torres and Solicitor Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the
taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due
to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in
the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States
market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits
derived from the sugar industry by the component elements thereof" and "to stabilize the sugar
industry so as to prepare it for the eventuality of the loss of its preferential position in the United
States market and the imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the
manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3
levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded
to others for a consideration, on lease or otherwise —
a tax equivalent to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed value of such land.
According to section 6 of the law —
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be
paid out only for any or all of the following purposes or to attain any or all of the following
objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of
the preferntial position of the Philippine sugar in the United States market, and ultimately
to insure its continued existence notwithstanding the loss of that market and the
consequent necessity of meeting competition in the free markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the component
elements thereof — the mill, the landowner, the planter of the sugar cane, and the
laborers in the factory and in the field — so that all might continue profitably to engage
therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the production
thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their living
and working conditions: Provided, That the President of the Philippines may, until the
adjourment of the next regular session of the National Assembly, make the necessary
disbursements from the fund herein created (1) for the establishment and operation of
sugar experiment station or stations and the undertaking of researchers (a) to increase
the recoveries of the centrifugal sugar factories with the view of reducing manufacturing
costs, (b) to produce and propagate higher yielding varieties of sugar cane more
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 adaptable to different district conditions in the Philippines, (c) to lower the costs of raising
sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for
motor fuel, (e) to determine the possibility of utilizing the other by-products of the
industry, (f) to determine what crop or crops are suitable for rotation and for the utilization
of excess cane lands, and (g) on other problems the solution of which would help
rehabilitate and stabilize the industry, and (2) for the improvement of living and working
conditions in sugar mills and sugar plantations, authorizing him to organize the necessary
agency or agencies to take charge of the expenditure and allocation of said funds to carry
out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement
from the fund herein created of the necessary amount or amounts needed for salaries,
wages, travelling expenses, equipment, and other sundry expenses of said agency or
agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40
paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-
1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of the
sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may
be constitutioally levied. The action having been dismissed by the Court of First Instance, the
plaintifs appealed the case directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry.
In other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of
our nation, sugar occupying a leading position among its export products; that it gives employment
to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one
of the important sources of foreign exchange needed by our government, and is thus pivotal in the
plans of a regime committed to a policy of currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general welfare. Hence it was competent for the
legislature to find that the general welfare demanded that the sugar industry should be stabilized in
turn; and in the wide field of its police power, the lawmaking body could provide that the
distribution of benefits therefrom be readjusted among its components to enable it to resist the
added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L.
Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103
Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida —
The protection of a large industry constituting one of the great sources of the state's
wealth and therefore directly or indirectly affecting the welfare of so great a portion of the
population of the State is affected to such an extent by public interests as to be within the
police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter
of public concern, it follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must
be allowed fully play, subject only to the test of reasonableness; and it is not contended that the
means provided in section 6 of the law (above quoted) bear no relation to the objective pursued or
are oppressive in character. If objective and methods are alike constitutionally valid, no reason is
seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation
may be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean,
301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs.
Maryland, 4 Wheat. 316, 4 L. Ed. 579).
That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power
to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that
"inequalities which result from a singling out of one particular class for taxation, or exemption
infringe no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81
L. Ed. 1245, citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the
Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry,
since it is that very enterprise that is being protected. It may be that other industries are also in
need of similar protection; that the legislature is not required by the Constitution to adhere to a
policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84
L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown
because there are other instances to which it might have been applied;" and that "the legislative
authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R. B.
vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of
tax money to experimental stations to seek increase of efficiency in sugar production, utilization of
by-products and solution of allied problems, as well as to the improvements of living and working
conditions in sugar mills or plantations, without any part of such money being channeled directly to
private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs.
Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So ordered.
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G.R. No. 137377 December 18, 2001 Less: Cost and expenses (50%) 483,634,905.57
Net undeclared income 483,634,905.57
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. Income tax due thereon 169,272,217.00
MARUBENI CORPORATION, respondent. Add: 50% surcharge 84,636,108.50
20% int. p.a.fr. 7-15-85 to 8-15-86 36,675,646.90
PUNO, J.:
TOTAL AMOUNT DUE P290,583,972.40
In this petition for review, the Commissioner of Internal Revenue assails the decision dated II. DEFICIENCY BRANCH PROFIT REMITTANCE TAX
January 15, 1999 of the Court of Appeals in CA-G.R. SP No. 42518 which affirmed the decision FY ended March 31, 1985
dated July 29, 1996 of the Court of Tax Appeals in CTA Case No. 4109. The tax court ordered the
Commissioner of Internal Revenue to desist from collecting the 1985 deficiency income, branch Undeclared gross income from Philphos and NDC
profit remittance and contractor's taxes from Marubeni Corporation after finding the latter to have construction projects P483,634,905.57
properly availed of the tax amnesty under Executive Orders Nos. 41 and 64, as amended. Less: Income tax thereon 169,272,217.00
Amount subject to Tax 314,362,688.57
Respondent Marubeni Corporation is a foreign corporation organized and existing under the laws
of Japan. It is engaged in general import and export trading, financing and the construction Tax due thereon 47,154,403.00
business. It is duly registered to engage in such business in the Philippines and maintains a Add: 50% surcharge 23,577,201.50
branch office in Manila.
20% int. p.a.fr. 4-26-85 to 8-15-86 12,305,360.66
TOTAL AMOUNT DUE P83,036,965.16
Sometime in November 1985, petitioner Commissioner of Internal Revenue issued a letter of
authority to examine the books of accounts of the Manila branch office of respondent corporation III. DEFICIENCY CONTRACTOR'S TAX
for the fiscal year ending March 1985. In the course of the examination, petitioner found FY ended March 31, 1985
respondent to have undeclared income from two (2) contracts in the Philippines, both of which
were completed in 1984. One of the contracts was with the National Development Company Undeclared gross receipts/gross income from
(NDC) in connection with the construction and installation of a wharf/port complex at the Leyte Philphos and NDC construction projects P967,269,811.14
Industrial Development Estate in the municipality of Isabel, province of Leyte. The other contract Contractor's tax due thereon (4%) 38,690,792.00
was with the Philippine Phosphate Fertilizer Corporation (Philphos) for the construction of an
ammonia storage complex also at the Leyte Industrial Development Estate. Add: 50% surcharge for non-declaration 19,345,396.00
20% surcharge for late payment 9,672,698.00
On March 1, 1986, petitioner's revenue examiners recommended an assessment for deficiency Sub-total 67,708,886.00
income, branch profit remittance, contractor's and commercial broker's taxes. Respondent
questioned this assessment in a letter dated June 5, 1986. Add: 20% int. p.a.fr. 4-21-85 to 8-15-86 17,854,739.46
TOTAL AMOUNT DUE P85,563,625.46
On August 27, 1986, respondent corporation received a letter dated August 15, 1986 from IV. DEFICIENCY COMMERCIAL BROKER'S TAX
petitioner assessing respondent several deficiency taxes. The assessed deficiency internal
revenue taxes, inclusive of surcharge and interest, were as follows: FY ended March 31, 1985
Undeclared share from commission income
(denominated as "subsidy from Home Office") P24,683,114.50
I. DEFICIENCY INCOME TAX
Tax due thereon 1,628,569.00
FY ended March 31, 1985
Add: 50% surcharge for non-declaration 814,284.50
Undeclared gross income (Philphos and NDC
construction projects) P967,269,811.14 20% surcharge for late payment 407,142.25
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 Sub-total 2,849,995.75
Add: 20% int. p.a.fr. 4-21-85 to 8-15-86 751,539.98
TOTAL AMOUNT DUE P3,600,535.68
The 50% surcharge was imposed for your client's failure to report for tax purposes the aforesaid
taxable revenues while the 25% surcharge was imposed because of your client's failure to pay on
time the above deficiency percentage taxes.
xxx xxx xxx"1
Petitioner found that the NDC and Philphos contracts were made on a "turn-key" basis and that
the gross income from the two projects amounted to P967,269,811.14. Each contract was for a
piece of work and since the projects called for the construction and installation of facilities in the
Philippines, the entire income therefrom constituted income from Philippine sources, hence,
subject to internal revenue taxes. The assessment letter further stated that the same was
petitioner's final decision and that if respondent disagreed with it, respondent may file an appeal
with the Court of Tax Appeals within thirty (30) days from receipt of the assessment.
On September 26, 1986, respondent filed two (2) petitions for review with the Court of Tax
Appeals. The first petition, CTA Case No. 4109, questioned the deficiency income, branch profit
remittance and contractor's tax assessments in petitioner's assessment letter. The second, CTA
Case No. 4110, questioned the deficiency commercial broker's assessment in the same letter.
Earlier, on August 2, 1986, Executive Order (E.O.) No. 41 2 declaring a one-time amnesty covering
unpaid income taxes for the years 1981 to 1985 was issued. Under this E.O., a taxpayer who
wished to avail of the income tax amnesty should, on or before October 31, 1986: (a) file a sworn
statement declaring his net worth as of December 31, 1985; (b) file a certified true copy of his
statement declaring his net worth as of December 31, 1980 on record with the Bureau of Internal
Revenue (BIR), or if no such record exists, file a statement of said net worth subject to verification
by the BIR; and (c) file a return and pay a tax equivalent to ten per cent (10%) of the increase in
net worth from December 31, 1980 to December 31, 1985.
In accordance with the terms of E.O. No. 41, respondent filed its tax amnesty return dated October
30, 1986 and attached thereto its sworn statement of assets and liabilities and net worth as of
Fiscal Year (FY) 1981 and FY 1986. The return was received by the BIR on November 3, 1986
and respondent paid the amount of P2,891,273.00 equivalent to ten percent (10%) of its net worth
increase between 1981 and 1986.
The period of the amnesty in E.O. No. 41 was later extended from October 31, 1986 to December
5, 1986 by E.O. No. 54 dated November 4, 1986.
On November 17, 1986, the scope and coverage of E.O. No. 41 was expanded by Executive
Order (E.O.) No. 64. In addition to the income tax amnesty granted by E.O. No. 41 for the years
1981 to 1985, E.O. No. 64 3 included estate and donor's taxes under Title III and the tax on
business under Chapter II, Title V of the National Internal Revenue Code, also covering the years
1981 to 1985. E.O. No. 64 further provided that the immunities and privileges under E.O. No. 41
were extended to the foregoing tax liabilities, and the period within which the taxpayer could avail
of the amnesty was extended to December 15, 1986. Those taxpayers who already filed their
amnesty return under E.O. No. 41, as amended, could avail themselves of the benefits, immunities
and privileges under the new E.O. by filing an amended return and paying an additional 5% on the
increase in net worth to cover business, estate and donor's tax liabilities.
The period of amnesty under E.O. No. 64 was extended to January 31, 1987 by E.O No. 95 dated
December 17, 1986.
On December 15, 1986, respondent filed a supplemental tax amnesty return under the benefit of
E.O. No. 64 and paid a further amount of P1,445,637.00 to the BIR equivalent to five percent (5%)
of the increase of its net worth between 1981 and 1986.
On July 29, 1996, almost ten (10) years after filing of the case, the Court of Tax Appeals rendered
a decision in CTA Case No. 4109. The tax court found that respondent had properly availed of the
tax amnesty under E.O. Nos. 41 and 64 and declared the deficiency taxes subject of said case as
deemed cancelled and withdrawn. The Court of Tax Appeals disposed of as follows:
"WHEREFORE, the respondent Commissioner of Internal Revenue is hereby ORDERED
to DESIST from collecting the 1985 deficiency taxes it had assessed against petitioner
and the same are deemed considered [sic] CANCELLED and WITHDRAWN by reason of
the proper availment by petitioner of the amnesty under Executive Order No. 41, as
amended."4
Petitioner challenged the decision of the tax court by filing CA-G.R. SP No. 42518 with the Court
of Appeals.
On January 15, 1999, the Court of Appeals dismissed the petition and affirmed the decision of the
Court of Tax Appeals. Hence, this recourse.
Before us, petitioner raises the following issues:
"(1) Whether or not the Court of Appeals erred in affirming the Decision of the Court of
Tax Appeals which ruled that herein respondent's deficiency tax liabilities were
extinguished upon respondent's availment of tax amnesty under Executive Orders Nos.
41 and 64.
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 (2) Whether or not respondent is liable to pay the income, branch profit remittance, and
contractor's taxes assessed by petitioner."5
The main controversy in this case lies in the interpretation of the exception to the amnesty
coverage of E.O. Nos. 41 and 64. There are three (3) types of taxes involved herein — income
tax, branch profit remittance tax and contractor's tax. These taxes are covered by the amnesties
granted by E.O. Nos. 41 and 64. Petitioner claims, however, that respondent is disqualified from
availing of the said amnesties because the latter falls under the exception in Section 4 (b) of E.O.
No. 41.
Section 4 of E.O. No. 41 enumerates which taxpayers cannot avail of the amnesty granted
thereunder, viz:
"Sec. 4. Exceptions. — The following taxpayers may not avail themselves of the amnesty
herein granted:
a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14;
b) Those with income tax cases already filed in Court as of the effectivity hereof;
c) Those with criminal cases involving violations of the income tax law already filed in
court as of the effectivity hereof;
d) Those that have withholding tax liabilities under the National Internal Revenue Code,
as amended, insofar as the said liabilities are concerned;
e) Those with tax cases pending investigation by the Bureau of Internal Revenue as of
the effectivity hereof as a result of information furnished under Section 316 of the
National Internal Revenue Code, as amended;
f) Those with pending cases involving unexplained or unlawfully acquired wealth before
the Sandiganbayan;
g) Those liable under Title Seven, Chapter Three (Frauds, Illegal Exactions and
Transactions) and Chapter Four (Malversation of Public Funds and Property) of the
Revised Penal Code, as amended."
Petitioner argues that at the time respondent filed for income tax amnesty on October 30, 1986,
CTA Case No. 4109 had already been filed and was pending; before the Court of Tax Appeals.
Respondent therefore fell under the exception in Section 4 (b) of E.O. No. 41.
Petitioner's claim cannot be sustained. Section 4 (b) of E.O. No. 41 is very clear and
unambiguous. It excepts from income tax amnesty those taxpayers "with income tax cases already
filed in court as of the effectivity hereof." The point of reference is the date of effectivity of E.O. No.
41. The filing of income tax cases in court must have been made before and as of the date
of effectivity of E.O. No. 41. Thus, for a taxpayer not to be disqualified under Section 4 (b) there
must have been no income tax cases filed in court against him when E.O. No. 41 took effect. This
is regardless of when the taxpayer filed for income tax amnesty, provided of course he files it on or
before the deadline for filing.
E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109 questioning the 1985 deficiency
income, branch profit remittance and contractor's tax assessments was filed by respondent with
the Court of Tax Appeals on September 26, 1986. When E.O. No. 41 became effective on August
22, 1986, CTA Case No. 4109 had not yet been filed in court. Respondent corporation did not fall
under the said exception in Section 4 (b), hence, respondent was not disqualified from availing of
the amnesty for income tax under E.O. No. 41.
The same ruling also applies to the deficiency branch profit remittance tax assessment. A branch
profit remittance tax is defined and imposed in Section 24 (b) (2) (ii), Title II, Chapter III of the
National Internal Revenue Code.6 In the tax code, this tax falls under Title II on Income Tax. It is a
tax on income. Respondent therefore did not fall under the exception in Section 4 (b) when it filed
for amnesty of its deficiency branch profit remittance tax assessment.
The difficulty herein is with respect to the contractor's tax assessment and respondent's availment
of the amnesty under E.O. No. 64. E.O. No. 64 expanded the coverage of E.O. No. 41 by including
estate and donor's taxes and tax on business. Estate and donor's taxes fall under Title III of the
Tax Code while business taxes fall under Chapter II, Title V of the same. The contractor's tax is
provided in Section 205, Chapter II, Title V of the Tax Code; it is defined and imposed under the
title on business taxes, and is therefore a tax on business.7
When E.O. No. 64 took effect on November 17, 1986, it did not provide for exceptions to the
coverage of the amnesty for business, estate and donor's taxes. Instead, Section 8 of E.O. No. 64
provided that:
"Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to
or inconsistent with this amendatory Executive Order shall remain in full force and effect."
By virtue of Section 8 as afore-quoted, the provisions of E.O. No. 41 not contrary to or inconsistent
with the amendatory act were reenacted in E.O. No. 64. Thus, Section 4 of E.O. No. 41 on the
exceptions to amnesty coverage also applied to E.O. No. 64. With respect to Section 4 (b) in
particular, this provision excepts from tax amnesty coverage a taxpayer who has "income tax
cases already filed in court as of the effectivity hereof." As to what Executive Order the exception
refers to, respondent argues that because of the words "income" and "hereof," they refer to
Executive Order No. 41.8
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In view of the amendment introduced by E.O. No. 64, Section 4 (b) cannot be construed to refer to
E.O. No. 41 and its date of effectivity. The general rule is that an amendatory act operates
prospectively.9 While an amendment is generally construed as becoming a part of the original act
as if it had always been contained therein, 10 it may not be given a retroactive effect unless it is so
provided expressly or by necessary implication and no vested right or obligations of contract are
thereby impaired.11
There is nothing in E.O. No. 64 that provides that it should retroact to the date of effectivity of E.O.
No. 41, the original issuance. Neither is it necessarily implied from E.O. No. 64 that it or any of its
provisions should apply retroactively. Executive Order No. 64 is a substantive amendment of E.O.
No. 41. It does not merely change provisions in E.O. No. 41. It supplements the original act by
adding other taxes not covered in the first. 12 It has been held that where a statute amending a tax
law is silent as to whether it operates retroactively, the amendment will not be given a retroactive
effect so as to subject to tax past transactions not subject to tax under the original act. 13 In an
amendatory act, every case of doubt must be resolved against its retroactive effect. 14
Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty is a general pardon or
intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty
of evasion or violation of a revenue or tax law. 15 It partakes of an absolute forgiveness or waiver
by the government of its right to collect what is due it and to give tax evaders who wish to relent a
chance to start with a clean slate.16 A tax amnesty, much like a tax exemption, is never favored
nor presumed in law.17 If granted, the terms of the amnesty, like that of a tax exemption, must be
construed strictly against the taxpayer and liberally in favor of the taxing authority. 18For the right of
taxation is inherent in government. The State cannot strip itself of the most essential power of
taxation by doubtful words. He who claims an exemption (or an amnesty) from the common
burden must justify his claim by the clearest grant of organic or state law. It cannot be allowed to
exist upon a vague implication. If a doubt arises as to the intent of the legislature, that doubt must
be resolved in favor of the state.19
In the instant case, the vagueness in Section 4 (b) brought about by E.O. No. 64 should therefore
be construed strictly against the taxpayer. The term "income tax cases" should be read as to refer
to estate and donor's taxes and taxes on business while the word "hereof," to E.O. No. 64. Since
Executive Order No. 64 took effect on November 17, 1986, consequently, insofar as the taxes in
E.O. No. 64 are concerned, the date of effectivity referred to in Section 4 (b) of E.O. No. 41 should
be November 17, 1986.
Respondent filed CTA Case No. 4109 on September 26, 1986. When E.O. No. 64 took effect on
November 17, 1986, CTA Case No. 4109 was already filed and pending in court. By the time
respondent filed its supplementary tax amnesty return on December 15, 1986, respondent already
fell under the exception in Section 4 (b) of E.O. Nos. 41 and 64 and was disqualified from availing
of the business tax amnesty granted therein.
It is respondent's other argument that assuming it did not validly avail of the amnesty under the
two Executive Orders, it is still not liable for the deficiency contractor's tax because the income
from the projects came from the "Offshore Portion" of the contracts. The two contracts were
divided into two parts, i.e., the Onshore Portion and the Offshore Portion. All materials and
equipment in the contract under the "Offshore Portion" were manufactured and completed in
Japan, not in the Philippines, and are therefore not subject to Philippine taxes.
Before going into respondent's arguments, it is necessary to discuss the background of the two
contracts, examine their pertinent provisions and implementation.
The NDC and Philphos are two government corporations. In 1980, the NDC, as the corporate
investment arm of the Philippine Government, established the Philphos to engage in the large-
scale manufacture of phosphatic fertilizer for the local and foreign markets. 20 The Philphos plant
complex which was envisioned to be the largest phosphatic fertilizer operation in Asia, and among
the largest in the world, covered an area of 180 hectares within the 435-hectare Leyte Industrial
Development Estate in the municipality of Isabel, province of Leyte.
In 1982, the NDC opened for public bidding a project to construct and install a modern, reliable,
efficient and integrated wharf/port complex at the Leyte Industrial Development Estate. The
wharf/port complex was intended to be one of the major facilities for the industrial plants at the
Leyte Industrial Development Estate. It was to be specifically adapted to the site for the handling
of phosphate rock, bagged or bulk fertilizer products, liquid materials and other products of
Philphos, the Philippine Associated Smelting and Refining Corporation (Pasar),21and other
industrial plants within the Estate. The bidding was participated in by Marubeni Head Office in
Japan.
Marubeni, Japan pre-qualified and on March 22, 1982, the NDC and respondent entered into an
agreement entitled "Turn-Key Contract for Leyte Industrial Estate Port Development Project
Between National Development Company and Marubeni Corporation." 22 The Port Development
Project would consist of a wharf, berths, causeways, mechanical and liquids unloading and
loading systems, fuel oil depot, utilities systems, storage and service buildings, offsite facilities,
harbor service vessels, navigational aid system, fire-fighting system, area lighting, mobile
equipment, spare parts and other related facilities. 23 The scope of the works under the contract
covered turn-key supply, which included grants of licenses and the transfer of technology and
know-how,24 and:
". . . the design and engineering, supply and delivery, construction, erection and
installation, supervision, direction and control of testing and commissioning of the Wharf-
Port Complex as set forth in Annex I of this Contract, as well as the coordination of tie-ins
at boundaries and schedule of the use of a part or the whole of the Wharf/Port Complex
through the Owner, with the design and construction of other facilities around the site.
The scope of works shall also include any activity, work and supply necessary for,
incidental to or appropriate under present international industrial port practice, for the
timely and successful implementation of the object of this Contract, whether or not
expressly referred to in the abovementioned Annex I." 25
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The contract price for the wharf/port complex was ¥12,790,389,000.00 and P44,327,940.00. In the
contract, the price in Japanese currency was broken down into two portions: (1) the Japanese Yen
Portion I; (2) the Japanese Yen Portion II, while the price in Philippine currency was referred to as
the Philippine Pesos Portion. The Japanese Yen Portions I and II were financed in two (2) ways:
(a) by yen credit loan provided by the Overseas Economic Cooperation Fund (OECF); and (b) by
supplier's credit in favor of Marubeni from the Export-Import Bank of Japan. The OECF is a Fund
under the Ministry of Finance of Japan extended by the Japanese government as assistance to
foreign governments to promote economic development.26 The OECF extended to the Philippine
Government a loan of ¥7,560,000,000.00 for the Leyte Industrial Estate Port Development Project
and authorized the NDC to implement the same.27 The other type of financing is an indirect type
where the supplier, i.e., Marubeni, obtained a loan from the Export-Import Bank of Japan to
advance payment to its sub-contractors.28
Under the financing schemes, the Japanese Yen Portions I and II and the Philippine Pesos Portion
were further broken down and subdivided according to the materials, equipment and services
rendered on the project. The price breakdown and the corresponding materials, equipment and
services were contained in a list attached as Annex III to the contract.29
A few months after execution of the NDC contract, Philphos opened for public bidding a project to
construct and install two ammonia storage tanks in Isabel. Like the NDC contract, it was Marubeni
Head Office in Japan that participated in and won the bidding. Thus, on May 2, 1982, Philphos and
respondent corporation entered into an agreement entitled "Turn-Key Contract for Ammonia
Storage Complex Between Philippine Phosphate Fertilizer Corporation and Marubeni
Corporation."30 The object of the contract was to establish and place in operating condition a
modern, reliable, efficient and integrated ammonia storage complex adapted to the site for the
receipt and storage of liquid anhydrous ammonia 31 and for the delivery of ammonia to an
integrated fertilizer plant adjacent to the storage complex and to vessels at the dock. 32 The storage
complex was to consist of ammonia storage tanks, refrigeration system, ship unloading system,
transfer pumps, ammonia heating system, fire-fighting system, area lighting, spare parts, and
other related facilities.33 The scope of the works required for the completion of the ammonia
storage complex covered the supply, including grants of licenses and transfer of technology and
know-how,34 and:
". . . the design and engineering, supply and delivery, construction, erection and
installation, supervision, direction and control of testing and commissioning of the
Ammonia Storage Complex as set forth in Annex I of this Contract, as well as the
coordination of tie-ins at boundaries and schedule of the use of a part or the whole of the
Ammonia Storage Complex through the Owner with the design and construction of other
facilities at and around the Site. The scope of works shall also include any activity, work
and supply necessary for, incidental to or appropriate under present international
industrial practice, for the timely and successful implementation of the object of this
Contract, whether or not expressly referred to in the abovementioned Annex I."35
The contract price for the project was ¥3,255,751,000.00 and P17,406,000.00. Like the NDC
contract, the price was divided into three portions. The price in Japanese currency was broken
down into the Japanese Yen Portion I and Japanese Yen Portion II while the price in Philippine
currency was classified as the Philippine Pesos Portion. Both Japanese Yen Portions I and II were
financed by supplier's credit from the Export-Import Bank of Japan. The price stated in the three
portions were further broken down into the corresponding materials, equipment and services
required for the project and their individual prices. Like the NDC contract, the breakdown in the
Philphos contract is contained in a list attached to the latter as Annex III. 36
The division of the price into Japanese Yen Portions I and II and the Philippine Pesos Portion
under the two contracts corresponds to the two parts into which the contracts were classified —
the Foreign Offshore Portion and the Philippine Onshore Portion. In both contracts, the Japanese
Yen Portion I corresponds to the Foreign Offshore Portion. 37 Japanese Yen Portion II and the
Philippine Pesos Portion correspond to the Philippine Onshore Portion. 38
Under the Philippine Onshore Portion, respondent does not deny its liability for the contractor's tax
on the income from the two projects. In fact respondent claims, which petitioner has not denied,
that the income it derived from the Onshore Portion of the two projects had been declared for tax
purposes and the taxes thereon already paid to the Philippine government. 39 It is with regard to
the gross receipts from the Foreign Offshore Portion of the two contracts that the liabilities
involved in the assessments subject of this case arose. Petitioner argues that since the two
agreements are turn-key,40 they call for the supply of both materials and services to the client, they
are contracts for a piece of work and are indivisible. The situs of the two projects is in the
Philippines, and the materials provided and services rendered were all done and completed within
the territorial jurisdiction of the Philippines.41 Accordingly, respondent's entire receipts from the
contracts, including its receipts from the Offshore Portion, constitute income from Philippine
sources. The total gross receipts covering both labor and materials should be subjected to
contractor's tax in accordance with the ruling in Commissioner of Internal Revenue v. Engineering
Equipment & Supply Co.42
A contractor's tax is imposed in the National Internal Revenue Code (NIRC) as follows:
"Sec. 205. Contractors, proprietors or operators of dockyards, and others. —A
contractor's tax of four percent of the gross receipts is hereby imposed on proprietors or
operators of the following business establishments and/or persons engaged in the
business of selling or rendering the following services for a fee or compensation:
(a) General engineering, general building and specialty contractors, as defined
in Republic Act No. 4566;
xxx xxx xxx
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 (q) Other independent contractors. The term "independent contractors" includes
persons (juridical or natural) not enumerated above (but not including individuals
subject to the occupation tax under the Local Tax Code) whose activity consists
essentially of the sale of all kinds of services for a fee regardless of whether or
not the performance of the service calls for the exercise or use of the physical or
mental faculties of such contractors or their employees. It does not include
regional or area headquarters established in the Philippines by multinational
corporations, including their alien executives, and which headquarters do not
earn or derive income from the Philippines and which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region.
xxx xxx xxx43
Under the afore-quoted provision, an independent contractor is a person whose activity consists
essentially of the sale of all kinds of services for a fee, regardless of whether or not the
performance of the service calls for the exercise or use of the physical or mental faculties of such
contractors or their employees. The word "contractor" refers to a person who, in the pursuit of
independent business, undertakes to do a specific job or piece of work for other persons, using his
own means and methods without submitting himself to control as to the petty details. 44
A contractor's tax is a tax imposed upon the privilege of engaging in business. 45 It is generally in
the nature of an excise tax on the exercise of a privilege of selling services or labor rather than a
sale on products;46 and is directly collectible from the person exercising the privilege.47 Being an
excise tax, it can be levied by the taxing authority only when the acts, privileges or business are
done or performed within the jurisdiction of said authority. 48 Like property taxes, it cannot be
imposed on an occupation or privilege outside the taxing district.49
In the case at bar, it is undisputed that respondent was an independent contractor under the terms
of the two subject contracts. Respondent, however, argues that the work therein were not all
performed in the Philippines because some of them were completed in Japan in accordance with
the provisions of the contracts.
An examination of Annex III to the two contracts reveals that the materials and equipment to be
made and the works and services to be performed by respondent are indeed classified into two.
The first part, entitled "Breakdown of Japanese Yen Portion I" provides:
"Japanese Yen Portion I of the Contract Price has been subdivided according to discrete
portions of materials and equipment which will be shipped to Leyte as units and lots. This
subdivision of price is to be used by owner to verify invoice for Progress Payments under
Article 19.2.1 of the Contract. The agreed subdivision of Japanese Yen Portion I is as
follows:
xxx xxx xxx50
The subdivision of Japanese Yen Portion I covers materials and equipment while Japanese Yen
Portion II and the Philippine Pesos Portion enumerate other materials and equipment and the
construction and installation work on the project. In other words, the supplies for the project are
listed under Portion I while labor and other supplies are listed under Portion II and the Philippine
Pesos Portion. Mr. Takeshi Hojo, then General Manager of the Industrial Plant Section II of the
Industrial Plant Department of Marubeni Corporation in Japan who supervised the implementation
of the two projects, testified that all the machines and equipment listed under Japanese Yen
Portion I in Annex III were manufactured in Japan.51 The machines and equipment were designed,
engineered and fabricated by Japanese firms sub-contracted by Marubeni from the list of sub-
contractors in the technical appendices to each contract.52 Marubeni sub-contracted a majority of
the equipment and supplies to Kawasaki Steel Corporation which did the design, fabrication,
engineering and manufacture thereof;53 Yashima & Co. Ltd. which manufactured the mobile
equipment; Bridgestone which provided the rubber fenders of the mobile equipment; 54 and B.S.
Japan for the supply of radio equipment. 55 The engineering and design works made by Kawasaki
Steel Corporation included the lay-out of the plant facility and calculation of the design in
accordance with the specifications given by respondent. 56 All sub-contractors and manufacturers
are Japanese corporations and are based in Japan and all engineering and design works were
performed in that country.57
The materials and equipment under Portion I of the NDC Port Project is primarily composed of two
(2) sets of ship unloader and loader; several boats and mobile equipment. 58 The ship unloader
unloads bags or bulk products from the ship to the port while the ship loader loads products from
the port to the ship. The unloader and loader are big steel structures on top of each is a large
crane and a compartment for operation of the crane. Two sets of these equipment were
completely manufactured in Japan according to the specifications of the project. After
manufacture, they were rolled on to a barge and transported to Isabel, Leyte. 59 Upon reaching
Isabel, the unloader and loader were rolled off the barge and pulled to the pier to the spot where
they were installed.60 Their installation simply consisted of bolting them onto the pier.61
Like the ship unloader and loader, the three tugboats and a line boat were completely
manufactured in Japan. The boats sailed to Isabel on their own power. The mobile equipment,
consisting of three to four sets of tractors, cranes and dozers, trailers and forklifts, were also
manufactured and completed in Japan. They were loaded on to a shipping vessel and unloaded at
the Isabel Port. These pieces of equipment were all on wheels and self-propelled. Once unloaded
at the port, they were ready to be driven and perform what they were designed to do. 62
In addition to the foregoing, there are other items listed in Japanese Yen Portion I in Annex III to
the NDC contract. These other items consist of supplies and materials for five (5) berths, two (2)
roads, a causeway, a warehouse, a transit shed, an administration building and a security building.
Most of the materials consist of steel sheets, steel pipes, channels and beams and other steel
structures, navigational and communication as well as electrical equipment. 63
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In connection with the Philphos contract, the major pieces of equipment supplied by respondent
were the ammonia storage tanks and refrigeration units.64 The steel plates for the tank were
manufactured and cut in Japan according to drawings and specifications and then shipped to
Isabel. Once there, respondent's employees put the steel plates together to form the storage tank.
As to the refrigeration units, they were completed and assembled in Japan and thereafter shipped
to Isabel. The units were simply installed there. 65 Annex III to the Philphos contract lists down
under the Japanese Yen Portion I the materials for the ammonia storage tank, incidental
equipment, piping facilities, electrical and instrumental apparatus, foundation material and spare
parts.
All the materials and equipment transported to the Philippines were inspected and tested in Japan
prior to shipment in accordance with the terms of the contracts. 66 The inspection was made by
representatives of respondent corporation, of NDC and Philphos. NDC, in fact, contracted the
services of a private consultancy firm to verify the correctness of the tests on the machines and
equipment67 while Philphos sent a representative to Japan to inspect the storage equipment.68
and manufacture of the materials and equipment under Japanese Yen Portion I were made and
completed in Japan. These services were rendered outside the taxing jurisdiction of the
Philippines and are therefore not subject to contractor's tax.
Contrary to petitioner's claim, the case of Commissioner of Internal Revenue v. Engineering
Equipment & Supply Co73 is not in point. In that case, the Court found that Engineering
Equipment, although an independent contractor, was not engaged in the manufacture of air
conditioning units in the Philippines. Engineering Equipment designed, supplied and installed
centralized air-conditioning systems for clients who contracted its services. Engineering, however,
did not manufacture all the materials for the air-conditioning system. It imported some items for the
system it designed and installed.74 The issues in that case dealt with services performed within the
local taxing jurisdiction. There was no foreign element involved in the supply of materials and
services.
With the foregoing discussion, it is unnecessary to discuss the other issues raised by the parties.

The sub-contractors of the materials and equipment under Japanese Yen Portion I were all paid IN VIEW WHEREOF, the petition is denied. The decision in CA-G.R. SP No. 42518 is affirmed.
by respondent in Japan. In his deposition upon oral examination, Kenjiro Yamakawa, formerly the
Assistant General Manager and Manager of the Steel Plant Marketing Department, Engineering &
Construction Division, Kawasaki Steel Corporation, testified that the equipment and supplies for SO ORDERED.
the two projects provided by Kawasaki under Japanese Yen Portion I were paid by Marubeni in
Japan. Receipts for such payments were duly issued by Kawasaki in Japanese and
English.69 Yashima & Co. Ltd. and B.S. Japan were likewise paid by Marubeni in Japan.70

Between Marubeni and the two Philippine corporations, payments for all materials and equipment
under Japanese Yen Portion I were made to Marubeni by NDC and Philphos also in Japan. The
NDC, through the Philippine National Bank, established letters of credit in favor of respondent
through the Bank of Tokyo. The letters of credit were financed by letters of commitment issued by
the OECF with the Bank of Tokyo. The Bank of Tokyo, upon respondent's submission of pertinent
documents, released the amount in the letters of credit in favor of respondent and credited the
amount therein to respondent's account within the same bank.71

Clearly, the service of "design and engineering, supply and delivery, construction, erection and
installation, supervision, direction and control of testing and commissioning, coordination. . . " 72 of
the two projects involved two taxing jurisdictions. These acts occurred in two countries — Japan
and the Philippines. While the construction and installation work were completed within the
Philippines, the evidence is clear that some pieces of equipment and supplies were completely
designed and engineered in Japan. The two sets of ship unloader and loader, the boats and
mobile equipment for the NDC project and the ammonia storage tanks and refrigeration units were
made and completed in Japan. They were already finished products when shipped to the
Philippines. The other construction supplies listed under the Offshore Portion such as the steel
sheets, pipes and structures, electrical and instrumental apparatus, these were not finished
products when shipped to the Philippines. They, however, were likewise fabricated and
manufactured by the sub-contractors in Japan. All services for the design, fabrication, engineering

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G.R. No. L-1104 May 31, 1949 SEC. 2 It shall be the duty of every proprietor lessee, promoter, or operatorof such
cinematographs, theater, vaudeville companies, theatrical show and boxing exhibition to
EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-appellants, provide himself with tickets which shall be serially numbered, indication therein the name
vs. of amusement place and the fee charge for admission. Before such ticket are sold he
VICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL BOARD OF THE CITY OF same shall be presented to the office of the city Treasurer for registration. Tickets once
MANILA, and JUAN NOLASCO, as Mayor of the City of Manila, defendants-appellees. issued and presented at the gate of entrance shall be cut by the gatekeeper into halves,
the first half to be returned to the customer and the other half to be retained by the gate
keeper.
Francisco Zulueta and Poblador Jr. for appellants.
City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio Villamor for appellees.
Assistant Solicitor General Carmelino G. Alvendia, Solicitor Guillermo E.Torres and Manuel D. It shall also be the duty of said proprietor lessee promoter or operator to deliver to the
Baldeo as amicus curiae. Office of the City Treasurer the fees corresponding to the number of ticket old by him
within two days after the performances or exhibition has taken place.
PERFECTO, J.:
SEC. 3. The fees herein prescribed shall not be paid where the admission fees or charge
are collection for and in behalf of any charitable education or religion institution or
Twelve corporation engaged in motion picture business have initiated these proceeding through a association.
complaint dated May 5, 1946, to impugn the validity of Ordinance No. 2958 of the City of Manila
which was enacted by the municipalBoard of said city on April 25 1946 approved by the Mayor on
April 27, 1946 and took effect on May 1, 1946 said ordinance reading as follows: All place of amusement which are operate by U.S. Army and Navy with fund belonging to
the U.S. Government are hereby exempted from fees herein imposed.
AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY ADMISSION
TICKET SOLD BY CINEMATOGRAPHS, THEATERS VAUDEVILLE SEC. 4. Any person violation any of the provision of this ordinance shall upon conviction
COMPANIES THEATRICAL SHOWS AND BOXING EXHIBITION AND thereof be punished by a fine of not more than P200 or by imprisonment for not more
PROVIDING FOR OTHER PURPOSES. than six months or by both such fine and imprisonment in the discretion of the court. If the
violation is committed by the club firm or corporation the manager the managing director
or person charged with the management of the business of such club firm or corporation
SEC. 1. In addition to the fees paid by cinematographers, theaters, vaudeville shall be criminally responsible therefor.
companies, theatrical shows and boxing exhibitions, as provided for in sections 633 and
778 of Ordinance No. 1600, known as the Revised Ordinance of the City of Manila, as
amended, there shall be collected from the place of amusement which are specifically SEC. 5. This Ordinance shall take effect on the May 1, 1946.
mentioned above the following fees on the price of every admission ticket sold by such
enterprises: Plaintiffs, operator of theaters in Manila And distributor of local or imported films allege that they
are interested in the provision of section 1,2 and 4 of said ordinance which they impugn as null
and void upon the following grounds: (a) For violation the Constitution more particular the
a. For every ticket sold the price of which is from P0.25 to P0.99 P0.05 provision regarding the uniformity and equality of taxation and thee equal protection of the laws;
b. For every ticket sold the price of which is from P1 to P1.99 0.10 (b) because the Municipal Board of Manila exceeded and over-stepped the power granted it the
Charter of the City of Manila; (c) because it contravenes violates and is inconsistent with, existing
c. For every ticket sold the price of which is from P2 to P2.99 0.15
nationallegislation more particularly revenue and tax laws and (d) because it is unfair, unjust,
d. for every ticket sold the price of which is from P3 to P4.99 0.20 arbitrary capricious unreasonable oppressive and is contrary to and violation our basic and
e. or every ticket sold the price of which is from P5 to P5.99 0.25 recognizes principles of taxation and licensing laws.

f. For every ticket sold the price of which is from P0 to P14.99
g. For ticket sold thee price of which is from P15 or more
0.35
Defendants allege as affirmative defenses the following: (a) That the ordinance was passed by the
0.50 Municipal Board of Manila by virtue of its express legislative power to tax fix the license fee and
regulate the business of theaters, cinematographs and further to fix the location of and to tax, fix
the license fee for and regulate the business of theatrical performances public exhibition circus

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and other performances and places of amusement; (b) that the graduated tax required by said other highly combustible or explosivematerials and other establishment likely to endanger
ordinance being applied to all cinematographs, theaters, vaudeville companies theatricalshow and the public safety or give rise to conflagration or explosion and subject to the provision of
boxing exhibitions similarly situated and as a class without distinction or exception the same does ordinance issue by the (Philippines Health Service) Bureau of Health in accordance with
not violate the prohibition against uniformity and equality of taxation; (c) that the graduated tax law tanneries, renders tallow chandlers bone factories and soap factories.
onadmission tickets to theaters and other places of amusement imposed by the National Internal
Revenue Code (Commonwealth Act No. 466) is collected by and for the purposes of the National Appellants line of argument runs as follows:
Government, whereas, Ordinance No.2958 imposes and requires the collection of a similar tax by
and for the purposes of the Government of the City of Manila, and there is no case of double
taxation, (d) that said ordinance having been enacted under the express power of the Municipal By virtue of the specific power granted in the above quoted provision of the Revised Administration
Board to tax for revenue as distinguishedfrom its power to license for purely police purposes, the Code Ordinance No. 2958 was enacted.
fact that the amount collected thereunder are higher than what are needed for police regulation
and supervision does not render said ordinance unfair unjust capricious unreasonable and On August 7, 1940 the National Assembly enacted Commonwealth Act No. 466, known as the
oppressive; (e) that consideration the nature of the business of the plaintiffs and the enormous National Internal Revenue Code section 18, 260 and 261 of which read as follows:
volume of business they handle the graduated tax fixed by the ordinance is not unreasonable.
SEC. 18. Sources of revenue. — The following taxes fees and charges are deemed to be
Defendants allege also that since May 1, 1946, when the ordinance in question took effect national internal revenue taxes:
plaintiffs have been charging the theater-going public increased prices for admission to the
cinematographs owned and operated to the graduated tax imposed by said ordinance and as a (a) Income tax;
result while refusing to pay said tax but at the same time collecting an amount equal to said tax (b) Estate inheritance and gift taxes;
plaintiffs have taken undue advantage of said ordinance to realized more profits. (c) Specific taxes on certain articles;
(d) Privilege taxes on business or occupation;
On September 5, 1946, Judge Emilio Pena of the court of first Instance of Manila rendered a (e) Documentary stamp taxes;
decision upholding the validity of Ordinance No. 2958. (f) Mining taxes;
(g) Miscellaneous taxes fees and charges, namely, taxes on banks and
Plaintiffs appellants assign in the their brief three errors committed by the trial court. We will insurance companies franchise taxes on amusements charges on forest product
consider them separately. fees for sealing weights and measures firearms license fees radio registration
fees and water rentals.
Appellants contend that the lower court erred in holding that under section 2444 (m) of the
Revised administrative Code the Municipal Board of the City ofManila had the power to enact SEC. 260. Amusement taxes. — There shall be collected from the proprietor, lessee, or
Ordinance No. 2958. operation of theater cinematographs, concert halls, circuses, boxing exhibition and other
places of amusement the following taxes:
Section 2444 (m) of the Revised Administrative code reads as follows:
(a) When the amount paid for admission exceeds twenty-nine centavos, two centavos on
each admission;
To tax fix the license fee and regulate the business of hotels restaurants refreshment
places, cafes, lodging houses, boarding houses livery garages warehouses, pawnshops
theaters, cinematographs; and further to fix the location of and to tax fix the license fee (b) When the amount paid for admission exceeds twenty-nine but does not exceed thirty-
for and regulate the businessof lively stables, the license fee for and regulate the nine centavos, three centavos on each admission;
business of livery stable, boarding stables, embalmers, public billiard table public pool
tables, bowling alleys, dance halls, public dancing halls, cabarets, circusand other similar (c) When the amount paid for admission exceeds thirty-nine centavos but does not
parades, public vehicles, race tracks, horse races,Junk dealers, theatrical performances, exceed forty-nine centavos four centavos on each admission.
public exhibitions, circus andother performances and places of amusements, match
factories, blacksmith shops, foundries, steam boilers, lumber yards, shipyards, (d) When the amount paid for admission exceeds forty-nine centavos but does not
thestorage and sale of gunpowder, tar, pitch, resin, coal, oil, gasoline,benzene, exceed fifty-nine centavos five admission.
turpentine, 'hemp, cotton, nitroglycerin, petroleum or any Ofthe products thereof and of all
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 (e) When the amount paid for admission exceeds fifty-nine centavos but does not exceed
sixty-nine centavos six centavos on each admission.
(f) When the amount paid for admission exceeds sixty-nine centavos but does not exceed
seventy nine centavos seven centavos on each admission.
(g) When the amount paid for admission exceeds seventy nine centavos but does not
exceed eighty-nine centavos eight centavos on each admission;
(h) When the amount paid for admission exceeds eighty-nine centavos but does not
exceed ninty-nine centavos, nine centavos on each admission;
(i) When the amount paid for admission exceeds ninety-nine centavos, ten centavos on
each admission.
In the case of theaters or cinematographs, the taxes herein prescribed shall first be
decuted and withheld by the proprietros, lessees, or operators of such theaters or
cinematogrphs and paid to the Collector of Internal Revenue before the gross receipts
are divided between the proprietros, lessees, or operators of the theaters of
cinematographs and the distributors of the cinematographic films.
In the case of cockpits, race tracks, and cabarets, there shall be collected from the
proprietor, lessee, or operator a tax equivalent to ten per centum of the gross receipts,
irrespective of whether or not any amount is charged or paid for admission: Provided,
however, That in the case of race tracks, this tax is in addition to the privilege tax
prescribed in seciton 193. for the purpose of the amusement tax, the term "gross
receipts" embraces all the receipts of the proprietor, lessee, or operator of the
amusement place, excluding the receipts derived by him from the sale of liquors,
beverages, or other articles subject to specific tax, or from any business subject to tax
under this Code. (This section was amended by section 8, Republic Act No. 39, effective
October 1, 1946. We are quoting the original provision to show the status of the law when
the Ordinance was passed.)
SEC. 261. Exemption. — The tax herein imposed shall not be paid where the admission
fee or charges are collected by or for and in behalf of any religious, charitable, scientific,
or educational institution or association, and where no part of the net proceeds of such
admission fees or charges inures to the benefit of any private stockholder or individual.
Ordinance No. 2958 does not specify the kind of the tax sought to be imposed but the seven
schedules and other details of said ordinance are, in every respect, identical with the amusement
tax provided by section 260 of Commonwealth Act No. 466.
But, plaintiffs argue, that section 2444(m) of the Revised Administrative Code confers upon the
City of Manila the power to impose a tax on business but not on amusement and, consequently,
Ordinance No. 2958 was enacted beyond the charter powers of the City of Manila.
The whole argument of plaintiffs hinges, therefore, on the assumption that the power granted to
the City of Manila by section 2444(m) of the Revised Administrative Code is limited to the authority
to impose a tax on business, with exclusion of the power to impose a tax amusement; but, the
assumption is based on an arbitrary labeling of the kind of tax authorized by said section 2444(m).
The distinction made by plaintiffs as to the power to tax on business and the power to tax on
amusement has no ground under the provisions of section 2444(m) of the Revised Administrative
Code. The tax therein authorized cannot be defined as tax on business and cannot be restricted
within a smaller scope than what is authorized by the words used, to the extent of excluding what
plaintiffs describe as tax on amusement.
The very fact that section 2444 (m) of the Revised Administrative Code includes theaters,
cinematographs, public billiard tables, public pool tables, bowling alleys, dance halls, public
dancing halls, cabarets, circuses and other similar places, race tracks, horse races, theatrical
performances, public exhibition, circus and other performances and places of amusements, will
show conclusively that the power to tax amusement is expressly included within the power granted
by section 2444(m) of the Revised Administrative Code.
Plaintiffs-appellants contend that the lower court erred in not holding that section 2444 (m) of the
Revised Administrative Code was repealed or the power therein contained was withdrawn by the
National Assembly by the enactment of Commonwealth Act No. 466 known as the National
Internal Revenue Code.
In support of this contention, plaintiffs aver that the Charter of the City of Manila, containing
section 2444(m) of the Revised Administrative Code, was enacted on December 8, 1929. On April
25, 1940, the National Assembly enacted Commonwealth Act No. 466, including provisions on
amusement tax, covering the whole field on taxation and provided for more than what the
ordinance in question has provided. As a result, there are two taxing powers seeking to occupy
exactly the same field of legislation, and so the apparent conflict must be resolved with the
conclusion that, with the enactment of Commonwealth Act No. 466, as later amended by Republic
Act No. 39, section 2444(m) of the Revised Administrative Code has been impliedly repealed and
the power therein delegated to the City of Manila withdrawn.
We see absolutely no force in plaintiffs' contention. The conflict pointed out by them is imaginary.
Both provisions of law may stand together and be enforced at the same time without any
incompatibility among themselves.
Finally, plaintiffs contend that the trial court erred in not holding that Ordinance No. 2958 violated
the principle of equality and uniformity of taxation enjoined by the Constitution (sec. 22, sub-sec. 1,
Art. VI, Constitution of the philippines).
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To support this contenttion, appellantts point out to the fact that the ordinance in question does not
tax "many more kinds of amusements" than those therein specified, such as "race tracks, cockpits,
cabarets, concert halls, circuses, and other places of amusement." the argument has absolutely
no merit. The fact that some places of amusement are not taxed while others, such as
cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and
other kinds of amusements or places of amusement are taxed, is no argument at all against the
equality and uniformity of the tax imposition. Equality and 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 rate. The taxing power has 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 ordinance do not constitute a class by themselves and which can be
confused with those not included in the ordinance.
The judgment of the trial court is affirmed with costs against appellants.
G.R. No. L-4376 May 22, 1953
ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-
appellants,
vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY
MAYOR, all of the City of Manila, respondents-appellees.
Teotimo A. Roja for appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for appellees.
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. Manlapit, Inc., a member of said
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 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; and (3) it constitutes double taxation.
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 of Manila to impose under
its 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 taxation.
The issues having been joined, the Court of First Instance of Manila sustained the validity of the
ordinance and dismissed the petition. Hence this appeal.
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. Said section confers upon the
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 contended that this power 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.
In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the
Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the
municipal corporation to impose tax on motor vehicles operating in any highway in the Philippines.
The pertinent provisions are contained in section 70 (b) which provide in part:
No further fees than those fixed in this Act shall be exacted or demanded by any public
highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the
operation of any motor vehicle by the owner thereof: Provided, however, That nothing in
this Act shall be construed to exempt any motor vehicle from the payment of any lawful
and equitable insular, local or municipal property tax imposed thereupon. . . .
Note that under the above section no fees may be exacted or demanded for the operation of any
motor vehicle other than those therein provided, the only exception being that which refers to the
property tax which may be imposed by a municipal corporation. This provision is all-inclusive in
that sense that it applies to all motor vehicles. In this sense, this provision should be construed as
limiting the broad grant of power conferred upon the City of Manila by its Charter to impose taxes.
When section 18 of said Charter provides that the City of Manila can impose a tax on motor
vehicles operating within its limit, it can only refers to property tax as a different interpretation
would make it repugnant to the Motor Vehicle Law.
Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance Levying
a Property Tax on All Motor Vehicles Operating Within the City of Manila", and that in its section 1
it provides that the tax should be 1 per cent ad valorem per annum. It also provides that the
proceeds of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be
expended exclusively for the repair, maintenance and improvement of its streets and bridges."
Considering the wording used in the ordinance in the light in the purpose for which the tax is
created, can we consider the tax thus imposed as property tax, as claimed by respondents?
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 nature and purpose of the tax as 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 a property tax because it is 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 finally fall upon and be paid by property and so may be
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25
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 occupation, it will be considered an excise." (26 R. C. L., 35-
36.) 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 language
employed in the act 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,
even though nominally and 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 or occupation tax, even though it is graduated according to the property used
in such business, or on the gross receipts of the business. (37 C.J., 172)

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 merely levied on motor vehicles 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 and bridges in said city. This 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 distribution of the proceeds that 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 intended to prevent duplication in 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 cloak of an ad valorem tax to circumvent the prohibition
above adverted to.

It is also our opinion that 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 operating within
the City of Manila. It does not distinguish between a motor vehicle for hire and one which is purely
for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila
and one registered in another place but occasionally comes to Manila and uses its streets and
public highways. The distinction is important if we note that the ordinance intends to burden with
the tax only those registered in the City of Manila as may be inferred from the word "operating"
used therein. The word "operating" denotes a connotation which is akin to a registration, for under
the Motor Vehicle Law no motor vehicle can be operated without previous payment of the
registration fees. There is no pretense that the ordinance equally applies to motor vehicles who
come to Manila for a temporary stay or for short errands, and it cannot be denied that they
contribute in no small degree to the deterioration of the streets and public highway. The fact that
they are benefited by their use they should also be made to share the corresponding burden. And
yet such is not the case. This is an inequality which we find in the ordinance, and which renders it
offensive to the Constitution.

Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and void.

Paras, C.J., Bengzon and Tuason, JJ., concur.

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G.R. No. L-6093 February 24, 1954 5. That the parties admit that Official Receipt No. A-3760852 for P150 was paid for taxes
imposed on Installation Managers, collected by the defendant by virtue of Ordinance No.
THE SHELL CO. OF P.I., LTD., plaintiff-appellant, 10 (section 3, E-12) under Resolution No. 38, series of 1946, approved by the Provincial
vs. Board of Cebu in its Resolution No. 1070, series of 1946. Copy of .said Ordinance No.
E. E. VAÑO, as Municipal Treasurer of the Municipality of Cordova, Province of 10, series of 1946 is marked as Exhibit "F" for the plaintiff and as Exhibit "2" for the
Cebu, defendant-appellee. defendant;

C.J. Johnston and A.P. Deen for appellant.
Provincial Fiscal Jose C. Borromeo and Assistant Provincial Fiscal Ananias V. Maribao for
appellee.
PADILLA, J.:
The Municipal Council of Cordova, Province of Cebu, adopted the following ordinances: No. 10,
series of 1946, which imposes an annual tax of P150 on occupation or the exercise of the privilege
of installation manager; No. 9, series of 1947, which imposes an annual tax of P40 for local
deposits in drums of combustible and inflammable materials and an annual tax of P200 for tin can
factories; and No. 11, series of 1948, which imposes an annual tax of P150 on tin can factories
having a maximum output capacity of 30,000 tin cans. The Shell Co. of P.I. Ltd., a foreign
corporation, filed suit for the refund of the taxes paid by it, on the ground that the ordinances
imposing such taxes are ultra vires. The defendant denies that they are so. The controversy was
submitted for judgment upon stipulation of facts which reads as follows:
6. That the parties admit that Official Receipt No. A-21030388 for P5,450 was paid by
plaintiff and that said amount was collected by defendant by virtue of Ordinance No. 11,
series of 1948 (under Resolution No. 46) enacted August 31, 1948 and approved by the
Provincial Board of Cebu in its Resolution No. 115, series of 1949, and same was
approved by the Honorable Secretary of Finance under the provisions of section 4 of
Commonwealth Act No. 472. Copy of said Ordinance No. 11, series of 1948 is herein
marked as Exhibit "G" for the plaintiff, and Exhibit "3" for the defendant. Copy of the
approval of the Honorable Secretary of Finance of the same Ordinance is herein marked
as Exhibit "4" for the defendant.
Wherefore, aside from oral evidence which may be offered by the parties and other
points not covered by this stipulation, this case is hereby submitted upon the foregoing
agreed facts and record of evidence.
Cebu City, Philippines, January 20, 1950.

Come now the parties in the above-entitled case by their undersigned attorneys and THE SHELL CO. OF P.I. LTD. C.D. JOHNSTON & A.
hereby agree to the following stipulation of facts: (Sgd.) L. DE BLECHYNDEN (Sgd.) A.P.
Plaintiff Attys. for the plaintiff
1. That the parties admit the allegations contained in Paragraph 1 of the Amended
Complaint referring to residence, personality, and capacity of the parties except the fact THE MUNICIPALITY OF CORDOVA (Sgd.) JOSE C.
that E.E. Vaño is now replaced by F.A. Corbo as Municipal Treasurer of Cordova, Cebu; (Sgd.) F.A. CORBO Prov
Defendant Attorney for the defendant
2. That the parties admit the allegations contained in paragraph 2 of the Amended
Complaint. Official Receipts Nos. A-1280606, A-37607422, A-3769852 and A-21030388 (Record on Appeal, pp. 15-18.)
are herein marked as Exhibits A, B, C, and D, respectively for the plaintiff;
The parties reserved the right to introduce parole evidence but no such evidence was submitted
3. That the parties admit that payments made under Exhibits B, C, and D were all under by either party. From the judgment holding the ordinances valid and dismissing the complaint the
protest and plaintiff admits that Exhibit A was not paid under protest; plaintiff has appealed.

4. That the parties admit that Official Receipt No. A-1280606 for P40 and Official Receipt
No. A-3760742 for P200 were collected by the defendant by virtue of Ordinance No. 9,
(Secs. E-4 and E-6, respectively) under Resolution No. 31, series of 1947, enacted
December 15, 1947, approved by the Provincial Board of Cebu in its Resolution No. 644,
series of 1948. Copy of said Ordinance No. 9, series of 1947, is herein marked as Exhibit
"E" for the plaintiff, and as Exhibit "I" for the defendant;
It is contended that as the municipal ordinance imposing an annual tax of P40 for "minor local
deposit in drums of combustible and inflammable materials," and of P200 "for tin factory" was
adopted under and pursuant to section 2244 of the Revised Administrative Code, which provides
that the municipal council in the exercise of the regulative authority may require any person
engaged in any business or occupation, such as "storing combustible or explosive materials" or
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"the conducting of any other business of an unwholesome, obnoxious, offensive, or dangerous stipulation of facts, was approved by the Provincial Board of Cebu and the Department of Finance,
character," to obtain a permit for which a reasonable fee, in no case to exceed P10 per annum, is valid and lawful, because it is neither a percentage tax nor one on specified articles which are
may be charged, the annual tax of P40 and P200 are unauthorized and illegal. The permit and the the only exceptions provided in section 1, Commonwealth Act No. 472. Neither does it fall under
fee referred to may be required and charged by the Municipal Council of Cordova in the exercise any of the prohibitions provided for in section 3 of the same Act. Specific taxes enumerated in the
of its regulative authority, whereas the ordinance which imposes the taxes in question was National Internal Revenue Code are those that are imposed upon "things manufactured or
adopted under and pursuant to the provisions of Commonwealth Act No. 472, which authorizes produced in the Philippines for domestic sale or consumption" and upon "things imported from the
municipal councils and municipal district councils "to impose license taxes upon persons engaged United States and foreign countries," such as distilled spirits, domestic denatured alcohol,
in any occupation or business, or exercising privileges in the municipality or municipal district, by fermented liquors, products of tobacco, cigars and cigarettes, matches, mechanical lighters,
requiring them to secure licenses at rates fixed by the municipal council or municipal district firecrackers, skimmed milk, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil,
council," which shall be just and uniform but not "percentage taxes and taxes on specified cinematographic films, playing cards, sacharine.3 And it is not a percentage tax because it is tax
articles." Likewise, Ordinance No. 10, series of 1946, which imposes an annual tax of P150 on on business and the maximum annual output capacity is not a percentage, because it is not a
"installation manager" comes under the provisions of Commonwealth Act No. 472. But it is claimed share or a tax based on the amount of the proceeds realized out of the sale of the tin cans
that "installation manager" is a designation made by the plaintiff and such designation cannot be manufactured therein but on the business of manufacturing tin cans having a maximum annual
deemed to be a "calling" as defined in section 178 of the National Internal Revenue Code (Com. output capacity of 30,000 tin cans.
Act No. 466), and that the installation manager employed by the plaintiff is a salaried employee
which may not be taxed by the municipal council under the provisions of Commonwealth Act No. In an action for refund of municipal taxes claimed to have been paid and collected under an illegal
472. This contention is without merit, because even if the installation manager is a salaried ordinance, the real party in interest is not the municipal treasurer but the municipality concerned
employee of the plaintiff, still it is an occupation "and one occupation or line of business does not that is empowered to sue and be sued.4
become exempt by being conducted with some other occupation or business for which such tax
has been paid'1 and the occupation tax must be paid "by each individual engaged in a calling
subject thereto."2 And pursuant to section 179 of the National Internal Revenue Code, "The The judgment appealed from is hereby affirmed, with costs against the appellant.
payment of . . . occupation tax shall not exempt any person from any tax, . . . provided by law or
ordinance in places where such . . . occupation in . . . regulated by municipal law, nor shall the Paras, C.J., Pablo, Bengzon, Montemayor, Reyes, Jugo, Bautista Angelo, Labrador, Concepcion
payment of any such tax be held to prohibit any municipality from placing a tax upon the same . . . and Diokno, JJ., concur.
occupation, for local purposes, where the imposition of such tax is authorized by law." It is true
that, according to the stipulation of facts, Ordinance No. 10, series of 1946, was approved by the
Provincial Board of Cebu in its Resolution No. 1070, series of 1946, and that it does not appear
that it was approved by the Department of Finance, as provided for and required in section 4,
paragraph 2, of Commonwealth Act No. 472, the rate of municipal tax being in excess of P50 per
annum. But at this point on the approval of the Department of Finance was not raised in the court
below, it cannot be raised for the first time on appeal. The issue joined by the parties in their
pleadings and the point raised by the plaintiff is that the municipal council was not empowered to
adopt the ordinance and not that it was not approved by the Department of Finance. The fact that
it was not stated in the stipulation of facts justifies the presumption that the ordinance was
approved in accordance with law.

The contention that the ordinance is discriminatory and hostile because there is no other person in
the locality who exercises such "designation" or occupation is also without merit, because the fact
that there is no other person in the locality who exercises such a "designation" or calling does not
make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any
person or firm who exercises such calling or occupation named or designated as "installation
manager."

Lastly, Ordinance No. 11, series of 1948, which imposes a municipal tax of P150 on tin can
factories having a maximum annual output capacity of 30,000 tin cans which, according to the
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G.R. No. L-39086 June 15, 1988
ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner,
vs.
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA,
Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra;
HEIRS OF PATERNO MILLARE, respondents.
PARAS, J.:
This is a petition for review on certiorari of the decision * of the defunct Court of First Instance of
Abra, Branch I, dated June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior
College, Inc., represented by Pedro V. Borgonia, plaintiff vs. Armin M. Cariaga as Provincial
Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of Bangued, Abra and Paterno
Millare, defendants," the decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, the Court hereby declares:
That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra,
the Provincial Treasurer of said province against the lot and building of the Abra
Valley Junior College, Inc., represented by Director Pedro Borgonia located at
Bangued, Abra, is valid;
That since the school is not exempt from paying taxes, it should therefore pay all
back taxes in the amount of P5,140.31 and back taxes and penalties from the
promulgation of this decision;
That the amount deposited by the plaintaff him the sum of P60,000.00 before
the trial, be confiscated to apply for the payment of the back taxes and for the
redemption of the property in question, if the amount is less than P6,000.00, the
remainder must be returned to the Director of Pedro Borgonia, who represents
the plaintiff herein;
That the deposit of the Municipal Treasurer in the amount of P6,000.00 also
before the trial must be returned to said Municipal Treasurer of Bangued, Abra;
And finally the case is hereby ordered dismissed with costs against the plaintiff.
SO ORDERED. (Rollo, pp. 22-23)
Petitioner, an educational corporation and institution of higher learning duly incorporated with the
Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the
respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quo to
annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building
located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to
P5,140.31. Said "Notice of Seizure" of the college lot and building covered by Original Certificate
of Title No. Q-83 duly registered in the name of petitioner, plaintiff below, on July 6, 1972, by
respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the
satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served upon the
petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of said
college lot and building, which sale was held on the same date. Dr. Paterno Millare, then Municipal
Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly accepted. The
certificate of sale was correspondingly issued to him.
On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a
motion to dismiss the complaint.
On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then
Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents
Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This was followed by an amended
answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972.
On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp.
106-108).
On October 12, 1972, with the aforesaid sale of the school premises at public auction, the
respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered
(Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial and municipal treasurers to deliver
to the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, petitioner,
through Director Borgonia, deposited with the trial court the sum of P6,000.00 evidenced by PNB
Check No. 904369.
On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial
court in its questioned decision. Said Stipulations reads:
STIPULATION OF FACTS
COME NOW the parties, assisted by counsels, and to this Honorable Court
respectfully enter into the following agreed stipulation of facts:
1. That the personal circumstances of the parties as stated in paragraph 1 of the
complaint is admitted; but the particular person of Mr. Armin M. Cariaga is to be
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substituted, however, by anyone who is actually holding the position of i
Provincial Treasurer of the Province of Abra; l
l
2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and a
buildings thereon located in Bangued, Abra under Original Certificate of Title No. n
0-83; t
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3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued,
Abra caused to be served upon the Abra Valley Junior College, Inc. a Notice of
Seizure on the property of said school under Original Certificate of Title No. 0-83 T
for the satisfaction of real property taxes thereon, amounting to P5,140.31; the y
Notice of Seizure being the one attached to the complaint as Exhibit A; p

4. That on June 8, 1972 the above properties of the Abra Valley Junior College, A
Inc. was sold at public auction for the satisfaction of the unpaid real property G
taxes thereon and the same was sold to defendant Paterno Millare who offered R
the highest bid of P6,000.00 and a Certificate of Sale in his favor was issued by I
the defendant Municipal Treasurer. P
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5. That all other matters not particularly and specially covered by this stipulation N
of facts will be the subject of evidence by the parties. O

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WHEREFORE, it is respectfully prayed of the Honorable Court to consider and R
admit this stipulation of facts on the point agreed upon by the parties. I
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Aside from the Stipulation of Facts, 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, and has a school population 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 the Court of First Instance 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 building; (e) that the Director 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.
From all the foregoing, the only issue left for the Court to determine and as agreed by the parties,
is whether or not the lot and building in question are used exclusively for educational purposes.
(Rollo, p. 20)
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z.
Montero, filed a Memorandum for the Government on March 25, 1974, and a Supplemental
Memorandum on May 7, 1974, wherein they opined "that based on the evidence, the laws
applicable, court decisions and jurisprudence, the school building and school lot used for
educational purposes of the Abra Valley College, Inc., are exempted from the payment of taxes."
(Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).
Nonetheless, the trial court disagreed because of the use of the second floor by the Director of
petitioner school for residential purposes. He thus ruled for the government and rendered the
assailed decision.
After having been granted by the trial court ten (10) days from August 6, 1974 within which to
perfect its appeal (Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner
instead availed of the instant petition for review on certiorari with prayer for preliminary injunction
before this Court, which petition was filed on August 17, 1974 (Rollo, p.2).
In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition
(Rollo, p. 58). Respondents were required to answer said petition (Rollo, p. 74).
Petitioner raised the following assignments of error:
I Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly
THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE
COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.
II
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF
THE PETITIONER ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY
BECAUSE THE COLLEGE PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE
BUILDING.
III
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF
THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING
PETITIONER TO PAY P5,140.31 AS REALTY TAXES.
IV
THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00
DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY
TAXES. (See Brief for the Petitioner, pp. 1-2)
The main issue in this case is the proper interpretation of the phrase "used exclusively for
educational purposes."
Petitioner contends that the primary use of the lot and building for educational purposes, and not
the incidental use thereof, determines and exemption from property taxes under Section 22 (3),
Article VI of the 1935 Constitution. Hence, the seizure and sale of subject college lot and building,
which are contrary thereto as well as to the provision of Commonwealth Act No. 470, otherwise
known as the Assessment Law, are without legal basis and therefore void.
On the other hand, private respondents maintain that the college lot and building in question which
were subjected to seizure and sale to answer for the unpaid tax are used: (1) for the educational
purposes of the college; (2) as the permanent residence of the President and Director thereof, Mr.
Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for commercial
purposes because the ground floor of the college building is being used and rented by a
commercial establishment, the Northern Marketing Corporation (See photograph attached as
Annex "8" (Comment; Rollo, p. 90]).
Due to its time frame, the constitutional provision which finds application in the case at bar is
grants exemption from realty taxes for "Cemeteries, churches and parsonages or convents
appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious,
charitable or educational purposes ...
Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic
Act No. 409, otherwise known as the Assessment Law, provides:
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 The following are exempted from real property tax under the Assessment Law:
xxx xxx xxx
(c) churches and parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious, charitable, scientific
or educational purposes.
xxx xxx xxx
In this regard petitioner argues that the primary use of the school lot and building is the basic and
controlling guide, norm and standard to determine tax exemption, and not the mere incidental use
thereof.
As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this
Court ruled that while it may be true that the YMCA keeps a lodging and a boarding house and
maintains a restaurant for its members, still these do not constitute business in the ordinary
acceptance of the word, but an institution used exclusively for religious, charitable and educational
purposes, and as such, it is entitled to be exempted from taxation.
In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972],
this Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly
used as a cemetery. It was clarified that the term "used exclusively" considers incidental use also.
Thus, the exemption from payment of land tax in favor of the convent includes, not only the land
actually occupied by the building but also the adjacent garden devoted to the incidental use of the
parish priest. The lot which is not used for commercial purposes but serves solely as a sort of
lodging place, also qualifies for exemption because this constitutes incidental use in religious
functions.
The phrase "exclusively used for educational purposes" was further clarified by this Court in the
cases of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961]
and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965],
thus —
Moreover, the exemption in favor of property used exclusively for charitable or
educational purposes is 'not limited to property actually indispensable' therefor
(Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are
incidental to and reasonably necessary for the accomplishment of said
purposes, such as in the case of hospitals, "a school for training nurses, a
nurses' home, property use to provide housing facilities for interns, resident
doctors, superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns, and residents' (84 CJS 6621),
such as "Athletic fields" including "a firm used for the inmates of the institution.
(Cooley on Taxation, Vol. 2, p. 1430).
The test of exemption from taxation is the use of the property for purposes mentioned in the
Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).
It must be stressed however, that while this Court allows a more liberal and non-restrictive
interpretation of the phrase "exclusively used for educational purposes" as provided for in Article
VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always
been made that exemption extends to facilities which are incidental to and reasonably necessary
for the accomplishment of the main purposes. Otherwise stated, the 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 the concept of incidental use, 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 stretch of the imagination be considered
incidental to the purpose of education.
It will be noted however that the aforementioned lease appears to have been raised for the first
time in this Court. That the matter was not taken up in the to court is really apparent in the decision
of respondent Judge. No mention thereof was made in the stipulation of facts, not even in the
description of the school building by the trial judge, both embodied in the decision nor as one of
the issues to resolve in order to determine whether or not said properly may be exempted from
payment of real estate taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact
was not disputed even after it was raised in this Court.
Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time
on appeal. Nonetheless, as an exception to the rule, this Court has held that although a factual
issue is not squarely raised below, still in the interest of substantial justice, this Court is not
prevented from considering a pivotal factual matter. "The Supreme Court is clothed with ample
authority to review palpable errors not assigned as such if it finds that their consideration is
necessary in arriving at a just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).
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 because the second floor of the
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, since only a portion is used for
purposes of commerce, it is only fair that half of the assessed tax be returned to the school
involved.
PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby
AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner.
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SO ORDERED.

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G.R. No. 144104 June 29, 2004
LUNG CENTER OF THE PHILIPPINES, petitioner,
vs.
QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City Assessor of Quezon
City, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed
the decision of the Central Board of Assessment Appeals holding that the lot owned by the
petitioner and its hospital building constructed thereon are subject to assessment for purposes of
real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on
January 16, 1981 by virtue of Presidential Decree No. 1823.2 It is the registered owner of a parcel
of land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon
Avenue corner Elliptical Road, Central District, Quezon City. The lot has an area of 121,463
square meters and is covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry of
Deeds of Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the Lung
Center of the Philippines. A big space at the ground floor is being leased to private parties, for
canteen and small store spaces, and to medical or professional practitioners who use the same as
their private clinics for their patients whom they charge for their professional services. Almost one-
half of the entire area on the left side of the building along Quezon Avenue is vacant and idle,
while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being
leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden
Center.
The petitioner accepts paying and non-paying patients. It also renders medical services to out-
patients, both paying and non-paying. Aside from its income from paying patients, the petitioner
receives annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real
property taxes in the amount of ₱4,554,860 by the City Assessor of Quezon City. 3 Accordingly,
Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the
land and the hospital building, respectively. 4 On August 25, 1993, the petitioner filed a Claim for
Exemption5 from real property taxes with the City Assessor, predicated on its claim that it is a
charitable institution. The petitioner’s request was denied, and a petition was, thereafter, filed
before the Local Board of Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the
reversal of the resolution of the City Assessor. The petitioner alleged that under Section 28,
paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. It averred
that a minimum of 60% of its hospital beds are exclusively used for charity patients and that the
major thrust of its hospital operation is to serve charity patients. The petitioner contends that it is a
charitable institution and, as such, is exempt from real property taxes. The QC-LBAA rendered
judgment dismissing the petition and holding the petitioner liable for real property taxes. 6
The QC-LBAA’s decision was, likewise, affirmed on appeal by the Central Board of Assessment
Appeals of Quezon City (CBAA, for brevity)7 which ruled that the petitioner was not a charitable
institution and that its real properties were not actually, directly and exclusively used for charitable
purposes; hence, it was not entitled to real property tax exemption under the constitution and the
law. The petitioner sought relief from the Court of Appeals, which rendered judgment affirming the
decision of the CBAA.8
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO
REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND
IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY
AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT
UNDER ITS CHARTER, PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE
EXTENDED UPON PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of
the 1987 Constitution. It asserts that its character as a charitable institution is not altered by the
fact that it admits paying patients and renders medical services to them, leases portions of the
land to private parties, and rents out portions of the hospital to private medical practitioners from
which it derives income to be used for operational expenses. The petitioner points out that for the
years 1995 to 1999, 100% of its out-patients were charity patients and of the hospital’s 282-bed
capacity, 60% thereof, or 170 beds, is allotted to charity patients. It asserts that the fact that it
receives subsidies from the government attests to its character as a charitable institution. It
contends that the "exclusivity" required in the Constitution does not necessarily mean "solely."
Hence, even if a portion of its real estate is leased out to private individuals from whom it derives
income, it does not lose its character as a charitable institution, and its exemption from the
payment of real estate taxes on its real property. The petitioner cited our ruling in Herrera v. QC-
BAA9 to bolster its pose. The petitioner further contends that even if P.D. No. 1823 does not
exempt it from the payment of real estate taxes, it is not precluded from seeking tax exemption
under the 1987 Constitution.
In their comment on the petition, the respondents aver that the petitioner is not a charitable entity.
The petitioner’s real property is not exempt from the payment of real estate taxes under P.D. No.
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1823 and even under the 1987 Constitution because it failed to prove that it is a charitable
institution and that the said property is actually, directly and exclusively used for charitable
purposes. The respondents noted that in a newspaper report, it appears that graft charges were
filed with the Sandiganbayan against the director of the petitioner, its administrative officer, and
Zenaida Rivera, the proprietress of the Elliptical Orchids and Garden Center, for entering into a
lease contract over 7,663.13 square meters of the property in 1990 for only ₱20,000 a month,
when the monthly rental should be ₱357,000 a month as determined by the Commission on Audit;
and that instead of complying with the directive of the COA for the cancellation of the contract for
being grossly prejudicial to the government, the petitioner renewed the same on March 13, 1995
for a monthly rental of only ₱24,000. They assert that the petitioner uses the subsidies granted by
the government for charity patients and uses the rest of its income from the property for the benefit
of paying patients, among other purposes. They aver that the petitioner failed to adduce
substantial evidence that 100% of its out-patients and 170 beds in the hospital are reserved for
indigent patients. The respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of its record of
service. That before a patient is admitted for treatment in the Center, first impression is
that it is pay-patient and required to pay a certain amount as deposit. That even if a
patient is living below the poverty line, he is charged with high hospital bills. And, without
these bills being first settled, the poor patient cannot be allowed to leave the hospital or
be discharged without first paying the hospital bills or issue a promissory note guaranteed
and indorsed by an influential agency or person known only to the Center; that even the
remains of deceased poor patients suffered the same fate. Moreover, before a patient is
admitted for treatment as free or charity patient, one must undergo a series of interviews
and must submit all the requirements needed by the Center, usually accompanied by
endorsement by an influential agency or person known only to the Center. These facts
were heard and admitted by the Petitioner LCP during the hearings before the Honorable
QC-BAA and Honorable CBAA. These are the reasons of indigent patients, instead of
seeking treatment with the Center, they prefer to be treated at the Quezon Institute. Can
such practice by the Center be called charitable?10
The Issues
The issues for resolution are the following: (a) whether the petitioner is 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. 7160; and (b) whether the real properties of the petitioner are
exempt from real property taxes.
The Court’s Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the context of the
1973 and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity
or not, the elements which should be considered include the statute creating the enterprise, its
corporate purposes, 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 the
beneficiaries, and the use and occupation of the properties.11
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing
laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts
under the influence of education or religion, by assisting them to establish themselves in life or
otherwise lessening the burden of government. 12 It may be applied to almost anything that tend to
promote the well-doing and well-being of social man. It embraces the improvement and promotion
of the happiness of man.13 The word "charitable" is not restricted to relief of the poor or sick. 14 The
test of a charity and a charitable organization are in law the same. The test whether an enterprise
is 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.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the
provisions of the decree, is to be administered by the Office of the President of the Philippines with
the Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and
benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary
diseases in the Philippines. The raison d’etre for the creation of the petitioner is stated in the
decree, viz:
Whereas, for decades, respiratory diseases have been a priority concern, having been
the leading cause of illness and death in the Philippines, comprising more than 45% of
the total annual deaths from all causes, thus, exacting a tremendous toll on human
resources, which ailments are likely to increase and degenerate into serious lung
diseases on account of unabated pollution, industrialization and unchecked cigarette
smoking in the country;lavvph!l.net
Whereas, the more common lung diseases are, to a great extent, preventable, and
curable with early and adequate medical care, immunization and through prompt and
intensive prevention and health education programs;
Whereas, there is an urgent need to consolidate and reinforce existing programs,
strategies and efforts at preventing, treating and rehabilitating people affected by lung
diseases, and to undertake research and training on the cure and prevention of lung
diseases, through a Lung Center which will house and nurture the above and related
activities and provide tertiary-level care for more difficult and problematical cases;
Whereas, to achieve this purpose, the Government intends to provide material and
financial support towards the establishment and maintenance of a Lung Center for the
welfare and benefit of the Filipino people.15
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The purposes for which the petitioner was created are spelled out in its Articles of Incorporation,
thus:
SECOND: That the purposes for which such corporation is formed are as follows:
1. To construct, establish, equip, maintain, administer and conduct an integrated
medical institution which shall specialize in the treatment, care, rehabilitation
and/or relief of lung and allied diseases in line with the concern of the
government to assist and provide material and financial support in the
establishment and maintenance of a lung center primarily to benefit the people
of the Philippines and in pursuance of the policy of the State to secure the well-
being of the people by providing them specialized health and medical services
and by minimizing the incidence of lung diseases in the country and elsewhere.
2. To promote the noble undertaking of scientific research related to the
prevention of lung or pulmonary ailments and the care of lung patients, including
the holding of a series of relevant congresses, conventions, seminars and
conferences;
3. To stimulate and, whenever possible, underwrite scientific researches on the
biological, demographic, social, economic, eugenic and physiological aspects of
lung or pulmonary diseases and their control; and to collect and publish the
findings of such research for public consumption;
4. To facilitate the dissemination of ideas and public acceptance of information
on lung consciousness or awareness, and the development of fact-finding,
information and reporting facilities for and in aid of the general purposes or
objects aforesaid, especially in human lung requirements, general health and
physical fitness, and other relevant or related fields;
5. To encourage the training of physicians, nurses, health officers, social
workers and medical and technical personnel in the practical and scientific
implementation of services to lung patients;
6. To assist universities and research institutions in their studies about lung
diseases, to encourage advanced training in matters of the lung and related
fields and to support educational programs of value to general health;
7. To encourage the formation of other organizations on the national, provincial
and/or city and local levels; and to coordinate their various efforts and activities
for the purpose of achieving a more effective programmatic approach on the
common problems relative to the objectives enumerated herein;
8. To seek and obtain assistance in any form from both international and local
foundations and organizations; and to administer grants and funds that may be
given to the organization;
9. To extend, whenever possible and expedient, medical services to the public
and, in general, to promote and protect the health of the masses of our people,
which has long been recognized as an economic asset and a social blessing;
10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and
maladies of the people in any and all walks of life, including those who are poor
and needy, all without regard to or discrimination, because of race, creed, color
or political belief of the persons helped; and to enable them to obtain treatment
when such disorders occur;
11. To participate, as circumstances may warrant, in any activity designed and
carried on to promote the general health of the community;
12. To acquire and/or borrow funds and to own all funds or equipment,
educational materials and supplies by purchase, donation, or otherwise and to
dispose of and distribute the same in such manner, and, on such basis as the
Center shall, from time to time, deem proper and best, under the particular
circumstances, to serve its general and non-profit purposes and
objectives;lavvphil.net
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and
dispose of properties, whether real or personal, for purposes herein mentioned;
and
14. To do everything necessary, proper, advisable or convenient for the
accomplishment of any of the powers herein set forth and to do every other act
and thing incidental thereto or connected therewith.16
Hence, the medical services of the petitioner are to be rendered to the public in general in any and
all walks of life including those who are poor and the needy without discrimination. After all, any
person, the rich as well as the poor, may fall sick or be injured or wounded and become a subject
of charity.17
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 patients, whether out-patient,
or 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 intended to achieve; and
no money inures to the private benefit of the persons managing or operating the
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institution.18 In Congregational Sunday School, etc. v. Board of Review,19 the State Supreme
Court of Illinois held, thus:
… [A]n institution does not lose its charitable character, and consequent exemption from
taxation, by reason of the fact that those recipients of its benefits who are able to pay are
required to do so, where no profit is made by the institution and the amounts so received
are applied in furthering its charitable purposes, and those benefits are refused to none
on account of inability to pay therefor. The fundamental ground upon which all
exemptions in favor of charitable institutions are based is the 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.20
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of
South Dakota v. Baker:21
… [T]he fact that paying patients are taken, the profits derived from attendance upon
these patients being exclusively devoted to the maintenance of the charity, seems rather
to enhance the usefulness of the institution to the poor; for it is a matter of common
observation amongst those who have gone about at all amongst the suffering classes,
that the deserving poor can with difficulty be persuaded to enter an asylum of any kind
confined to the reception of objects of charity; and that their honest pride is much less
wounded by being placed in an institution in which paying patients are also received. The
fact of receiving money from some of the patients does not, we think, at all impair the
character of the charity, so long as the money thus received is devoted altogether to the
charitable object which the institution is intended to further.22
The money received by the petitioner becomes a part of the trust fund and must be devoted to
public trust purposes and cannot be diverted to private profit or benefit.23
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its
character as a charitable institution simply because the gift or donation is in the form of subsidies
granted by the government. As held by the State Supreme Court of Utah in Yorgason v. County
Board of Equalization of Salt Lake County:24
Second, the … government subsidy payments are provided to the project. Thus, those
payments are like a gift or donation of any other kind except they come from the
government. In both Intermountain Health Care and the present case, the crux is the
presence or absence of material reciprocity. It is entirely irrelevant to this analysis that the
government, rather than a private benefactor, chose to make up the deficit resulting from
the exchange between St. Mark’s Tower and the tenants by making a contribution to the
landlord, just as it would have been irrelevant in Intermountain Health Care if the patients’
income supplements had come from private individuals rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such housing is by
the government rather than private charitable contributions does not dictate the denial of
a charitable exemption if the facts otherwise support such an exemption, as they do
here.25
In this case, the petitioner adduced substantial evidence that it spent its income, including the
subsidies from the government for 1991 and 1992 for its patients and for the operation of the
hospital. It even incurred a net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that
those portions of its real property that are leased to private entities are not exempt from real
property taxes as these are not actually, directly and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that 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 is the exception. The effect of an exemption is equivalent to an
appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based
on language in the law too plain to be mistaken.26 As held in Salvation Army v. Hoehn:27
An intention on the part of the legislature to grant an exemption from the taxing power of
the state will never be implied from language which will admit of any other reasonable
construction. Such an intention must be expressed in clear and unmistakable terms, or
must appear by necessary implication from the language used, for it is a well settled
principle that, when a special privilege or exemption is claimed under a statute, charter or
act of incorporation, it is to be construed strictly against the property owner and in favor of
the public. This principle applies with peculiar force to a claim of exemption from taxation
. …28
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that
the petitioner shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock
corporation organized primarily to help combat the high incidence of lung and pulmonary
diseases in the Philippines, all donations, contributions, endowments and equipment and
supplies to be imported by authorized entities or persons and by the Board of Trustees of
the Lung Center of the Philippines, Inc., for the actual use and benefit of the Lung
Center, shall be exempt from income and gift taxes, the same further deductible in full for
the purpose of determining the maximum deductible amount under Section 30, paragraph
(h), of the National Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the payment of taxes, charges
and fees imposed by the Government or any political subdivision or instrumentality
thereof with respect to equipment purchases made by, or for the Lung Center.29
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It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon. If the intentions were
otherwise, the same should have been among the enumeration of tax exempt privileges under
Section 2:
It is a settled rule of statutory construction that the express mention of one person, thing,
or consequence implies the exclusion of all others. The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a number of ways. One
variation of the rule is the principle that what is expressed puts an end to that which is
implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is
expressly limited to certain matters, it may not, by interpretation or construction, be
extended to other matters.
...
The rule of expressio unius est exclusio alterius and its variations are canons of
restrictive interpretation. They are based on the rules of logic and the natural workings of
the human mind. They are predicated upon one’s own voluntary act and not upon that of
others. They proceed from the premise that the legislature would not have made
specified enumeration in a statute had the intention been not to restrict its meaning and
confine its terms to those expressly mentioned.30
The exemption must not be so enlarged by construction since the reasonable presumption is that
the State has granted in express terms all it intended to grant at all, and that unless the privilege is
limited to the very terms of the statute the favor would be intended beyond what was meant. 31
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable or
educational purposes shall be exempt from taxation. 32
The tax exemption under this constitutional provision covers property taxes only.33 As Chief
Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ".
. . what is exempted is not the institution itself . . .; those exempted from real estate taxes are
lands, buildings and improvements actually, directly and exclusively used for religious, charitable
or educational purposes."34
Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No.
7160 (otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. – The following are exempted from
payment of the real property tax:
...
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes.35
We note that under the 1935 Constitution, "... all lands, buildings, and improvements used
‘exclusively’ for … charitable … purposes shall be exempt from taxation." 36 However, under the
1973 and the present Constitutions, for "lands, buildings, and improvements" of the charitable
institution to be considered exempt, the same should not only be "exclusively" used for charitable
purposes; it is required that such property be used "actually" and "directly" for such purposes. 37
In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our
ruling in Herrera v. Quezon City Board of Assessment Appeals which was promulgated on
September 30, 1961 before the 1973 and 1987 Constitutions took effect. 38 As this Court held
in Province of Abra v. Hernando:39
… Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents
appurtenant thereto, and all lands, buildings, and improvements used exclusively for
religious, charitable, or educational purposes shall be exempt from taxation." The present
Constitution added "charitable institutions, mosques, and non-profit cemeteries" and
required that for the exemption of "lands, buildings, and improvements," they should not
only be "exclusively" but also "actually" and "directly" used for religious or charitable
purposes. The Constitution is worded differently. The change should not be ignored. It
must be duly taken into consideration. Reliance on past decisions would have sufficed
were the words "actually" as well as "directly" not added. There must be proof therefore
of the actual and direct use of the lands, buildings, and improvements for religious or
charitable purposes to be exempt from taxation. …
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. "Exclusive" is
defined as possessed and enjoyed to the exclusion of others; debarred from participation or
enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege
exclusively."40 If real property is used for one or more commercial purposes, it is not exclusively
used for the exempted purposes but is subject to taxation.41 The words "dominant use" or
"principal use" cannot be substituted for the words "used exclusively" without doing violence to the
Constitutions and the law.42 Solely is synonymous with exclusively.43
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What is meant by actual, 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 which the
charitable institution is 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.44

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually,
directly and exclusively used for charitable purposes. While portions of the hospital are used for
the treatment of patients and the dispensation of medical services to them, whether paying or non-
paying, other portions thereof are being leased to private individuals for their clinics and a canteen.
Further, a portion of the land is being leased to a private individual for her business enterprise
under the business name "Elliptical Orchids and Garden Center." Indeed, the petitioner’s evidence
shows that it collected ₱1,136,483.45 as rentals in 1991 and ₱1,679,999.28 for 1992 from the said
lessees.

Accordingly, we hold that the portions of the land leased to private entities as well as those parts
of the hospital leased to private individuals are not exempt from such taxes. 45 On the other hand,
the portions of the land occupied by the hospital and portions of the hospital used for its patients,
whether paying or non-paying, are exempt from real property taxes.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent
Quezon City Assessor is hereby DIRECTED to determine, after due hearing, the precise portions
of the land and the area thereof which are leased to private persons, and to compute the real
property taxes due thereon as provided for by law.

SO ORDERED.

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G.R. No. 130716 May 19, 1999
FRANCISCO I. CHAVEZ, petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) and MAGTANGGOL
GUNIGUNDO, (in his capacity as chairman of the PCGG), respondents, GLORIA A.
JOPSON, CELNAN A. JOPSON, SCARLET A. JOPSON, and TERESA A. JOPSON, petitioners-
in-intervention.
RESOLUTION
PANGANIBAN, J.:
Before the Court are (1) a "Motion for Leave to Intervene with Motion for Leave to File the
Attached Partial Motion for Reconsideration . . ." and (2) "Partial Motion for Reconsideration," both
filed on January 22, 1999, as well as movants' Memorandum of Authorities filed on March 16,
1999.
Movants Ma. Imelda Marcos-Manotoc, Ferdinand R. Marcos II and Irene Marcos-Araneta allege
that they are parties and signatories 1 to the General and Supplemental Agreements dated
December 28, 1993, which this Court, in its Decision promulgated on December 9, 1998, declared
"NULL AND VOID for being contrary to law and the Constitution." As such, they claim to "have a
legal interest in the matter in litigation, or in the success of either of the parties or an interest
against both as to warrant their intervention." They add that their exclusion from the instant case
resulted in a denial of their constitutional rights to due process and to equal protection of the laws.
They also raise the "principle of hierarchical administration of justice" to impugn the Court's
cognizance of petitioner's direct action before it.
The motions are not meritorious.
Intervention Not Allowed
After Final Judgment
First, we cannot allow the Motion for Leave to Intervene at this late stage of the proceedings.
Section 2, Rule 19 of the Rules of Court, provides that a motion to intervene should be filed
"before rendition of judgment . . ." Our Decision was promulgated December 9, 1998, while
movants came to us only on January 22, 1999. Intervention can no longer be allowed in a case
already terminated by the final judgment. 2
Second, they do not even offer any valid plausible excuse for such late quest to assert their
alleged rights. Indeed, they may have no cogent reason at all. As Petitioner Chavez asserts, 3 the
original petition, which was filed on October 3, 1997, was well-publicized. So were its proceedings,
particularly the oral arguments heard on March 16, 1998. Movants have long been back in the
mainstream of Philippine political and social life. Indeed, they could not (and in fact did not) even
feign unawareness of the petition prior to its disposition.
Third, the assailed Decision has become final and executory; the original parties have not filed any
motion for reconsideration, and the period for doing so has long lapsed. Indeed, the movants are
now legally barred from seeking leave to participate in this proceeding. Nevertheless, we shall
tackle their substantive arguments, most of which have been taken up in said Decision, so as to
finally dispose any allegation, even in the remote future, of lack of due process or violation of the
right to equal protection.
No Denial of Due Process
Movants claim that their exclusion from the proceeding regarding the Agreements to which they
were parties and signatories was a denial of "their property right to contract without due process of
law."
We rule that the movants are merely incidental, not indispensable, parties to the instant case.
Being contractors to the General and Supplemental Agreements involving their supposed
properties, they claim that their interests are affected by the petition. However, as exhaustively
discussed in the assailed Decision, the Agreements undeniably contain terms an condition that are
clearly contrary to the Constitution and the laws and are not subject to compromise. Such terms
and conditions cannot be granted by the PCGG to anyone, not just to movants. Being so, no
argument of the contractors will make such illegal and unconstitutional stipulations pass the test of
validity. 4 The void agreement will not be rendered operative by the parties' alleges performance
(partial or full) of their respective prestations. A contract that violates the Constitution and the law
is null and void ab intio and vests no rights and creates no obligations. It produces no legal effect
at all. 5 In legal terms, the movants have really no interest to protect or right to assert in this
proceeding. Contrary to their allegations, no infraction upon their rights has been committed.
The original petition of Francisco I. Chavez sought to enforce a constitutional right against the
Presidential Commission on Good Government (PCGG) and to determine whether the latter has
been acting within the bounds of its authority. In the process of adjudication, there is no need to
call on each and every party whom said agency has contracted with.
In any event, we are now ruling on the merits of the arguments raised by movants; hence, they
can no longer complain of not having been heard in this proceeding.
Petition Treated as an Exception to
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 the Principle of Hierarchical
Administration of Justice
Movants allege that despite petitioner's own statement that he did not intended "to stop or delay . .
. the proceedings involving the subject agreements as an incident before the Sandiganbayan," this
Court ruled the validity of the said Agreements. They submit that it thereby preempted the
Sandiganbayan and rendered moot the three-year proceedings so far undertaken by the latter
court regarding the same. Movants pray that the proceedings before the anti-graft court be allowed
to take their due course, consistent with the principle of the hierarchical administration of justice.
This matter has been discussed and ruled upon in the assailed Decision. Movants have not raised
any new argument that has not been taken up. In any event, we wish to point out that the principle
of the hierarchy of the courts generally applies to cases involving factual question. The oft-
repeated justification for invoking it is that such cases do not only impose upon the precious time
of the Court but, more important, inevitably result in their delayed adjudication. Often, such cases
have to be remanded or referred to the lower court as the proper forum or as better equipped t
resolve to the issues, since the Supreme Court is not a trier of facts. 6 Inasmuch as the petition at
bar involves only constitutional and legal questions concerning public interest, the Court resolved
to exercise primary jurisdiction on the matter.
Moreover, in taking jurisdiction over the Chavez petition, the Court actually avoided unnecessary
delays and expenses in the resolution of the ill-gotten wealth cases, which have been pending for
about twelve years now. With this Decision, the Sandiganbayan may now more speedily resolves
the merits of Civil Case No. 141. Finally, it is an elementary rule that this Court may at its sound
discretion suspend procedural rules in the interest of substantial justice. 7
Petition Sought to Define
Scope of Right to Information
Movants insist that there was "nothing "secret" or "furtive" about the agreements as to warrant
their compulsory disclosure by the Honorable Court . . .." They submit that when they filed their
Motion for Approval of Compromise Agreements before the Sandiganbayan, they practically
"opened to public scrutiny the agreements and everything else related thereto."
In our Decision, we have already discussed this point and, hence, shall no longer belabor it.
Suffice it to say that in our Decision, we ruled that the Chavez petition was not confined to the
conclude terms contained in the Agreements, but likewise concerned other ongoing and future
negotiations and agreement, perfected or not. It sought a precise interpretation of the scope of the
twin constitutional provisions on "public transactions." It was therefore not endered moot and
academic simply by the public disclosure of the subject Agreements.
Alleged Partial Implementation
of Agreements Immaterial
The movants also claim that PCGG's grant to their mother of access rights to one of their
sequestered properties may be equivalent to an implied ratification of the Agreements. As we have
ruled, the subject Agreements are null and void for being contrary to the Constitution and the laws.
Being null and void, they are not subject to ratification. 8 Neither will they acquire validity through
the passage of time. 9
Petition Presented Actual
Case and Judicial Question
We reiterate that mandamus, over which this Court has original jurisdiction, is proper recourse for
a citizen to enforce a public right and to compel the performance of a public duty, most especially
when mandated by the Constitution. As aptly pointed out by Mr. Justice Jose C.
Vitug, 10 "procedural rules . . . [are] not cogent reasons to deny to the Court its taking cognizance
of the case."
There is no political question involved here. The power and the authority of the PCGG to
compromise is not the issue. In fact, we have not prohibited or restrained it from doing so. But
when the compromise entered into palpably violated the Constitution and the laws, this Court is
duty-bound to strike it down as null and void. Clearly, by violating the Constitution and the laws,
the PCGG gravely abused its discretion. 11
In sum, we hold that the motions are procedurally flawed and that, at this late stage, intervention
can no longer be allowed. Moreover, movants are not indispensable parties to this suit which
principally assails the constitutionality and legality of PCGG's exercise of its discretion. In any
event, the Court has ruled on the merits of movants' claims. Hence, they can no longer complain,
however remotely, of deprivation of due process or of equal protection of the law.
WHEREFORE, the motions are hereby DENIED for lack of merit. Let the Decision of this Court,
dated December 9, 1998, be now entered.1âwphi1.nêt
SO ORDERED.
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G.R. No. L-77194 March 15, 1988
VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR VILLANUEVA, JOSE
ABELLO, REMO RAMOS, CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER
LACSON, TITO TAGARAO, EDUARDO SUATENGCO, AUGUSTO LLAMAS, RODOLFO
SIASON, PACIFICO MAGHARI, JR., JOSE JAMANDRE, AURELIO GAMBOA, ET
AL., petitioners,
vs.
REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR
REGULATORY ADMINISTRATION, respondents, ANGEL H. SEVERINO, JR., GLICERIO
JAVELLANA, GLORIA P. DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and NATIONAL
FEDERATION OF SUGARCANE PLANTERS, intervenors.
MELENCIO-HERRERA, J.:
Petitioners are sugar producers, sugarcane planters and millers, who have come to this Court in
their individual capacities and in representation of other sugar producers, planters and millers, said
to be so numerous that it is impracticable to bring them all before the Court although the subject
matter of the present controversy is of common interest to all sugar producers, whether parties in
this action or not.
Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the government
office tasked with the function of regulating and supervising the sugar industry until it was
superseded by its co-respondent Sugar Regulatory Administration (SRA, for brevity) under
Executive Order No. 18 on May 28, 1986. Although said Executive Order abolished the
PHILSUCOM, its existence as a juridical entity was mandated to continue for three (3) more years
"for the purpose of prosecuting and defending suits by or against it and enables it to settle and
close its affairs, to dispose of and convey its property and to distribute its assets."
Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking corporation.
Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their sugarcane in
different mill districts of Negros Occidental, were allowed to intervene by the Court, since they
have common cause with petitioners and respondents having interposed no objection to their
intervention. Subsequently, on January 14,1988, the National Federation of Sugar Planters
(NFSP) also moved to intervene, which the Court allowed on February 16,1988.
Petitioners and Intervenors have come to this Court praying for a Writ of mandamus commanding
respondents:
TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC
PLANTERS BANK BY THE TRANSFER AND DISTRIBUTION OF THE
SHARES OF STOCK IN THE SAID BANK; NOW HELD BY AND STILL
CARRIED IN THE NAME OF THE PHILIPPINE SUGAR COMMISSION, TO
THE SUGAR PRODUCERS, PLANTERS AND MILLERS, WHO ARE THE
TRUE BENEFICIAL OWNERS OF THE 761,416 COMMON SHARES VALUED
AT P36,548.000.00, AND 53,005,045 PREFERRED SHARES (A, B & C) WITH
A TOTAL PAR VALUE OF P254,424,224.72, OR A TOTAL INVESTMENT OF
P290,972,224.72, THE SAID INVESTMENT HAVING BEEN FUNDED BY THE
DEDUCTION OF Pl.00 PER PICUL FROM SUGAR PROCEEDS OF THE
SUGAR PRODUCERS COMMENCING THE YEAR 1978-79 UNTIL THE
PRESENT AS STABILIZATION FUND PURSUANT TO P.D. # 388.
Respondent Bank does not take issue with either petitioners or its correspondents as it has no
beneficial or equitable interest that may be affected by the ruling in this Petition, but welcomes the
filing of the Petition since it will settle finally the issue of legal ownership of the questioned shares
of stock.
Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition arguing that no
trust results from Section 7 of P.D. No. 388; that the stabilization fees collected are considered
government funds under the Government Auditing Code; that the transfer of shares of stock from
PHILSUCOM to the sugar producers would be irregular, if not illegal; and that this suit is barred by
laches.
The Solicitor General aptly summarizes the basic issues thus: (1) whether the stabilization fees
collected from sugar planters and millers pursuant to Section 7 of P.D. No. 388 are funds in trust
for them, or public funds; and (2) whether shares of stock in respondent Bank paid for with said
stabilization fees belong to the PHILSUCOM or to the different sugar planters and millers from
whom the fees were collected or levied.
P. D. No. 388, promulgated on February 2,1974, which created the PHILSUCOM, provided for the
collection of a Stabilization Fund as follows:
SEC. 7. Capitalization, Special Fund of the Commission, Development and
Stabilization Fund. — There is hereby established a fund for the commission for
the purpose of financing the growth and development of the sugar industry and
all its components, stabilization of the domestic market including the foreign
market to be administered in trust by the Commission and deposited in the
Philippine National Bank derived in the manner herein below cited from the
following sources:
a. Stabilization fund shall be collected as provided for in the various provisions
of this Decree.
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 b. Stabilization fees shall be collected from planters and millers in the amount of
Two (P2.00) Pesos for every picul produced and milled for a period of five years
from the approval of this Decree and One (Pl.00) Peso for every picul produced
and milled every year thereafter.
Provided: That fifty (P0.50) centavos per picul of the amount levied on planters,
millers and traders under Section 4(c) of this Decree will be used for the
payment of salaries and wages of personnel, fringe benefits and allowances of
officers and employees for the purpose of accomplishing and employees for the
purpose of accomplishing the efficient performance of the duties of the
Commission.
Provided, further: That said amount shall constitute a lien on the sugar quedan
and/or warehouse receipts and shall be paid immediately by the planters and
mill companies, sugar centrals and refineries to the Commission. (paragraphing
and bold supplied).
Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be administered
in trust by the Commission." However, while the element of an intent to create a trust is present, a
resulting trust in favor of the sugar producers, millers and planters cannot be said to have ensued
because the presumptive intention of the parties is not reasonably ascertainable from the
language of the statute itself.
The doctrine of resulting trusts is founded on the presumed intention of the
parties; and as a general rule, it arises where, and only where such may be
reasonably presumed to be the intention of the parties, as determined from the
facts and circumstances existing at the time of the transaction out of which it is
sought to be established (89 C.J.S. 947).
No implied trust in favor of the sugar producers either can be deduced from the imposition of the
levy. "The essential Idea of an implied trust involves a certain antagonism between the cestui que
trust and the trustee even when the trust has not arisen out of fraud nor out of any transaction of a
fraudulent or immoral character (65 CJ 222). It is not clearly shown from the statute itself that the
PHILSUCOM imposed on itself the obligation of holding the stabilization fund for the benefit of the
sugar producers. It must be categorically demonstrated that the very administrative agency which
is the source of such regulation would place a burden on itself (Batchelder v. Central Bank of the
Philippines, L-25071, July 29,1972,46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640
[1954]).
Neither can petitioners place reliance on the history of respondents Bank. They recite that at the
beginning, the Bank was owned by the Roman-Rojas Group. Because it underwent difficulties
early in the year 1978, Mr. Roberto S. Benedicto, then Chairman of the PHILSUCOM, submitted a
proposal to the Central Bank for the rehabilitation of the Bank. The Central Bank acted favorably
on the proposal at the meeting of the Monetary Board on March 31, 1978 subject to the infusion of
fresh capital by the Benedicto Group. Petitioners maintain that this infusion of fresh capital was
accomplished, not by any capital investment by Mr. Benedicto, but by PHILSUCOM, which set
aside the proceeds of the P1.00 per picul stabilization fund to pay for its subscription in shares of
stock of respondent Bank. It is petitioners' submission that all shares were placed in
PHILSUCOM's name only out of convenience and necessity and that they are the true and
beneficial owners thereof.
In point of fact, we cannot see our way clear to upholding petitioners' position that the investment
of the proceeds from the stabilization fund in subscriptions to the capital stock of the Bank were
being made for and on their behalf. That could have been clarified by the Trust Agreement, dated
May 28, 1986, entered into between PHILSUCOM, as "Trustor" acting through Mr. Fred J. Elizalde
as Officer-in-Charge, and respondent RPB- Trust Department' as "Trustee," acknowledging that
PHILSUCOM holds said shares for and in behalf of the sugar producers," the latter "being the true
and beneficial owners thereof." The Agreement, however, did not get off the ground because it
failed to receive the approval of the PHILSUCOM Board of Commissioners as required in the
Agreement itself.
The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of the
adverse opinion of the SRA, Resident Auditor, dated June 25,1986, which was aimed by the
Chairman of the Commission on Audit, on January 26,1987.
On February 19, 1987, the SRA, resolved to revoke the Trust Agreement "in the light of the ruling
of the Commission on Audit that the aforementioned Agreement is of doubtful validity."
From the legal standpoint, we find basis for the opinion of the Commission on Audit reading:
That the government, PHILSUCOM or its successor-in-interest, Sugar
Regulatory Administration, in particular, owns and stocks. While it is true that the
collected stabilization fees were set aside by PHILSUCOM to pay its
subscription to RPB, it did not collect said fees for the account of the sugar
producers. That stabilization fees are charges/levies on sugar produced and
milled which accrued to PHILSUCOM under PD 338, as amended. ...
The stabilization fees collected are in the nature of a tax, which is within the power of the State to
impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute
sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a "Special Fund," a
"Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization
Fund" created under Section 6 of Commonwealth Act 567. 1 The tax collected is not in a pure
exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the
stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the
State (Lutz vs. Araneta, supra.).
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 The protection of a large industry constituting one of the great sources of the SO ORDERED.
state's wealth and therefore directly or indirectly affecting the welfare of so great
a portion of the population of the State is affected to such an extent by public
interests as to be within the police power of the sovereign. (Johnson vs. State ex
rel. Marey, 128 So. 857, cited in Lutz vs. Araneta, supra).

The stabilization fees in question are levied by the State upon sugar millers, planters and
producers for a special purpose — that of "financing the growth and development of the sugar
industry and all its components, stabilization of the domestic market including the foreign market
the fact that the State has taken possession of moneys pursuant to law is sufficient to constitute
them state funds, even though they are held for a special purpose (Lawrence vs. American Surety
Co., 263 Mich 586, 249 ALR 535, cited in 42 Am. Jur. Sec. 2, p. 718). Having been levied for a
special purpose, the revenues collected are to be treated as a special fund, to be, in the language
of the statute, "administered in trust' for the purpose intended. Once the purpose has been fulfilled
or abandoned, the balance, if any, is to be transferred to the general funds of the Government.
That is the essence of the trust intended (See 1987 Constitution, Article VI, Sec. 29(3), lifted from
the 1935 Constitution, Article VI, Sec. 23(l]). 2

The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds
are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from
which may be paid out only in pursuance of an appropriation made by law (1987) Constitution,
Article VI, Sec. 29[1],1973 Constitution, Article VIII, Sec. 18[l]).

That the fees were collected from sugar producers, planters and millers, and that the funds were
channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a
trust fired for their benefit nor make them the beneficial owners of the shares so purchased. It is
but rational that the fees be collected from them since it is also they who are to be benefited from
the expenditure of the funds derived from it. The investment in shares of respondent Bank is not
alien to the purpose intended because of the Bank's character as a commodity bank for sugar
conceived for the industry's growth and development. Furthermore, of note is the fact that one-
half, (1/2) or PO.50 per picul, of the amount levied under P.D. No. 388 is to be utilized for the
"payment of salaries and wages of personnel, fringe benefits and allowances of officers and
employees of PHILSUCOM" thereby immediately negating the claim that the entire amount levied
is in trust for sugar, producers, planters and millers.

To rule in petitioners' favor would contravene the general principle that revenues derived from
taxes cannot be used for purely private purposes or for the exclusive benefit of private persons.
The Stabilization Fund is to be utilized for the benefit of the entire sugar industry, "and all its
components, stabilization of the domestic market," including the foreign market the industry being
of vital importance to the country's economy and to national interest.

WHEREFORE, the Writ of mandamus is denied and the Petition hereby dismissed. No costs.

This Decision is immediately executory.

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G.R. No. 215383
HON. KIM S. JACINTO-HENARES, in her official capacity as COMMISSIONER OF THE
BUREAU OF INTERNAL REVENUE, Petitioner
vs
ST. PAUL COLLEGE OF MAKATI, Respondent
RESOLUTION
CARPIO, J.:
The Case
This petition for review1 assails the Decision dated 25 July 20142 and Joint Resolution dated 29
October 20143 of the Regional Trial Court, Branch 143, Makati City (RTC), in Civil Case No. 13-
1405, declaring Revenue Memorandum Order (RMO) No. 20-2013 unconstitutional.
The Facts
On 22 July 2013, petitioner Kim S. Jacinto-Henares, acting in her capacity as then Commissioner
of Internal Revenue (CIR), issued RMO No. 20-2013, "Prescribing the Policies and Guidelines in
the Issuance of Tax Exemption Rulings to Qualified Non-Stock, Non-Profit Corporations and
Associations under Section 30 of the National Internal Revenue Code of 1997, as Amended."
On 29 November 2013, respondent St. Paul College of Makati (SPCM), a non-stock, non-profit
educational institution organized and existing under Philippine laws, filed a Civil Action to Declare
Unconstitutional [Bureau of Internal Revenue] RMO No. 20-2013 with Prayer for Issuance of
Temporary Restraining Order and Writ of Preliminary Injunction 4 before the RTC. SPCM alleged
that "RMO No. 20-2013 imposes as a prerequisite to the enjoyment by non-stock, non-profit
educational institutions of the privilege of tax exemption under Sec. 4(3) of Article XIV of the
Constitution both a registration and approval requirement, i.e., that they submit an application for
tax exemption to the BIR subject to approval by CIR in the form of a Tax[]Exemption Ruling (TER)
which is valid for a period of [three] years and subject to renewal." 5 According to SPCM, RMO No.
20-2013 adds a prerequisite to the requirement under Department of Finance Order No. 137-
87,6 and makes failure to file an annual information return a ground for a non-stock, nonprofit
educational institution to "automatically lose its income tax-exempt status."7
In a Resolution dated 27 December 2013,8 the RTC issued a temporary restraining order against
the implementation of RMO No. 20- 2013. It found that failure of SPCM to comply with RMO No.
20-2013 would necessarily result to losing its tax-exempt status and cause irreparable injury.
In a Resolution dated 22 January 2014,9 the RTC granted the writ of preliminary injunction after
finding that RMO No. 20-2013 appears to divest non-stock, non-profit educational institutions of
their tax exemption privilege. Thereafter, the RTC denied the CIR's motion for reconsideration. On
29 April 2014, SPCM filed a Motion for Judgment on the Pleadings under Rule 34 of the Rules of
Court.
The Ruling of the RTC
In a Decision dated 25 July 2014, the RTC ruled in favor of SPCM and declared RMO No. 20-2013
unconstitutional.1âwphi1 It held that "by imposing the x x x [prerequisites alleged by SPCM,] and if
not complied with by nonstock, non-profit educational institutions, [RMO No. 20-2013 serves] as
diminution of the constitutional privilege, which even Congress cannot diminish by legislation, and
thus more so by the [CIR] who merely exercise[s] quasi-legislative function."10
The dispositive portion of the Decision reads:
WHEREFORE, in view of all the foregoing, the Court hereby declares BIR RMO No. 20-2013 as
UNCONSTITUTIONAL for being violative of Article XIV, Section 4, paragraph 3. Consequently, all
Revenue Memorandum Orders subsequently issued to implement BIR RMO No. 20-2013 are
declared null and void.
The writ of preliminary injunction issued on 03 February 2014 is hereby made permanent.
SO ORDERED.11
On 18 September 2014, the CIR issued RMO No. 34-2014,12 which clarified certain provisions of
RMO No. 20-2013, as amended by RMO No. 28-2013.13
In a Joint Resolution dated 29 October 2014, the RTC denied the CIR's motion for
reconsideration, to wit:
WHEREFORE, viewed in the light of the foregoing premises, the Motion for Reconsideration filed
by the respondent is hereby DENIED for lack of merit.
Meanwhile, this Court clarifies that the phrase "Revenue Memorandum Order" referred to in the
second sentence of its decision dated July 25, 2014 refers to "issuance/s" of the respondent which
tends to implement RMO 20-2013 for if it is otherwise, said decision would be useless and would
be rendered nugatory.
SO ORDERED.14
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Hence, this present petition.
The Issues
The CIR raises the following issues for resolution:
WHETHER THE TRIAL COURT CORRECTLY CONCLUDED THAT RMO [NO.] 20-2013
IMPOSES A PREREQUISITE BEFORE A NONSTOCK, NON-PROFIT EDUCATIONAL
INSTITUTION MAY AVAIL OF THE TAX EXEMPTION UNDER SECTION 4(3), ARTICLE XIV OF
THE CONSTITUTION.
WHETHER THE TRIAL COURT CORRECTLY CONCLUDED THAT RMO NO. 20-2013 ADDS TO
THE REQUIREMENT UNDER DEPARTMENT OF FINANCE ORDER NO. 137-87.15
The Ruline of the Court
We deny the petition on the ground of mootness.
We take judicial notice that on 25 July 2016, the present CIR Caesar R. Dulay issued RMO No.
44-2016, which provides that:
SUBJECT: Amending Revenue Memorandum Order No. 20- 2013, as amended (Prescribing the
Policies and Guidelines in the Issuance of Tax Exemption Rulings to Qualified Non-Stock, Non-
Profit Corporations and Associations under Section 30 of the National Internal Revenue Code of
1997, as Amended)
In line with the Bureau's commitment to put in proper context the nature and tax status of non-
profit, non-stock educational institutions, this Order is being issued to exclude non-stock, non-profit
educational institutions from the coverage of Revenue Memorandum Order No. 20-2013, as
amended.
SECTION 1. Nature of Tax Exemption. --- The tax exemption of non-stock, non-profit educational
institutions is directly conferred by paragraph 3, Section 4, Article XIV of the 1987 Constitution, the
pertinent portion of which reads:
"All revenues and assets of non-stock, non-profit educational institutions used actually, directly
and exclusively (or educational purposes shall be exempt from taxes and duties."
This constitutional exemption is reiterated in Section 30 (H) of the 1997 Tax Code, as amended,
which provides as follows:
"Sec. 30. Exempt from Tax on Corporations. - The following organizations shall not be taxed under
this Title in respect to income received by them as such:
xxx xxx xxx
(H) A non-stock and non-profit educational institution; x x x."
It is clear and unmistakable from the aforequoted constitutional provision that non-stock, non-profit
educational institutions are constitutionally exempt from tax on all revenues derived in pursuance
of its purpose as an educational institution and used actually, directly and exclusively for
educational purposes. This constitutional exemption gives the non-stock, non-profit educational
institutions a distinct character. And for the constitutional exemption to be enjoyed, jurisprudence
and tax rulings affirm the doctrinal rule that there are only two requisites: (1) The school must be
non-stock and non-profit; and (2) The income is actually, directly and exclusively used for
educational purposes. There are no other conditions and limitations.
In this light, the constitutional conferral of tax exemption upon non-stock and non-profit educational
institutions should not be implemented or interpreted in such a manner that will defeat or diminish
the intent and language of the Constitution.
SECTION 2. Application for Tax Exemption. --- Non-stock, nonprofit educational institutions shall
file their respective Applications for Tax Exemption with the Office of the Assistant Commissioner,
Legal Service, Attention: Law Division.
SECTION 3. Documentary Requirements. --- The non-stock, nonprofit educational institution shall
submit the following documents:
a. Original copy of the application letter for issuance of Tax Exemption Ruling;
b. Certified true copy of the Certificate of Good Standing issued by the Securities and
Exchange Commission;
c. Original copy of the Certification under Oath of the Treasurer as to the amount of the
income, compensation, salaries or any emoluments paid to its trustees, officers and other
executive officers;
d. Certified true copy of the Financial Statements of the corporation for the last three (3)
years;
e. Certified true copy of government recognition/permit/accreditation to operate as an
educational institution issued by the Commission on Higher Education (CHED),
Department of Education (DepEd), or Technical Education and Skills Development
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 Authority (TESDA); Provided, that if the government recognition/permit/accreditation to
operate as an educational institution was issued five (5) years prior to the application for
tax exemption, an original copy of a current Certificate of Operation/Good Standing, or
other equivalent document issued by the appropriate government agency (i.e., CHED,
DepEd, or TESDA) shall be submitted as proof that the non-stock and non-profit
education is currently operating as such; and
f. Original copy of the Certificate of utilization of annual revenues and assets by the
Treasurer or his equivalent of the non-stock and nonprofit educational institution.
excluded from the coverage of RMO No. 20-2013. Consequently, the RTC Decision no longer
stands, and there is no longer any practical value in resolving the issues raised in this petition.
WHEREFORE, we DENY the petition on the ground of mootness. We SET ASIDE the Decision
dated 25 July 2014 and Joint Resolution dated 29 October 2014 of the Regional Trial Court,
Branch 143, Makati City, declaring Revenue Memorandum Order No. 20-2013 unconstitutional.
The writ of preliminary injunction is superseded by this Resolution.
SO ORDERED.

SECTION 4. Request for Additional Documents. --- In the course of review of the application for
tax exemption, the Bureau may require additional information or documents as the circumstances
may warrant.

SECTION 5. Validity of the Tax Exemption Ruling. --- Tax Exemption Rulings or Certificates of Tax
Exemption of non-stock, nonprofit educational institutions shall remain valid and effective, unless
recalled for valid grounds. They are not required to renew or revalidate the Tax exemption rulings
previously issued to them.

The Tax Exemption Ruling shall be subject to revocation if there are material changes in the
character, purpose or method of operation of the corporation which are inconsistent with the basis
for its income tax exemption.

SECTION 6. Transitory Provisions. --- To update the records of the Bureau and for purposes of a
better system of monitoring, non-stock, nonprofit educational institutions with Tax Exemption
Rulings or Certificates of Exemption issued prior to June 30, 2012 are required to apply for new
Tax Exemption Rulings.

SECTION 7. Repealing Clause. --- Any revenue issuance which is inconsistent with this Order is
deemed revoked, repealed, or modified accordingly.

SECTION 8. Effectivity. --- This Order shall take effect immediately. (Emphases supplied)

A moot and academic case is one that ceases to present a justiciable controversy by virtue of
supervening events, so that an adjudication of the case or a declaration on the issue would be of
no practical value or use.16Courts generally decline jurisdiction over such case or dismiss it on the
ground of mootness.17

With the issuance of RMO No. 44-2016, a supervening event has transpired that rendered this
petition moot and academic, and subject to denial.1âwphi1 The CIR, in her petition, assails the
RTC Decision finding RMO No. 20-2013 unconstitutional because it violated the non-stock, non-
profit educational institutions' tax exemption privilege under the Constitution. However,
subsequently, RMO No. 44-2016 clarified that non-stock, nonprofit educational institutions are
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G.R. No. L-9637 April 30, 1957 18, subsection (1) of Republic Act No. 409, known as the Revised Charter of the City of Manila,
and praying that the complaint be dismissed, with costs against plaintiff. This answer was replied
AMERICAN BIBLE SOCIETY, plaintiff-appellant, by the plaintiff reiterating the unconstitutionality of the often-repeated ordinances.
vs.
CITY OF MANILA, defendant-appellee. Before trial the parties submitted the following stipulation of facts:

City Fiscal Eugenio Angeles and Juan Nabong for appellant. COME NOW the parties in the above-entitled case, thru their undersigned attorneys and
Assistant City Fiscal Arsenio Nañawa for appellee. respectfully submit the following stipulation of facts:

FELIX, J.: 1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac
Peral, Manila, Bibles, New Testaments, bible portions and bible concordance in English
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly and other foreign languages imported by it from the United States as well as Bibles, New
registered and doing business in the Philippines through its Philippine agency established in Testaments and bible portions in the local dialects imported and/or purchased locally;
Manila in November, 1898, with its principal office at 636 Isaac Peral in said City. The defendant that from the fourth quarter of 1945 to the first quarter of 1953 inclusive the sales made
appellee is a municipal corporation with powers that are to be exercised in conformity with the by the plaintiff were as follows:
provisions of Republic Act No. 409, known as the Revised Charter of the City of Manila.
Quarter Amount of Sales
In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles
and/or gospel portions thereof (except during the Japanese occupation) throughout the Philippines 4th quarter 1945 P1,244.21
and translating the same into several Philippine dialects. On May 29 1953, the acting City
Treasurer of the City of Manila informed plaintiff that it was conducting the business of general 1st quarter 1946 2,206.85
merchandise since November, 1945, without providing itself with the necessary Mayor's permit
and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2nd quarter 1946 1,950.38
2529, 3028 and 3364, and required plaintiff to secure, within three days, the corresponding permit
and license fees, together with compromise covering the period from the 4th quarter of 1945 to the 3rd quarter 1946 2,235.99
2nd quarter of 1953, in the total sum of P5,821.45 (Annex A).
4th quarter 1946 3,256.04
Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit
and pay under protest the sum of P5,891.45, if suit was to be taken in court regarding the same 1st quarter 1947 13,241.07
(Annex B). To avoid the closing of its business as well as further fines and penalties in the
premises on October 24, 1953, plaintiff paid to the defendant under protest the said permit and 2nd quarter 1947 15,774.55
license fees in the aforementioned amount, giving at the same time notice to the City Treasurer
that suit would be taken in court to question the legality of the ordinances under which, the said 3rd quarter 1947 14,654.13
fees were being collected (Annex C), which was done on the same date by filing the complaint that
gave rise to this action. In its complaint plaintiff prays that judgment be rendered declaring the said 4th quarter 1947 12,590.94
Municipal Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal
and unconstitutional, and that the defendant be ordered to refund to the plaintiff the sum of 1st quarter 1948 11,143.90
P5,891.45 paid under protest, together with legal interest thereon, and the costs, plaintiff further
praying for such other relief and remedy as the court may deem just equitable. 2nd quarter 1948 14,715.26

Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the 3rd quarter 1948 38,333.83
Municipal Board of the City of Manila by virtue of the power granted to it by section 2444,
subsection (m-2) of the Revised Administrative Code, superseded on June 18, 1949, by section 4th quarter 1948 16,179.90

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1st quarter 1949
2nd quarter 1949
3rd quarter 1949
4th quarter 1949
1st quarter 1950
2nd quarter 1950
3rd quarter 1950
taxes; and that it was never required to pay any municipal license fee or tax before the war, nor
23,975.10
does the American Bible Society in the United States pay any license fee or sales tax for the sale
of bible therein. Plaintiff further tried to establish that it never made any profit from the sale of its
17,802.08
bibles, which are disposed of for as low as one third of the cost, and that in order to maintain its
operating cost it obtains substantial remittances from its New York office and voluntary
16,640.79
contributions and gifts from certain churches, both in the United States and in the Philippines,
which are interested in its missionary work. Regarding plaintiff's contention of lack of profit in the
15,961.38
sale of bibles, defendant retorts that the admissions of plaintiff-appellant's lone witness who
testified on cross-examination that bibles bearing the price of 70 cents each from plaintiff-
18,562.46 appellant's New York office are sold here by plaintiff-appellant at P1.30 each; those bearing the
price of $4.50 each are sold here at P10 each; those bearing the price of $7 each are sold here at
21,816.32 P15 each; and those bearing the price of $11 each are sold here at P22 each, clearly show that
plaintiff's contention that it never makes any profit from the sale of its bible, is evidently untenable.
25,004.55

4th quarter 1950 45,287.92 After hearing the Court rendered judgment, the last part of which is as follows:

1st quarter 1951
2nd quarter 1951
3rd quarter 1951
4th quarter 1951
37,841.21 As may be seen from the repealed section (m-2) of the Revised Administrative Code and
the repealing portions (o) of section 18 of Republic Act No. 409, although they seemingly
29,103.98 differ in the way the legislative intent is expressed, yet their meaning is practically the
same for the purpose of taxing the merchandise mentioned in said legal provisions, and
20,181.10 that the taxes to be levied by said ordinances is in the nature of percentage graduated
taxes (Sec. 3 of Ordinance No. 3000, as amended, and Sec. 1, Group 2, of Ordinance
22,968.91 No. 2529, as amended by Ordinance No. 3364).

1st quarter 1952
2nd quarter 1952
3rd quarter 1952
4th quarter 1952
1st quarter 1953
23,002.65 IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so
holds that this case should be dismissed, as it is hereby dismissed, for lack of merits, with
17,626.96 costs against the plaintiff.
17,921.01
Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the
24,180.72 case to Us for the reason that the errors assigned to the lower Court involved only questions of
law.
29,516.21
Appellant contends that the lower Court erred:

2. That the parties hereby reserve the right to present evidence of other facts not herein
1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not
stipulated.
unconstitutional;

WHEREFORE, it is respectfully prayed that this case be set for hearing so that the
2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code
parties may present further evidence on their behalf. (Record on Appeal, pp. 15-16).
under which Ordinances Nos. 2592 and 3000 were promulgated, was not repealed by
Section 18 of Republic Act No. 409;
When the case was set for hearing, plaintiff proved, among other things, that it has been in
existence in the Philippines since 1899, and that its parent society is in New York, United States of
America; that its, contiguous real properties located at Isaac Peral are exempt from real estate

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 3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in employees engaged in the business specified in said section 3 hereof, WITHOUT FIRST
order to be valid under the new Charter of the City of Manila, must first be approved by HAVING OBTAINED A PERMIT THEREFOR FROM THE MAYOR AND THE
the President of the Philippines; and NECESSARY LICENSE FROM THE CITY TREASURER.

4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned
proportions, it cannot escape from the operation of said municipal ordinances under the in Section 3 of the Ordinance, and the record does not show that a permit is required therefor
cloak of religious privilege. under existing laws and ordinances for the proper supervision and enforcement of their provisions
governing the sanitation, security and welfare of the public and the health of the employees
The issues. — As may be seen from the proceeding statement of the case, the issues involved in engaged in the business of the plaintiff. However, sections 3 of Ordinance 3000 contains item No.
the present controversy may be reduced to the following: (1) whether or not the ordinances of the 79, which reads as follows:
City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and valid;
and (2) whether the provisions of said ordinances are applicable or not to the case at bar. 79. All other businesses, trades or occupations not
mentioned in this Ordinance, except those upon which the
Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, City is not empowered to license or to tax P5.00
provides that:
Therefore, the necessity of the permit is made to depend upon the power of the City to license or
(7) No law shall be made respecting an establishment of religion, or prohibiting the free tax said business, trade or occupation.
exercise thereof, and the free exercise and enjoyment of religious profession and
worship, without discrimination or preference, shall forever be allowed. No religion test As to the license fees that the Treasurer of the City of Manila required the society to pay from the
shall be required for the exercise of civil or political rights. 4th quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of P50 as
compromise, Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028
Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529 prescribes the following:
and 3000, as respectively amended, are unconstitutional and illegal in so far as its society is
concerned, because they provide for religious censorship and restrain the free exercise and SEC. 1. FEES. — Subject to the provisions of section 578 of the Revised Ordinances of
enjoyment of its religious profession, to wit: the distribution and sale of bibles and other religious the City of Manila, as amended, there shall be paid to the City Treasurer for engaging in
literature to the people of the Philippines. any of the businesses or occupations below enumerated, quarterly, license fees based
on gross sales or receipts realized during the preceding quarter in accordance with the
Before entering into a discussion of the constitutional aspect of the case, We shall first consider rates herein prescribed: PROVIDED, HOWEVER, That a person engaged in any
the provisions of the questioned ordinances in relation to their application to the sale of bibles, etc. businesses or occupation for the first time shall pay the initial license fee based on the
by appellant. The records, show that by letter of May 29, 1953 (Annex A), the City Treasurer probable gross sales or receipts for the first quarter beginning from the date of the
required plaintiff to secure a Mayor's permit in connection with the society's alleged business of opening of the business as indicated herein for the corresponding business or
distributing and selling bibles, etc. and to pay permit dues in the sum of P35 for the period covered occupation.
in this litigation, plus the sum of P35 for compromise on account of plaintiff's failure to secure the
permit required by Ordinance No. 3000 of the City of Manila, as amended. This Ordinance is of xxx xxx xxx
general application and not particularly directed against institutions like the plaintiff, and it does not
contain any provisions whatever prescribing religious censorship nor restraining the free exercise GROUP 2. — Retail dealers in new (not yet used) merchandise, which dealers are not
and enjoyment of any religious profession. Section 1 of Ordinance No. 3000 reads as follows: yet subject to the payment of any municipal tax, such as (1) retail dealers in general
merchandise; (2) retail dealers exclusively engaged in the sale of . . . books, including
SEC. 1. PERMITS NECESSARY. — It shall be unlawful for any person or entity to stationery.
conduct or engage in any of the businesses, trades, or occupations enumerated in
Section 3 of this Ordinance or other businesses, trades, or occupations for which a permit xxx xxx xxx
is required for the proper supervision and enforcement of existing laws and ordinances
governing the sanitation, security, and welfare of the public and the health of the

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As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No.
2529, as amended, are not imposed directly upon any religious institution but upon those engaged
in any of the business or occupations therein enumerated, such as retail "dealers in general
merchandise" which, it is alleged, cover the business or occupation of selling bibles, books, etc.
Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of
said legal body, as amended by Act No. 3659, approved on December 8, 1929, empowers the
Municipal Board of the City of Manila:
(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or
both, and (b) retail dealers in new (not yet used) merchandise, which dealers are not yet
subject to the payment of any municipal tax.
For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in
general merchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles
. . . (e) books, including stationery, paper and office supplies, . . .: PROVIDED,
HOWEVER, That the combined total tax of any debtor or manufacturer, or both,
enumerated under these subsections (m-1) and (m-2), whether dealing in one or all of the
articles mentioned herein, SHALL NOT BE IN EXCESS OF FIVE HUNDRED PESOS
PER ANNUM.
and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were
enacted in virtue of the power that said Act No. 3669 conferred upon the City of Manila. Appellant,
however, contends that said ordinances are longer in force and effect as the law under which they
were promulgated has been expressly repealed by Section 102 of Republic Act No. 409 passed
on June 18, 1949, known as the Revised Manila Charter.
Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly
repealed the provisions of Chapter 60 of the Revised Administrative Code but in the opinion of the
trial Judge, although Section 2444 (m-2) of the former Manila Charter and section 18 (o) of the
new seemingly differ in the way the legislative intent was expressed, yet their meaning is
practically the same for the purpose of taxing the merchandise mentioned in both legal provisions
and, consequently, Ordinances Nos. 2529 and 3000, as amended, are to be considered as still in
full force and effect uninterruptedly up to the present.
Often the legislature, instead of simply amending the pre-existing statute, will repeal the
old statute in its entirety and by the same enactment re-enact all or certain portions of the
preexisting law. Of course, the problem created by this sort of legislative action involves
mainly the effect of the repeal upon rights and liabilities which accrued under the original
statute. Are those rights and liabilities destroyed or preserved? The authorities are
divided as to the effect of simultaneous repeals and re-enactments. Some adhere to the
view that the rights and liabilities accrued under the repealed act are destroyed, since the
statutes from which they sprang are actually terminated, even though for only a very
short period of time. Others, and they seem to be in the majority, refuse to accept this
view of the situation, and consequently maintain that all rights an liabilities which have
accrued under the original statute are preserved and may be enforced, since the re-
enactment neutralizes the repeal, therefore, continuing the law in force without
interruption. (Crawford-Statutory Construction, Sec. 322).
Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider
concept of taxation and is different from the provisions of Section 2444(m-2) that the former
cannot be considered as a substantial re-enactment of the provisions of the latter. We have
quoted above the provisions of section 2444(m-2) of the Revised Administrative Code and We
shall now copy hereunder the provisions of Section 18, subdivision (o) of Republic Act No. 409,
which reads as follows:
(o) To tax and fix the license fee on dealers in general merchandise, including importers
and indentors, except those dealers who may be expressly subject to the payment of
some other municipal tax under the provisions of this section.
Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail
dealers. For purposes of the tax on retail dealers, general merchandise shall be classified
into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential
commodities, and (4) miscellaneous articles. A separate license shall be prescribed for
each class but where commodities of different classes are sold in the same
establishment, it shall not be compulsory for the owner to secure more than one license if
he pays the higher or highest rate of tax prescribed by ordinance. Wholesale dealers
shall pay the license tax as such, as may be provided by ordinance.
For purposes of this section, the term "General merchandise" shall include poultry and
livestock, agricultural products, fish and other allied products.
The only essential difference that We find between these two provisions that may have any
bearing on the case at bar, is that, while subsection (m-2) prescribes that the combined total tax of
any dealer or manufacturer, or both, enumerated under subsections (m-1) and (m-2), whether
dealing in one or all of the articles mentioned therein, shall not be in excess of P500 per annum,
the corresponding section 18, subsection (o) of Republic Act No. 409, does not contain any
limitation as to the amount of tax or license fee that the retail dealer has to pay per annum. Hence,
and in accordance with the weight of the authorities above referred to that maintain that "all rights
and liabilities which have accrued under the original statute are preserved and may be enforced,
since the reenactment neutralizes the repeal, therefore continuing the law in force without
interruption", We hold that the questioned ordinances of the City of Manila are still in force and
effect.
Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by
the President of the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which
reads as follows:
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 (ii) To tax, license and regulate any business, trade or occupation being conducted within
the City of Manila, not otherwise enumerated in the preceding subsections, including
percentage taxes based on gross sales or receipts, subject to the approval of the
PRESIDENT, except amusement taxes.
but this requirement of the President's approval was not contained in section 2444 of the former
Charter of the City of Manila under which Ordinance No. 2529 was promulgated. Anyway, as
stated by appellee's counsel, the business of "retail dealers in general merchandise" is expressly
enumerated in subsection (o), section 18 of Republic Act No. 409; hence, an ordinance
prescribing a municipal tax on said business does not have to be approved by the President to be
effective, as it is not among those referred to in said subsection (ii). Moreover, the questioned
ordinances are still in force, having been promulgated by the Municipal Board of the City of Manila
under the authority granted to it by law.
The question that now remains to be determined is whether said ordinances are inapplicable,
invalid or unconstitutional if applied to the alleged business of distribution and sale of bibles to the
people of the Philippines by a religious corporation like the American Bible Society, plaintiff herein.
With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028,
appellant contends that it is unconstitutional and illegal because it restrains the free exercise and
enjoyment of the religious profession and worship of appellant.
Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the
freedom of religious profession and worship. "Religion has been spoken of as a profession of faith
to an active power that binds and elevates man to its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It
has reference to one's views of his relations to His Creator and to the obligations they impose of
reverence to His being and character, and obedience to His Will (Davis vs. Beason, 133 U.S.,
342). The constitutional guaranty of the free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious information. Any restraints of such right
can only be justified like other restraints of freedom of expression on the grounds that there is a
clear and present danger of any substantive evil which the State has the right to prevent". (Tañada
and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the
license fee herein involved is imposed upon appellant for its distribution and sale of bibles and
other religious literature:
In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a
license be obtained before a person could canvass or solicit orders for goods, paintings,
pictures, wares or merchandise cannot be made to apply to members of Jehovah's
Witnesses who went about from door to door distributing literature and soliciting people to
"purchase" certain religious books and pamphlets, all published by the Watch Tower
Bible & Tract Society. The "price" of the books was twenty-five cents each, the "price" of
the pamphlets five cents each. It was shown that in making the solicitations there was a
request for additional "contribution" of twenty-five cents each for the books and five cents
each for the pamphlets. Lesser sum were accepted, however, and books were even
donated in case interested persons were without funds.
On the above facts the Supreme Court held that it could not be said that petitioners were
engaged in commercial rather than a religious venture. Their activities could not be
described as embraced in the occupation of selling books and pamphlets. Then the Court
continued:
"We do not mean to say that religious groups and the press are free from all financial
burdens of government. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L.
ed. 660, 668, 56 S. Ct. 444. We have here something quite different, for example, from a
tax on the income of one who engages in religious activities or a tax on property used or
employed in connection with activities. It is one thing to impose a tax on the income or
property of a preacher. It is quite another to exact a tax from him for the privilege of
delivering a sermon. The tax imposed by the City of Jeannette is a flat license tax,
payment of which is a condition of the exercise of these constitutional privileges. 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 make its exercise so
costly 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 doors to
all those who do not have a full purse. Spreading religious beliefs in this ancient and
honorable manner would thus be denied the needy. . . .
It is contended however that the fact that the license tax can suppress or control this
activity is unimportant if it does not do so. But that is to disregard the nature of this tax. It
is a license tax — a flat tax imposed on the exercise of a privilege granted by the Bill of
Rights . . . The power to impose a license tax on the exercise of these freedom is indeed
as potent as the power of censorship 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. It is in no way apportioned. It is 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 religion and inevitably tends to suppress their
exercise. That is almost uniformly recognized as the inherent vice and evil of this flat
license tax."
Nor could dissemination of religious information be conditioned upon the approval of an
official or manager even if the town were owned by a corporation as held in the case
of Marsh vs. State of Alabama (326 U.S. 501), or by the United States itself as held in the
case of Tucker vs. Texas (326 U.S. 517). In the former case the Supreme Court
expressed the opinion that the right to enjoy freedom of the press and religion occupies a
preferred position as against the constitutional right of property owners.
"When we balance the constitutional rights of owners of property against those of the
people to enjoy freedom of press and religion, as we must here, we remain mindful of the
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 fact that the latter occupy a preferred position. . . . In our view the circumstance that the
property rights to the premises where the deprivation of property here involved, took
place, were held by others than the public, is not sufficient to justify the State's permitting
a corporation to govern a community of citizens so as to restrict their fundamental
liberties and the enforcement of such restraint by the application of a State statute."
(Tañada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 304-306).
Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue
Code, provides:
SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. — The following
organizations shall not be taxed under this Title in respect to income received by them as
such —
(e) Corporations or associations organized and operated exclusively for religious,
charitable, . . . or educational purposes, . . .: Provided, however, That the income of
whatever kind and character from any of its properties, real or personal, or from any
activity conducted for profit, regardless of the disposition made of such income, shall be
liable to the tax imposed under this Code;
enjoyment of religious profession and worship, even though it prohibits him from
introducing and carrying out a scheme or purpose which he sees fit to claim as a part of
his religious system.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if
applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not
applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the business
of plaintiff Society involved herein for, as stated before, it would impair plaintiff's right to the free
exercise and enjoyment of its religious profession and worship, as well as its rights of
dissemination of religious beliefs, We find that Ordinance No. 3000, as amended is also
inapplicable to said business, trade or occupation of the plaintiff.
Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision
appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from
it. Without pronouncement as to costs. It is so ordered.

Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from
this tax and says that such exemption clearly indicates that the act of distributing and selling
bibles, etc. is purely religious and does not fall under the above legal provisions.

It may be true that in the case at bar 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
appellant was engaged in the business or occupation of selling said "merchandise" for profit. For
this reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended,
cannot be applied to appellant, for in doing so it would impair its free exercise and enjoyment of its
religious profession and worship as well as its rights of dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit
before any person can engage in any of the businesses, trades or occupations enumerated
therein, We do not find that it imposes any charge upon the enjoyment of a right granted by the
Constitution, nor tax the exercise of religious practices. In the case of Coleman vs. City of Griffin,
189 S.E. 427, this point was elucidated as follows:

An ordinance by the City of Griffin, declaring that the practice of distributing either by
hand or otherwise, circulars, handbooks, advertising, or literature of any kind, whether
said articles are being delivered free, or whether same are being sold within the city limits
of the City of Griffin, without first obtaining written permission from the city manager of the
City of Griffin, shall be deemed a nuisance and punishable as an offense against the City
of Griffin, does not deprive defendant of his constitutional right of the free exercise and

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G.R. No. 73705 August 27, 1987
VICTORIAS MILLING CO., INC., petitioner,
vs.
OFFICE OF THE PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS and PHILIPPINE PORTS
AUTHORITY, respondents.
PARAS, J.:
This is a petition for review on certiorari of the July 27, 1984 Decision of the Office of the
Presidential Assistant For Legal Affairs dismissing the appeal from the adverse ruling of the
Philippine Ports Authority on the sole ground that the same was filed beyond the reglementary
period.
On April 28, 1981, the Iloilo Port Manager of respondent Philippine Ports Authority (PPA for short)
wrote petitioner Victorias Milling Co., requiring it to have its tugboats and barges undergo harbor
formalities and pay entrance/clearance fees as well as berthing fees effective May 1, 1981. PPA,
likewise, requiring petitioner to secure a permit for cargo handling operations at its Da-an Banua
wharf and remit 10% of its gross income for said operations as the government's share.
To these demands, petitioner sent two (2) letters, both dated June 2, 1981, wherein it maintained
that it is exempt from paying PPA any fee or charge because: (1) the wharf and an its facilities
were built and installed in its land; (2) repair and maintenance thereof were and solely paid by it;
(3) even the dredging and maintenance of the Malijao River Channel from Guimaras Strait up to
said private wharf are being done by petitioner's equipment and personnel; and (4) at no time has
the government ever spent a single centavo for such activities. Petitioner further added that the
wharf was being used mainly to handle sugar purchased from district planters pursuant to existing
milling agreements.
In reply, on November 3, 1981, PPA Iloilo sent petitioner a memorandum of PPA's Executive
Officer, Maximo Dumlao, which justified the PPA's demands. Further request for reconsideration
was denied on January 14, 1982.
On March 29, 1982, petitioner served notice to PPA that it is appealing the case to the Court of
Tax Appeals; and accordingly, on March 31, 1982, petitioner filed a Petition for Review with the
said Court, entitled "Victorias Milling Co., Inc. v. Philippine Ports Authority," and docketed therein
as CTA Case No. 3466.
On January 10, 1984, the Court of Tax Appeals dismissed petitioner's action on the ground that it
has no jurisdiction. It recommended that the appeal be addressed to the Office of the President.
On January 23, 1984, petitioner filed a Petition for Review with this Court, docketed as G.R. No.
66381, but the same was denied in a Resolution dated February 29, 1984.
On April 2, 1984, petitioner filed an appeal with the Office of the President, but in a Decision dated
July 27, 1984 (Record, p. 22), the same was denied on the sole ground that it was filed beyond the
reglementary period. A motion for Reconsideration was filed, but in an Order dated December 16,
1985, the same was denied (ibid., pp. 3-21): Hence, the instant petition.
The Second Division of this Court, in a Resolution dated June 2, 1986, resolved to require the
respondents to comment (ibid., p. 45); and in compliance therewith, the Solicitor General filed his
Comment on June 4, 1986 (Ibid., pp. 50-59).
In a Resolution of July 2, 1986, petitioner was required to file a reply (Ibid., p. 61) but before
receipt of said resolution, the latter filed a motion on July 1, 1986 praying that it be granted leave
to file a reply to respondents' Comment, and an extension of time up to June 30, 1986 within
which to file the same. (Ibid., p. 62).
On July 18, 1986, petitioner filed its reply to respondents' Comment (Ibid., pp. 68-76).
The Second Division of this Court, in a Resolution dated August 25, 1986, resolved to give due
course to the petition and to require the parties to file their respective simultaneous memoranda
(Ibid., p. 78).
On October 8, 1986, the Solicitor General filed a Manifestation and Rejoinder, stating, among
others, that respondents are adopting in toto their Comment of June 3, 1986 as their
memorandum; with the clarification that the assailed PPA Administrative Order No. 13-77 was duly
published in full in the nationwide circulated newspaper, "The Times Journal", on November
9,1977 (ibid., pp. 79-81).
The sole legal issue raised by the petitioner is —
WHETHER OR NOT THE 30-DAY PERIOD FOR APPEAL UNIDER SECTION 131 OF PPA
ADMINISTRATIVE ORDER NO. 13-77 WAS TOLLED BY THE PENDENCY OF THE PETITIONS
FILED FIRST WITH THE COURT OF TAX APPEALS, AND THEN WITH THIS HONORABLE
TRIBUNAL.
The instant petition is devoid of merit.
Petitioner, in holding that the recourse first to the Court of Tax Appeals and then to this Court
tolled the period to appeal, submits that it was guided, in good faith, by considerations which lead
to the assumption that procedural rules of appeal then enforced still hold true. It contends that
when Republic Act No. 1125 (creating the Court of Tax Appeals) was passed in 1955, PPA was
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57
not yet in existence; and under the said law, the Court of Tax Appeals had exclusive appellate
jurisdiction over appeals from decisions of the Commissioner of Customs regarding, among
others, customs duties, fees and other money charges imposed by the Bureau under the Tariff
and Customs Code. On the other hand, neither in Presidential Decree No. 505, creating the PPA
on July 11, 1974 nor in Presidential Decree No. 857, revising its charter (said decrees, among
others, merely transferred to the PPA the powers of the Bureau of Customs to impose and collect
customs duties, fees and other money charges concerning the use of ports and facilities thereat) is
there any provision governing appeals from decisions of the PPA on such matters, so that it is but
reasonable to seek recourse with the Court of Tax Appeals. Petitioner, likewise, contends that an
analysis of Presidential Decree No. 857, shows that the PPA is vested merely with corporate
powers and duties (Sec. 6), which do not and can not include the power to legislate on procedural
matters, much less to effectively take away from the Court of Tax Appeals the latter's appellate
jurisdiction.
These contentions are untenable for while it is true that neither Presidential Decree No. 505 nor
Presidential Decree No. 857 provides for the remedy of appeal to the Office of the President,
nevertheless, Presidential Decree No. 857 empowers the PPA to promulgate such rules as would
aid it in accomplishing its purpose. Section 6 of the said Decree provides —
Sec. 6. Corporate Powers and Duties —
a. The corporate duties of the Authority shall be:
xxx xxx xxx
(III) To prescribe rules and regulations, procedures, and
guidelines governing the establishment, construction,
maintenance, and operation of all other ports, including
private ports in the country.
xxx xxx xxx
Pursuant to the aforequoted provision, PPA enacted Administrative Order No. 13-77 precisely to
govern, among others, appeals from PPA decisions. It is now finally settled that administrative
rules and regulations issued in accordance with law, like PPA Administrative Order No. 13-77,
have the force and effect of law (Valerio vs. Secretary of Agriculture and Natural Resources, 7
SCRA 719; Antique Sawmills, Inc. vs. Zayco, et al., 17 SCRA 316; and Macailing vs. Andrada, 31
SCRA 126), and are binding on all persons dealing with that body.
As to petitioner's contention that Administrative Order No. 13-77, specifically its Section 131, only
provides for appeal when the decision is adverse to the government, worth mentioning is the
observation of the Solicitor General that petitioner misleads the Court. Said Section 131 provides
—
Sec. 131. Supervisory Authority of General Manager and PPA Board. — If in
any case involving assessment of port charges, the Port Manager/OIC renders a
decision adverse to the government, such decision shall automatically be
elevated to, and reviewed by, the General Manager of the authority; and if the
Port Manager's decision would be affirmed by the General Manager, such
decision shall be subject to further affirmation by the PPA Board before it shall
become effective; Provided, however, that if within thirty (30) days from receipt
of the record of the case by the General Manager, no decision is rendered, the
decision under review shall become final and executory; Provided further, that
any party aggrieved by the decision of the General Manager as affirmed by the
PPA Board may appeal said decision to the Office of the President within thirty
(30) days from receipt of a copy thereof. (Emphasis supplied).
From a cursory reading of the aforequoted provision, it is evident that the above contention has no
basis.
As to petitioner's allegation that to its recollection there had been no prior publication of said PPA
Administrative Order No. 13-77, the Solicitor General correctly pointed out that said Administrative
Order was duly published in full in the nationwide newspaper, "The Times Journal", on November
9,1977.
Moreover, it must be stated that as correctly observed by the Solicitor General, the facts of this
case show that petitioner's failure to appeal to the Office of the President on time stems entirely
from its own negligence and not from a purported ignorance of the proper procedural steps to
take. Petitioner had been aware of the rules governing PPA procedures. In fact, as embodied in
the December 16, 1985 Order of the Office of the President, petitioner even assailed the PPA's
rule making powers at the hearing before the Court of Tax Appeals.
It is axiomatic that the right to appeal is merely a statutory privilege and may be exercised only in
the manner and in accordance with the provision of law (United CMC Textile Workers Union vs.
Clave, 137 SCRA 346, citing the cases of Bello vs. Fernando, 4 SCRA 138; Aguila vs. Navarro, 55
Phil. 898; and Santiago vs. Valenzuela, 78 Phil. 397).
Furthermore, even if petitioner's appeal were to be given due course, the result would still be the
same as it does not present a substantially meritorious case against the PPA.
Petitioner maintains and submits that there is no basis for the PPA to assess and impose the dues
and charges it is collecting since the wharf is private, constructed and maintained at no expense to
the government, and that it exists primarily so that its tugboats and barges may ferry the
sugarcane of its Panay planters.
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As correctly stated by the Solicitor General, the fees and charges PPA collects are not for the use
of the wharf that petitioner owns but for the privilege of navigating in public waters, of entering and
leaving public harbors and berthing on public streams or waters. (Rollo, pp. 056-057).

In Compañia General de Tabacos de Filipinas vs. Actg. Commissioner of Customs (23 SCRA
600), this Court laid down the rule that berthing charges against a vessel are collectible regardless
of the fact that mooring or berthing is made from a private pier or wharf. This is because the
government maintains bodies of water in navigable condition and it is to support its operations in
this regard that dues and charges are imposed for the use of piers and wharves regardless of their
ownership.

As to the requirement to remit 10% of the handling charges, Section 6B-(ix) of the Presidential
Decree No. 857 authorized the PPA "To levy dues, rates, or charges for the use of the premises,
works, appliances, facilities, or for services provided by or belonging to the Authority, or any
organization concerned with port operations." This 10% government share of earnings of arrastre
and stevedoring operators is in the nature of contractual compensation to which a person desiring
to operate arrastre service must agree as a condition to the grant of the permit to operate.

PREMISES CONSIDERED, the instant petition is hereby DISMISSED.

SO ORDERED.

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G.R. No. L-30644 March 9, 1987 demanded from petitioner the payment of documentary stamp taxes for the years 1952 to 1958 in
the total amount of P 79,806.87 and plus compromise penalties, a total of P 81,406.87.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. A breakdown of the amount of taxes due and collectible are as follows:
FIREMAN'S FUND INSURANCE COMPANY and the COURT OF TAX APPEALS, respondents.

YEAR AMOUNT
B.V. Abela, M.C. Gutierrez & F.J. Malate, Jr., for respondents.
1952 P 6,500.00

1953 9,977.72
PARAS, J.:
1954 10,908.89
This is an appeal from the decision of the respondent Court of Tax Appeals dated May 24, 1969,
1955 14,204.52
in C.T.A. Case No. 1629, entitled "FIREMAN'S FUND INSURANCE COMPANY v.
COMMISSIONER OF INTERNAL REVENUE," which reversed the decision of petitioner
1956 12,108.26
Commissioner of Internal Revenue holding private respondent Fireman's Fund Insurance
Company liable for the payment of the amount of P81,406.87 as documentary stamp taxes and
1957 7,880.68
compromise penalties for the years 1952 to 1958.
1958 16,257.60
Private respondent is a resident foreign insurance corporation organized under the laws of the
United States, authorized and duly licensed to do business in the Philippines. It is a member of the
American Foreign Insurance Association, through which its business is cleared (Brief for Total stamp taxes due on policies issued from 1952 to 1958 77,837.67
Respondents, pp. 1-2)
Add: Stamp taxes on monthly statements during:
The antecedent facts of this case are as follows:
1957..........................................................................................
From January, 1952 to December, 1958, herein private respondent Fireman's Fund Insurance 1,218.35
Company entered into various insurance contracts involving casualty, fire and marine risks, for
which the corresponding insurance policies were issued. From January, 1952 to 1956, 1958..........................................................................................
documentary stamps were bought and affixed to the monthly statements of policies issues; and 3,264.39
from 1957 to 1958 documentary stamps were bought and affixed to the corresponding pages of
the policy register, instead of on the insurance policies issued. On July 3, 1959, respondent
company discovered that its monthly statements of business and policy register were lost. The Total...................................................................................P
loss was reported to the Building Administration of Ayala Building and the National Bureau of 82,320.41
Investigation on July 6, 1959. Herein petitioner was also informed of such loss by respondent
company, through the latter's auditors, Sycip, Gorres and Velayo, in a letter dated July 14, 1959. Less: Stamp taxes paid per voucher shown:
After conducting an investigation of said loss, petitioner's examiner ascertained that respondent
company failed to affix the required documentary stamps to the insurance policies issued by it and
1957............................................................... p 416.82
failed to preserve its accounting records within the time prescribed by Section 337 of the Revenue
Code by using loose leaf forms as registers of documentary stamps without written authority from
the Commissioner of Internal Revenue as required by Section 4 of Revenue Regulations No. V-1. 1958................................................................2,096.72
As a consequence of these findings, petitioner, in a letter dated December 7, 1962, assessed and 2,513.54

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 AMOUNT DUE & COLLECTIBLE.............................................P 79,906.87
(CTA Decision, Rollo, pp. 16-17).
The compromise penalties consisted of the sum of P1,000.00 as penalty for the alleged failure to
affix documentary stamps and the further sum of P 600.00 as penalty for an alleged violation of
Revenue Regulations No. V-1 otherwise known as the Bookkeeping Regulations (Brief for
Respondents, p. 4)
In a letter dated January 14, 1963, respondent company contested the assessment. After
petitioner denied the protest in a decision dated March 17, 1965, respondent company appealed
to the respondent Court of Tax Appeals on May 8, 1965. After hearing respondent court rendered
its decision dated May 24, 1969 (Rollo, pp. 16-21) reversing the decision of the Commissioner of
Internal Revenue. The assailed decision reads in part:
The affixture of documentary stamps to papers other than those authorized by
law is not tantamount to failure to pay the same. It is true that the mode of
affixing the stamps as prescribed by law was not followed, but the fact remains
that the documentary stamps corresponding to the various insurance policies
were purchased and paid by petitioner. There is no legal justification for
respondent to require petitioner to pay again the documentary stamp tax which it
had already paid. To sustain respondent's stand would require petitioner to pay
the same tax twice. If at all, the petitioner should be proceeded against for
failure to comply with the requirement of affixing the documentary stamps to the
taxable insurance policies and not for failure to pay the tax. (See Sec. 239 and
332, Rev. Code).
It should be observed that the law allows the affixture of documentary stamps' to
such other paper as may be indicated by law or regulations as the proper
recipient of the stamp.' It appears from this provision that respondent has
authority to allow documentary stamps to be affixed to papers other than the
documents or instruments taxed. Although the practice adopted by petitioner in
affixing the documentary stamps to the business statements and policy register
was without specific permission from respondent but only on the strength of his
ruling given to Wise & Company (see Petitioner's Memorandum, p. 176, CTA
rec.; p. 24, t.s.n.), one of the general agents of petitioner, however, considering
that petitioner actually purchased the documentary stamps, affixed them to the
business statements and policy register and cancelled the stamps by perforating
them, we hold that petitioner cannot be held liable to pay again the same tax.
With respect to the 'compromise penalties' in the total sum of P 1,600.00, suffice
it to say that penalties cannot be imposed in the absence of a showing that
petitioner consented thereto. A compromise implies agreement. If the offer is
rejected by the taxpayer, as in this case, respondent cannot enforce it except
through a criminal action. (See Comm. of Int. Rev. vs. Abad, L-19627, June 27,
1968.) (CTA Decision, Rollo, pp. 20-21).
Hence, this petition filed on June 26, 1969 (Rollo, pp. 1-8).
The petition is devoid of merit.
The principal issue in this case is whether or not respondent company may be required to pay
again the documentary stamps it has actually purchased, affixed and cancelled.
The relevant provisions of the National Internal Revenue Code provide:
SEC. 210. Stamp taxes upon documents, instruments, and papers. — Upon
documents, instruments, and papers, and upon acceptances, assignments,
sales, and transfers of the obligation, right, or property incident thereto, there
shall be levied, collected and paid for and in respect of the transaction so had or
accomplished, the corresponding documentary stamp taxes prescribed in the
following sections of this Title, by the person making, signing, issuing, accepting,
or transferring the same, and at the same time such act is done or transaction
had. (Now. Sec. 222).
SEC. 232. Stamp tax on life insurance policies. — On all policies of insurance or
other instruments by whatever name the same may be called, whereby any
insurance shall be made or renewed upon any life or lives, there shall be
collected a documentary stamp tax of thirty-five centavos on each two hundred
pesos or fractional part thereof, of the amount issued by any such policy. (220)
(As amended by PD 1457)
Insurance policies issued by a Philippine company to persons in other countries
are not subject to documentary stamp tax. (Rev. Regs. No. 26)
Medical certificate attached to an insurance policy is not a part of the said policy.
Insurance policy is subject to Section 232 of the Tax Code while medical
certificate is taxable under Section 237 of the same Code.
Insurance policies are issued in the place where delivered to the person insured.
(As amended.)
SEC. 221. Stamp tax on policies of insurance upon property. — On all policies
of insurance or other instruments by whatever name the same may be called, by
which insurance shall be made or renewed upon property of any description,
including rents or profits, against peril by sea or on inland waters, or by fire or
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 lightning, there shall be collected a documentary stamp tax of six centavos on
each four persons, or fractional part thereof, of the amount of premium
charged," (Now Sec. 233.)
SEC. 237. Payment of documentary stamp tax. — Documentary stamp taxes
shall be paid by the purchase and affixture of documentary stamps to the
document or instrument taxed or to such other paper as may be indicated by law
or regulations as the proper recipient of the stamp, and by the subsequent
cancellation of same, such cancellation to be accomplished by writing,
stamping, or perforating the date of the cancellation across the face of each
stamp in such manner that part of the writing, impression, or perforation shall be
on the stamp itself and part on the paper to which it is attached; Provided, That
if the cancellation is accomplished by writing or stamping the date of
cancellation, a hole sufficiently large to be visible to the naked eye shall be
punched, cut or perforated on both the stamp and the document either by the
use of a hand punch, knife, perforating machine, scissors, or any other cutting
instrument; but if the cancellation is accomplished by perforating the date of
cancellation, no other hole need be made on the stamp. (Now Sec. 249.)
SEC. 239. Failure to affix or cancel documentary stamps. — Any person who
fails to affix the correct amount of documentary stamps to any taxable
document, instrument, or paper, or to cancel in the manner prescribed by
section 237 any documentary stamp affixed to any document, instrument, or
paper, shall be subject to a fine of not less than twenty pesos or more than three
hundred pesos. (Emphasis supplied.) (Now Sec. 250.)
As correctly pointed out by respondent Court of Tax Appeals, under the above-quoted provisions
of law, documentary tax is deemed paid by: (a) the purchase of documentary stamps; (b) affixture
of documentary stamps to the document or instrument taxed or to such other paper as may be
indicated by law or regulations; and (c) cancellation of the stamps as required by law (Rollo, p.
18).
It will be observed however, that the over-riding purpose of these provisions of law is the collection
of taxes. The three steps above-mentioned are but the means to that end. Thus, the purchase of
the stamps is the form of payment made; the affixture thereof on the document or instrument taxed
is to insure that the corresponding tax has been paid for such document while the cancellation of
the stamps is to obviate the possibility that said stamps will be reused for similar documents for
similar purposes.
In the case at bar, there appears to be no dispute on the fact that the documentary stamps
corresponding to the various policies were purchased and paid for by the respondent Company.
Neither is there any argument that the same were cancelled as required by law. In fact such were
the findings of petitioner's examiner Amando B. Melgar who stated as follows:
Investigation disclosed that the subject insurance company is a duly organized
corporation doing business in the Philippines. It keeps the necessary books of
accounts and other accounting records needed by the business. Further
verification revealed that it has, since July, 1959, been using a "HASLER"
franking machine, Model F88, which stamps the documentary stamps on the
duplicates of the policies issued. Prior to the acquisition of the said machine, the
company buys its stamps by allowing the Manager to issue a Manager's check
drawn against the National City Bank of New York and payable to the City
Treasurer of Manila. It was also found out that during this period (1952 to 1958),
the total purchases of documentary stamps amounted to P77,837.67, while the
value of the used stamps lost amounted to P65,901.11. Verification with the files
revealed that most of the monthly statements of business and registers of
documentary stamps corresponding to insurance policies issued were missing
while some where the punched documentary stamps affixed were small in
amount are still intact.
The taxpayer was found to be negligent in the preservation and keeping of its
records. Although the loss was found by the company's private investigator (see
attached true copies of his reports) was not an "Inside Job," still the company
should be held liable for its negligence, it appearing that the said records were
placed in a bodega, where almost all patrons of the coffee shop nearby could
see them. The company also violated the provision of Section 221 of the
National Internal Revenue Code which provides that the documentary stamps
should be affixed and cancelled on the duplicates of bonds and policies
issued. In this case, the said stamps were affixed on the register of documentary
stamps. (pp. 35-36, BIR rec.; Emphasis supplied.) (CTA Decision, Rollo, pp, 18-
19.)
Such findings were confirmed by the Memorandum of Acting Commissioner of Internal Revenue
Jose B. Lingad, dated November 7, 1962 to the Chief, Business Tax Division, which states:
The records show that the FIREMAN'S FUND INSURANCE COMPANY
allegedly paid P 77,837.67 in documentary stamp taxes for the policies of
insurance issued by it for the years 1952 to 1958 but could only present as proof
of payment Pll,936.56 of said taxes as the rest of the amount of P 65,901.11
were lost due to robbery. Upon verification of this payment however it was found
that the FIREMAN'S FUND INSURANCE COMPANY affixed the documentary
stamps not on the individual insurance policies issued by it but on a monthly
statement of business and a register of documentary stamps, the use of which
was not authorized by this Office. It was claimed that the same procedure was
used in the case of the lost documentary stamps aforementioned. As this
practice is irregular and the remaining records are not conclusive proofs of the
payment of the corresponding documentary stamp tax on the policies, the
FIREMAN'S FUND AND INSURANCE COMPANY is still liable for the payment
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 of the documentary stamp taxes on the policies found not affixed with stamps. Under the circumstances, this court RESOLVED to DISMISS this petition and to AFFIRM the
(Original B I R Record, p. 87). assailed decision of the Court of Tax Appeals.

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

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

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

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

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

Be that as it may, there is no justification for the government which has already realized the
revenue which is the object of the imposition of subject stamp tax, to require the payment of the
same tax for the same documents. Enshrined in our basic legal principles is the time honored
doctrine that no person shall unjustly enrich himself at the expense of another. It goes without
saying that the government is not exempted from the application of this doctrine (Ramie Textiles,
Inc. v. Mathay Sr., 89 SCRA 587 [1979]).
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G.R. No. L-24754 July 18, 1975
THE COMMISSIONER OF INTERNAL REVENUE, petitioner-appellant,
vs.
P. J. KIENER COMPANY, LTD., INTERNATIONAL CONSTRUCTION CORPORATION,
GAVINO T. UNCHUAN AND THE COURT OF TAX APPEALS, respondent-appellees.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R.
Rosete, and Special Attorney Antonio H. Garces for petitioner-appellant.
Andres T. Velarde for respondents-appellees.
MARTIN, J.:
This is a case that draws Us to the tax exemption provision written in the Military Bases
Agreement1 celebrated by the Republic of the Philippines and the United States of America on
March 14, 1947, and pursued in the "Aide Memoire" 2 between the two Governments on April 27,
1955.
A quo a decision was rendered by respondent Court of Tax Appeals ordering the Commissioner of
Internal Revenue "to give tax credit to [private respondents] the amount of P18,272.21, without
pronouncement as to costs." The Tax Court modified the ruling of the Commissioner of Internal
Revenue denying the request of the private respondents for tax credit amounting to P21,478.31,
the total of specific taxes supposedly paid by them. Petitioner seeks a review of said judgment.
Respondent P.J. Kiener Company, Ltd. is a domestic limited co-partnership, doing business in the
Philippines, while respondent International Construction Corporation is a domestic corporation
duly organized and existing under and by virtue of the laws of the Philippines, likewise engaged in
business in the Philippines. 3 On or about December 14, 1957, respondent companies entered
into a joint venture with respondent Gavino T. Unchuan, a licensed Filipino civil engineer, to bid for
the construction of the Mactan Airfield in Mactan Island, Municipality of Opon (now Lapu-lapu
City), Cebu. Respondents won the bid. And so, on February 19, 1958, the Republic of the
Philippines, represented by Lt. Gen. Alfonso Arellano, then Chief of Staff, Armed Forces of the
Philippines, entered into a contract with private respondents, Article I of which provides, inter alia,
"... That the ... general conditions ... are hereby made integral parts of this contract by
incorporation and reference respectively." Of these "General Conditions", Section 3-19 provides:
3.19. Taxes — In accordance with the Mutual Defense Agreement between the
United States of America and the Republic of the Philippines, no tax of any kind
or description will be levied on any material, equipment or supplies which may
be purchased or otherwise acquired in connection with the project under
contract, which material, equipment or supplies are required solely for such
project. (Emphasis supplied).1äwphï1.ñët
This is the root of the controversy.
Towards the middle of 1958, private respondents commenced construction of the Mactan Airfield
and started purchasing "petroleum products to run and maintain their machineries and equipment"
from Caltex (Phil.) Inc.4During the period of February 1, 1960 through April 11, 1960, they likewise
purchased motor gasoline, kerosene, lubricating and/or motor oil, and diesel fuel from Caltex(Phil.)
Inc. For these petroleum products, Caltex (Phil.) Inc. paid the Bureau of Internal Revenue
P21,478.31 of specific taxes. This amount was, in turn, included in the prices of the petroleum
products paid by private respondents to Caltex (Phil.) Inc. 5
On 29 December 1960, private respondents wrote petitioner, requesting it to refund to Caltex
(Phil.) Inc. the amount of P21,478.31.6 Caltex (Phil.) Inc. followed the request with a formal claim
for tax credit on January 12, 1961. Since no answer was forthcoming, private respondents
instituted on January 31, 1962, a petition for review with the respondent Court of Tax Appeals.
They prayed that they be credited the amounts of P21,478.31 and P151.65, specific and sales
taxes, respectively, plus interest at the legal rate from that date until the grant of the tax
credit.7 However, before the trial of the case, the sales tax of P151.65 was credited in favor of
Caltex (Phil.) Inc.8
Subsequently, or on 7 January 1963, petitioner formally denied the request of Caltex (Phil.) Inc.
stating that as per the ruling of the Department of Finance in its answer to the query of the
Philippine Electrical Supply, dated July 18, 1962:
Oils used by contractors in the operation of their machines or other equipment in
pursuance of their contract are not materials to be solely used for the aforesaid
military projects but petroleum products to be used in the operation of
contractor's machines or equipment. Consequently, the same cannot be
exempted from local taxes as well as customs duties and special import tax.
After trial, the Tax Court rendered the judgment appealed from. It deducted from the P21,478.31
claimed for the specific tax of P908.40 (petroleum products used in the demolition of the Opon
Church in Mactan) and the specific tax of P2,297.74 paid on January, 15, and 25, 1960 for being
barred by prescription (claim for refund was filed only on January 31, 1962. 9
Petitioner delimits its issue or question to the dispositive portion of the Tax Court decision ordering
petitioner "to give tax credit to [private respondents] in the amount of P18,272.21 ..." 10 and
assigns that the Tax Court erred —
I
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 ... IN HOLDING THAT UNDER THE MUTUAL DEFENSE AGREEMENT
BETWEEN THE UNITED STATES OF AMERICA AND THE REPUBLIC OF
THE PHILIPPINES THE PETROLEUM PRODUCTS IN QUESTION ARE
EXEMPT FROM THE PAYMENT OF THE SPECIFIC TAX.
II
... IN HOLDING THAT UNDER THE "AIDE MEMOIRE" OF APRIL 27, 1955,
BETWEEN THE PHILIPPINE REPUBLIC AND THE UNITED STATES OF
AMERICA, THE PETROLEUM PRODUCTS IN QUESTION ARE EXEMPT
FROM THE PAYMENT OF SPECIFIC TAX.
III
... IN HOLDING THAT THE PETROLEUM PRODUCTS IN QUESTION COME
WITHIN THE PURVIEW OF THE WORDS "MATERIAL" OR "SUPPLIES"
MENTIONED IN THE "AIDE MEMOIRE" OF APRIL 27, 1955, BETWEEN THE
PHILIPPINE REPUBLIC AND THE UNITED STATES OF AMERICA, AND OF
SECTION 3-19 OF THE GENERAL CONDITIONS ATTACHED TO THE
SPECIFICATION FOR MACTAN AIRFIELD WHICH WAS MADE AN
INTEGRAL PART OF THE CONTRACT BETWEEN THE PHILIPPINE
GOVERNMENT AND THE RESPONDENTS P.J. KIENER COMPANY, LTD.,
INTERNATIONAL CONSTRUCTION CORPORATION AND GAVINO T.
UNCHUAN.
IV
... IN HOLDING THAT THE RESPONDENTS P.J. KIENER COMPANY LTD.,
INTERNATIONAL CONSTRUCTION CORPORATION AND GAVINO T.
UNCHUAN ARE ENTITLED TO CLAIM FOR TAX CREDIT OF THE SPECIFIC
TAXES WHICH THEY ALLEGEDLY PAID ON THE PETROLEUM PRODUCTS
IN QUESTION; AND
V "supplies" not necessarily incorporated in the construction. The argument misses the point. In its
... IN ORDERING THE HEREIN PETITIONER TO GIVE TAX CREDIT TO THE
RESPONDENTS IN THE AMOUNT OF P18,272.21.
The matrix of these imputations, however, is whether the Petroleum products in question are
"materials" or "supplies" purchased or otherwise acquired "in connection with the construction of
the Mactan Airfield and which "materials" or "supplies" are required "solely" for such project.
Private respondents flawlessly narrate that when they began construction towards the middle of
1958, they started purchasing the petroleum Products from Caltex (Phil.) Inc. "to run and
maintain their machineries and equipment used in the construction." The "equipment" refers to fuel
pumping machineries, radar facilities, and the like. Purchase went through April 11, 1960, when
months thereafter the conflict on the tax credit arose. Private respondents would deliver the
conclusion that these petroleum products are tax-exempt since they have been "... purchased or
otherwise acquired in connection with the project ..." The fact that they are not incorporated into
the Mactan Airbase would not defeat the exemption. 11
The sense which private respondents proffer to attach to the terms "materials" and "supplies"
eludes the link welded into the Military Bases Agreement and "Aide Memoire" and recognized in
Section 3-19 of the "General Conditions". The Military Bases Agreement states that "No import,
excise, consumption or other tax ... shall be charged on material, equipment, supplies or goods
... for exclusive use in the construction ... of the bases ..." (Art. V, footnote 1). The "Aide Memoire"
provides: "... no internal taxes of any kind or description, except income taxes, shall be levied on
any materials, equipment, supplies and/or services which may be purchased or otherwise
acquired in connection with the [construction of the Mactan Airfield] ..." (Sec. 6, Footnote 2).
Section 13-9 of the "General Condition" stipulates that "... no tax of any kind or description will be
levied on any material, equipment or supplies which may be purchased or otherwise acquired in
connection with the project ... " Reduced into simple terms, the underscored phrases continuously
used in the two treaties and in the contract could only mean, collectively. "construction" materials
or supplies which must necessarily be incorporated in the construction of the Airfield. For the
terms "materials" and "supplies" refer to something "going into or consumed" in the performance of
the work 12 such as mortar, cement, sand, bricks, lumber 13 or nails, glass, hardware, and a
thousand other things that might be meant, which are necessary to the complete direction of a
building or structure. 14 Thus, examined, the petroleum products purchased by the private
respondents "to run and maintain their machineries and equipment" cannot be categorized as
"materials" or "supplies" since they do not go into or are consumed in the construction, but in the
machineries and equipment.
Nonetheless, private respondents would unwrap a thesis that if Section 13-9 of the "General
Conditions" intended to refer only to "materials" or "supplies" which form part and/or incorporated
into the project, the said section would have so stated, just like when it provided that "Only
equipment which will be incorporated in the construction" are tax free. 15 They would thus seize
the absence of such proviso as a recognition of the tax-exemption of those "materials" or
textual completeness, Section 13-9 provides: "Only equipment which will be incorporated in the
construction can be imported tax free on certification of the Engineer." (Last sentence, 2nd par.) It
deals centrally on the importation of equipment. The Government had conceded the privilege of
exemption to this item because the same may not be economically procurable in terms of price
and quality within the Philippines." (See. 2, "Aide Memoire"). To assure, however, that the privilege
is not abused or circumvented, the Government has stipulated in Section 13-9 of the "General
Conditions" that the equipment "[must] be incorporated in the construction ..."It was intended by
the Government as an open restraint against possible detour of the revenue and customs laws.
The reason is easily discernible. There still pervaded even at that time the sentiment of preference
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to local products, as can be plucked from the ultimate sentence of Section 2, "Aide Memoire",
thus:
Locally produced materials, however, shall be used wherever such materials are
of satisfactory quality and are available at reasonable, comparable prices.
Under these circumstances, the contractual proviso in Section 13-9 (supra) cannot be isolated and
stretched to mean that " materials" and "supplies" need not be incorporated in the construction to
be tax-exempt. It is essentially non sequitur.
Private respondents would, however, seek a final refuge in the Commissioner of Customs vs.
Caltex (Phil.) Inc., No. L-13067, December 29, 1959 ruling that "gasoline and oil furnished [Caltex]
drivers during the construction job come within the import of the "material or supplies" ". In that
case, Caltex (Phil.) Inc. was granted by the Secretary of Agriculture and Natural resources a
petroleum refining concession with the right to establish and operate a petroleum refinery in the
municipalities of Bauan and Batangas, province of Batangas. The concession made the provisions
of Republic Act No. 387 16 as an integral part. In its operation, Caltex (Phil.) Inc. used as basic
material crude oil imported from abroad. Customs duties were imposed on this imported crude oil
and so, Caltex sought for refund. The Court of Tax Appeals ordered a refund. On petition for
review, the Supreme Court held that under Article 103 of the Act 17 the petroleum
products imported by respondent Caltex(Phil.) Inc. for its use during the construction of the
refinery are exempt from the customs duties and that gasoline and oil furnished its drivers during
the construction job come within the import of the words "material" or "supplies".
It bears emphasis, however, that the words "material" or supplies" in that ruling were interpreted in
relation to the provisions of the Act, particularly Article 103. Unlike the treaties and contract in the
case at bar, no express provision 18 is therein contained that the "materials" or "supplies" must be
"for exclusive use in the construction" (Art. V, Military Bases Agreement) or "in connection with the
[construction] ... which materials ... supplies are required solely for such projects." (Cf. Sec. 6,
"Aide Memoire" and See. 13-9 of "General Conditions").1äwphï1.ñët It is understandable why. At
that time there was no Philippine crude petroleum available for the use of any refinery in the
Philippines, and so imported crude petroleum was allowed so as not to defeat the objective of the
Act which has to promote and encourage the exploration, development, production and utilization
of the petroleum resources of the Philippines. Thus far, the importation of these "materials" and"
supplies" was only circumscribed by a liberal proviso that the exemption shall not be allowed on
"goods imported by the concessionaire for his personal use or that of any others." 19 Beyond that,
the exemption operates. As far as the "materials" and "supplies" are concerned, they need not be
incorporated into the construction to fall within the province of the exemption.
The present case is situated on a different plane. Explicitly, the "materials" and "supplies' must be
for exclusive use in, in connection with, and required solely for the construction of the Mactan
Airfield. In short, the "materials" and "supplies" need be incorporated in the construction for the
exemption to apply. It, therefore, results that the Caltex ruling cannot be invoked as it is o be
interpreted within the context of Republic Act 387.
Anent this, the Secretary of Finance in its letter of July 18, 1962 to the Philippine Electrical Supply
Co., Inc. ruled that "Oils used by contractors in the operation of their machines or other
equipment ... are not materials to be used solely for ... military projects but petroleum products to
be used in the operation of the contractor's machines or equipment. 20 They are,
consequently, not tax-exempt. The ruling commands much respect and weight, since it proceeds
from the official of the government called upon to execute or implement administrative laws 21 and
it lays down a sound rule on the matter. 22
Nor could the ambiguity that thus sprang from the tax-exemption provision in the Military Bases
Agreement and in the "Aide Memoire" in accordance with which 23 the contract in question was
entered into be interpreted in favor of the American Government or, for that matter, any party
claiming under it, like private respondents. 24 Lauterpacht says that "if two meanings of a
stipulation are admissible, that which is least to the advantage of the party for whose benefit the
stipulation was inserted in the treaty should be preferred. 25 Especially when it is considered that
for the Philippine Government, "the exception contained in the tax statutes must be strictly
construed against the one claiming the exemption" 26 because the law "does not look with favor on
tax exemptions and that he who would seek to be thus privileged must justify it by words too plain
to be mistaken and too categorical to be misinterpreted." 27
An error has been assigned by petitioner that while the petroleum products were all purchased by
private respondents from the Caltex (Phil.) Inc., for which the latter paid the specific taxes and
sales taxes, private respondents did not come up with proofs that the specific taxes of P21,478.31
were included in the purchase price paid by them, and that the phrase "Statement of Specific Tax
Excluded from Sales to P.J. Kiener Co. Ltd." appearing in both Exhibits A and B of private
respondents means that the purchase price did not include said taxes. 28 The Court of Tax
Appeals, however, found that the tax of P21,478.31 has been shifted by Caltex (Phil.) Inc. to
private respondents. 29 This finding of the Tax Court must be accorded deference, "being well-nigh
conclusive" upon the Supreme
Court. 30
IN VIEW OF THE FOREGOING, the judgment of the Court of Tax Appeals ordering petitioner "to
give tax credit to [private respondents] the amount of P18,272.21" is reversed and set aside. In all
other respects the judgment appealed from is affirmed. Without pronouncement as to costs.
SO ORDERED.
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G.R. No. L-30232 July 29, 1988
LUZON STEVEDORING CORPORATION, petitioner-appellant,
vs.
COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL
REVENUE, respondents-appellees.
H. San Luis & V.L. Simbulan for petitioner-appellant.
PARAS, J.:
This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in CTA
Case No. 1484, "Luzon Stevedoring Corporation v. Hon. Ramon Oben, Commissioner, Bureau of
Internal Revenue", denying the various claims for tax refund; and the February 20, 1969
Resolution of the same court denying the motion for reconsideration.
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, under protest, the assessed
compensating tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, on
January 2, 1964, it filed a Petition for Review (Rollo, pp. 14-18) with the Court of Tax Appeals,
docketed therein 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 dated October 21,
1969 (Ibid., pp. 22-27), denied the various claims for tax refund. The decretal portion of the said
decision reads:
WHEREFORE, finding petitioner's various claims for refund amounting to
P33,442.13 without sufficient legal justification, the said claims have to be, as
they are hereby, denied. With costs against petitioner.
On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration (Ibid., pp. 28-34), but
the same was denied in a Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant
petition.
This Court, in a Resolution dated March 13, 1969, gave due course to the petition (Ibid., p. 40).
Petitioner-appellant raised three (3) assignments of error, to wit:
I such, it cannot be claimed that the tugboats in question are used in carrying and transporting
The lower court erred in holding that the petitioner-appellant is engaged in
business as stevedore, the work of unloading and loading of a vessel in port,
contrary to the evidence on record.
II
The lower court erred in not holding that the business in which petitioner-
appellant is engaged, is part and parcel of the shipping industry.
III
The lower court erred in not allowing the refund sought by petitioner-appellant.
The instant petition is without merit.
The pivotal issue in this case is whether or not petitioner's tugboats" can be interpreted to be
included in the term "cargo vessels" for purposes of the tax exemption provided for in Section 190
of the National Internal Revenue Code, as amended by Republic Act No. 3176.
Said law provides:
Sec. 190. Compensating tax. — ... And Provided further, That the tax imposed
in this section shall not apply to articles to be used by the importer himself in the
manufacture or preparation of articles subject to specific tax or those for
consignment abroad and are to form part thereof or to articles to be used by the
importer himself as passenger and/or cargo vessel, whether coastwise or
oceangoing, including engines and spare parts of said vessel. ....
Petitioner contends that tugboats are embraced and included in the term cargo vessel under the
tax exemption provisions of Section 190 of the Revenue Code, as amended by Republic Act. No.
3176. He argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the
former towing the latter for loading and unloading of a vessel in part, constitute a single vessel.
Accordingly, it concludes that the engines, spare parts and equipment imported by it and used in
the repair and maintenance of its tugboats are exempt from compensating tax (Rollo, p. 23).
On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are not
"Cargo vessel" because they are neither designed nor used for carrying and/or transporting
persons or goods by themselves but are mainly employed for towing and pulling purposes. As
passengers or cargoes as a common carrier by water, either coastwise or oceangoing and,
therefore, not within the purview of Section 190 of the Tax Code, as amended by Republic Act No.
3176 (Brief for Respondents-Appellees, pp. 45).
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This Court has laid down the rule that "as the power of taxation is a high prerogative of
sovereignty, the relinquishment is never presumed and any reduction or dimunition thereof with
respect to its mode or its rate, must be strictly construed, and the same must be coached in clear
and unmistakable terms in order that it may be applied." (84 C.J.S. pp. 659-800), More specifically
stated, the general rule is that any claim for exemption from the tax statute should be strictly
construed against the taxpayer (Acting Commissioner of Customs v. Manila Electric Co. et al., 69
SCRA 469 [1977] and Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA
142 [1975]).
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 indispensable that the requirements of the
amendatory law be complied with, namely: (1) the engines and spare parts must be used by the
importer himself as a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo
vessel must be used in coastwise or oceangoing navigation (Decision, CTA Case No. 1484; Rollo,
p. 24).
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 to be used by the importer
himself as operator of passenger and/or cargo vessel (Ibid., p. 25).
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. (Webster New International
Dictionary, 2nd Ed.)
A tugboat is a diesel or steam power vessel designed primarily for moving large
ships to and from piers for towing barges and lighters in harbors, rivers and
canals. (Encyclopedia International Grolier, Vol. 18, p. 256).
A tug is a steam vessel built for towing, synonymous with tugboat. (Bouvier's
Law Dictionary.) (Rollo, p. 24).
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 of statutory construction that where
a provision of law speaks categorically, the need for interpretation is obviated, no plausible
pretense being entertained to justify non-compliance. All that has to be done is to apply it in every
case that falls within its terms (Allied Brokerage Corp. v. Commissioner of Customs, L-27641, 40
SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]).
And, even if construction and interpretation of the law is insisted upon, following another
fundamental rule that statutes are to be construed in the light of purposes to be achieved and the
evils sought to be remedied (People v. Purisima etc., et al., L-42050-66, 86 SCRA 544 [1978], it
will be noted that the legislature in amending Section 190 of the Tax Code by Republic Act 3176,
as appearing in the records, intended to provide incentives and inducements to bolster the
shipping industry and not the business of stevedoring, as manifested in the sponsorship speech of
Senator Gil Puyat (Rollo, p. 26).
On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found that no evidence
was adduced by petitioner-appellant that tugboats are passenger and/or cargo vessels used in the
shipping industry as an independent business. On the contrary, petitioner-appellant's own
evidence supports the view that it is engaged as a stevedore, that is, the work of unloading and
loading of a vessel in port; and towing of barges containing cargoes is a part of petitioner's
undertaking as a stevedore. In fact, even its trade name is indicative that its sole and principal
business is stevedoring and lighterage, taxed under Section 191 of the National Internal Revenue
Code as a contractor, and not an entity which transports passengers or freight for hire which is
taxed under Section 192 of the same Code as a common carrier by water (Decision, CTA Case
No. 1484; Rollo, p. 25).
Under the circumstances, there appears to be no plausible reason to disturb the findings and
conclusion of the Court of Tax Appeals.
As a matter of principle, this Court will not set aside the conclusion reached by an agency such as
the Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the
study and consideration of tax problems and has necessarily developed an expertise on the
subject unless there has been an abuse or improvident exercise of authority (Reyes v.
Commissioner of Internal Revenue, 24 SCRA 199 [1981]), which is not present in the instant case.
PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the Court of
Tax Appeals is AFFIRMED.
SO ORDERED.
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G.R. Nos. L-22805 & L-27858 June 30, 1975
WONDER MECHANICAL ENGINEERING CORPORATION represented by Mr. LUCIO
QUIJANO, President & General Manager, petitioner,
vs.
THE HON. COURT OF TAX APPEALS and THE BUREAU OF INTERNAL REVENUE BEING
REPRESENTED BY THE COMMISSIONER OF INTERNAL REVENUE, respondents.
L-22805
Sarte and Espinosa for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Attorney
Augusto A. Lim for respondents.
L-27858
Jose Sarte for petitioner.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R.
Rosete, Solicitor Lolita O. Gal-lang and Special Attorney Elpidio C. Cid for respondents.
ESGUERRA, J.:
Two petitions for review of the decisions of the respondent Court of Tax Appeals in G.R. Nos. L-
22805 and L-27858. The first decision (L-22805) dismissed the appeal of petitioner Wonder
Mechanical Engineering Corporation in C.T.A. Case No. 1036, "for lack of jurisdiction, the same
having been filed beyond the 30 day period prescribed in Section 11 of Republic Act No. 1125",
and confirmed the decision of respondent Commissioner of Internal Revenue which "assessed
against petitioner the total amount of P69,699.56 as fixed taxes and sales and percentage taxes,
inclusive of the 25% surcharge for the years 1953-54". The second decision (L-27858) ordered the
same petitioner to pay, respondent Commissioner of Internal Revenue the amount of "P25,080.91
as deficiency sales and percentage taxes from 1957 to June 30, 1960, inclusive of the 25%
surcharge, plus costs", based on the common principal issue of "whether or not the manufacture
and sale of steel chairs, jeepney parts and other articles which are not machines for making other
products, and job orders done by petitioner come within the purview of the tax exemption granted
it under Republic Act Nos. 35 and 901."
Petitioner is a corporation which was granted tax exemption privilege under Republic Act 35 in
respect to the "manufacture of machines for making cigarette paper, pails, lead washers, rivets,
nails, candies. chairs, etc.". The tax exemption expired on May 30, 1951. On September 14, 1953,
petitioner applied with the Secretary of Finance for reinstatement of the exemption privilege under
the provisions of R.A. 901 approved July 7, 1954, the reinstatement to commence on June 20,
1953, the date Republic Act 901 took effect.
In G.R. No. L-22805, respondent Commissioner of Internal Revenue, sometime in 1955, caused
the investigation of petitioner for the purpose of ascertaining whether or not it had any tax liability.
The findings of Revenue Examiner Alfonso B. Camillo on September 30, 1955, stated "that during
the years 1953 and 1954 the petitioner was engaged in the business of manufacturing various
articles, namely, auto spare parts, flourescent lamp shades, rice threshers, post clips, radio
screws, washers, electric irons, kerosene stoves and other articles; that it also engaged in
business of electroplating and in repair of machines; that although it was engaged in said
business, it did not provide itself with the proper privilege tax receipts as required by Section 182
of the Tax Code and did not pay the sales tax on its gross sales of articles manufactured by it and
the percentage tax due on the gross receipts of its electroplating and repair business pursuant to
Sections 183, 185, 186 and 191 of the same Code".
Based on the foregoing, respondent Commissioner of Internal Revenue assessed against
petitioner on November 29, 1955, the total amount of P69,699.56 as fixed taxes and sales and
percentage taxes, inclusive of the 25% surcharge, as follows:
Sales and percentage taxes for
1953 and 1954 P55,719.65
25% surcharge 13,929.91
C-14 fixed tax (1953-1954) 20.00
C-4 (27) fixed tax (1954) 10.00
C-4 (37) fixed tax (1953-1954) 20.00
TOTAL P69.699.56
Respondent also suggested the payment of the amount of P3,300.00 as penalties in extrajudicial
settlement of petitioner's violations of Sections 182, 183, 185, 186 and 191 of the Tax Code and of
the Bookkeeping Regulations (p. 25, B.I.R. rec.).
In G.R. No. L-27858, respondent Commissioner of Internal Revenue caused the investigation of
petitioner for the purpose of ascertaining its tax liability on August 10, 1960, as a result of which on
December 7, 1960, Revenue Examiner Pedro Cabigao reported that "petitioner had manufactured
and sold steel chairs without paying the 30% sales tax imposed by Section 185(c) of the Tax
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69
Code; accepted job orders without paying the 3% tax in gross receipts imposed by Section 191 of
the same Code; manufactured and sold other articles subject to 7% sales tax under Section 186 of
the same Code but not covered by the tax exemption privilege; failed to register with the Bureau of
Internal Revenue books of accounts and sales invoices as required by the Bookkeeping
Regulations; failed to indicate in the sales invoices the Residence Certificate number of customers
who purchased articles worth P50.00 or over, in violation of the Bookkeeping Regulation; and
failed to produce its books of accounts and business records for inspection and examination when
required to do so by the revenue examiner in violation of the Bookkeeping Regulations (pp. 17-18
B.I.R. rec.)".
Based on the foregoing, the respondent Commissioner of Internal Revenue on October 6, 1961,
assessed against the petitioner "the payment of P25,080.91 as deficiency percentage taxes and
25% surcharge for 1957 to 1960 and suggested the payment of P5,020.00 as total compromise
penalty in extrajudicial settlement of the various violations of the Tax Code and Bookkeeping
Regulation (pp. 28-29 B.I.R. rec.).1äwphï1.ñët "
Regarding the compromise penalty suggested by respondent Bureau of Internal Revenue in both
G.R. L-22805 and L-27858, it does not appear that petitioner accepted the imposition of the
compromise amounts. Hence We find no compelling reasons to alter the decision of respondent
Court of Tax Appeals in L-27858 that —
With respect to the compromise penalty in the total amount of P5,020.00
suggested by respondent to be paid by petitioner, it is now a well settled
doctrine that compromise penalty cannot be imposed or collected without the
agreement or conformity of the tax payer (Collector of Internal Revenue vs.
University of Santo Tomas, et al., G.R. Nos. L-11274 & L-11280, November 28,
1958; the Collector of Internal Revenue v. Bautista, et al., G.R. Nos. L-12250 &
12259, May 27, 1959; the Philippines International Fair, Inc. v. Collector of
Internal Revenue, G.R. Nos. L-12928 & L-12932, March 31, 1962). (Emphasis
for emphasis)
Inasmuch as the figures appearing in the Bureau of Internal Revenue's tax delinquency
assessments in both cases (L-22805 and L-27858) are not in dispute, and the respondent Court of
Tax Appeals ruled in its decision in G.R. No. L-27858 on the lone issue presented in both cases
that the tax assessment of "P25,080.91 as deficiency sales and percentage taxes from 1957 to
June 30, 1960" must be paid by petitioner as the sale of other manufactured items did not come
within the purview, of the tax exemption granted petitioner. We find it no longer necessary to make
a definite stand on the question raised in L-22805 as to the alleged error committed by respondent
Court of Tax Appeals in dismissing the appeal in C.T.A. 1036 (subject matter of L-22805) for lack
of jurisdiction, the same having been filed beyond the 30-day period prescribed in Section 11 of
Republic Act 1126. Suffice it to say on that issue that appellants must perfect their appeal from the
decision of the Commissioner of Internal Revenue to the Court of Tax Appeals within the statutory
period of 30 days, otherwise said Court acquires no jurisdiction.
We turn Our attention on the vital issue of tax exemption claimed by petitioner as basis for
questioning the tax assessments made by respondent Bureau of Internal Revenue in both cases
(G.R. L-22805 and 27858). There is no doubt that petitioner was given a Certificate of Tax
Exemption By the Secretary of Finance on July 7,1954, as follows:
Be it known that upon application filed by Wonder Mechanical Engineering
Corporation, 1310 M. Hizon, Sta. Cruz, Manila, in respect to the manufacture
of machines for making cigarette paper, pails, lead washers, nails, rivets,
candies, etc., the said industry/industries have been determined to be new and
necessary under the provisions of Republic Act No. 901 (or of Republic Act No.
35), in view of which this Certificate of Tax Exemption has been issued entitling
the abovenamed firm/person to tax exemption from the payment of taxes
directly payable by it/him in respect to the said industry/industries until
December 31, 1958, and thereafter to a diminishing exemption until June 20,
1959, as provided in section 1 of Republic Act No. 901, except the exemption
from the income tax which will wholly terminate on June 20, 1955 (B.I.R. rec.,
page 13). (Emphasis for emphasis)
Republic Act 35, approved on September 30, 1946, grants to persons "who or which shall engage
in a new and necessary industry", for a period of four years from the date of the organization of
such industry, exemption "from the payment of all internal revenue taxes directly payable by such
person". Republic Act 901, approved on June 20, 1953, which amended Republic Act 35 by
extending the period of tax exemption, elaborated on the meaning of "new and necessary
industry" as follows:
Sec. 2. For the purposes of this Act, a "new industry is one not existing or
operating on a commercial scale prior to January first, nineteen hundred and
forty-five. Where several applications for exemption are filed in connection with
the same kind of industry, the Secretary of Finance shall approve them in the
order in which they have been filed until the total output or production of those
already granted exemption for that particular kind of industry is sufficient to meet
local demand or consumption: Provided, That the limitation shall not apply to
products intended for export. (Emphasis for emphasis)
Sec. 3. For the purposes of this Act, a "necessary" industry is one complying
with the following requirements:
(1) Where the establishment of the industry will contribute to
the attainment of a stable and balanced national economy.
(2) Where the industry will operate on a commercial scale in
conformity with up-to-date practices and will make its products
available to the general public in quantities and at prices
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 which justify its operation with a reasonable degree of said Act be extended to this corporation in respect to said
permanency. industry.

(3) Where the imported raw materials represent a value not Respec
exceeding sixty percentum of the manufacturing cost plus tfully
reasonable selling price and administrative submitt
expenses: Provided, That a grantee of tax exemption shall ed:
use materials of domestic origin, growth, or manufacture
wherever the same are available or could be made available (SGD.)
in reasonable quantity and quality and at reasonable prices. ... PIO
(Emphasis for emphasis) . PEDRO
SA
From the above-quoted provisions of the law, it is clear that an industry to be entitled to tax Secreta
exemption must be "new and necessary" and that the tax exemption was granted to new and ry"
necessary industries as an incentive to greater and adequate production of products made scarce
by the second world war which wrought havoc on our national economy, a production "sufficient to The letter of the Executive Secretary to the petitioner dated May 30, 1949, reads
meet local demand or consumption"; that will contribute "to the attainment of a stable and as follows:
balanced national economy"; an industry that "will make its products available to the general public
in quantities and at prices which will justify its operation."
"Sirs:
Viewed in the light of the foregoing reasons for the State grant of tax exemption, We are firmly
convinced that petitioner was granted tax exemption in the manufacture and sale "of machines for I have the honor to advise you that His Excellency, the President, has today,
making cigarette paper, pails, lead washers, nails, rivets, candies, etc.", as explicitly stated in the upon recommendation of the Honorable, the Secretary of Finance, approved
Certificate of Exemption (Annex A of the petition in G.R. No. L-22805), but certainly not for the your application for exemption from the payment of internal revenue taxes
manufacture and sale of the articles produced by those machines. on your business of manufacturing machines for making a number of products,
such as cigarette paper, pails, lead washers, rivets, nails, candies, chairs, etc.,
under the provisions of Section 2 of Republic Act No. 35.
That such was the intention of the State when it granted tax exemption to the petitioner in the
manufacture of machines for making certain products could be deduced from the following:
Very
respectf
Before the approval of the original grant of tax exemption to Petitioner for ully,
engaging in a new and necessary industry under Republic Act No. 35, the then
Secretary of Finance submitted a memorandum to the Cabinet, dated March 3,
1949, the pertinent portions of which read as follows: (SGD.)
TEODO
RO
"... If (petitioner) turns out machines whenever orders EVANG
therefore are received. Among its products are a medicine ELISTA
tablet wrapping machine for Dr. Agustin Liboro, photographs
of which are attached, a loud speaker for the Manila Supply, Executi
and a "Lompia wrapping" machine for a certain Chinese. ... ve
Secreta
The manufacture of the above-mentioned machines can be ry"
considered a new and necessary industry for the purpose of (Empha
Republic Act No. 35. It is recommended that the benefits of sis for

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 emphas
is)

Aside from the clarity of the State's intention in granting tax exemption to petitioner in so far as it
manufactures machines for making certain products, as manifested in the acts of its duly
authorized representatives in the Executive branch of the government, it is quite difficult for Us to
believe that the manufacture of steel chairs, jeep parts, and other articles not constituting
machines for making certain products would fall under the classification of "new and necessary"
industries envisioned in Republic Acts 35 and 901 as to entitle the petitioner to tax exemption.

There is no way to dispute the "cardinal rule in taxation that exemptions therefrom are highly
disfavored in law and he who claims tax exemption must be able to justify his claim or right thereto
by the dearest grant of organic or statute law" as succinctly stated in the decision of the
respondent Court of Tax Appeals in C.T.A. No. 1265 (L-27858).1äwphï1.ñët

Tax exemption must be clearly expressed and cannot be established by implication. Exemption
from a common burden cannot be permitted to exist upon vague implication. (Asiatic Petroleum
Co. vs. Llanes, 49 Phil. 466; House vs. Posadas, 53 Phil. 338; Collector of Internal Revenue vs.
Manila Jockey Club, Inc., G.R. No. L-8755, March 23, 1956, 98 Phil. 676).

WHEREFORE, the decisions of respondent Court of Tax Appeals in these two cases are affirmed.
Costs against the petitioner in both cases.

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G.R. No. L-31092 February 27, 1987
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS, respondents.
YAP, J.:
The question involved in this petition is whether respondent John Gotamco & Sons, Inc. should
pay the 3% contractor's tax under Section 191 of the National Internal Revenue Code on the gross
receipts it realized from the construction of the World Health Organization office building in Manila.
The World Health Organization (WHO for short) is an international organization which has a
regional office in Manila. As an international organization, it enjoys privileges and immunities
which are defined more specifically in the Host Agreement entered into between the Republic of
the Philippines and the said Organization on July 22, 1951. Section 11 of that Agreement
provides, inter alia, that "the Organization, its assets, income and other properties shall be: (a)
exempt from all direct and indirect taxes. It is understood, however, that the Organization will not
claim exemption from taxes which are, in fact, no more than charges for public utility services; . . .
When the WHO decided to construct a building to house its own offices, as well as the other
United Nations offices stationed in Manila, it entered into a further agreement with the
Govermment of the Republic of the Philippines on November 26, 1957. This agreement contained
the following provision (Article III, paragraph 2):
The Organization may import into the country materials and fixtures required for
the construction free from all duties and taxes and agrees not to utilize any
portion of the international reserves of the Government.
Article VIII of the above-mentioned agreement referred to the Host Agreement concluded on July
22, 1951 which granted the Organization exemption from all direct and indirect taxes.
In inviting bids for the construction of the building, the WHO informed the bidders that the building
to be constructed belonged to an international organization with diplomatic 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 for such taxes, licenses and other payments to Government
agencies."
The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for
short) on February 10, 1958 for the stipulated price of P370,000.00, but when the building was
completed the price reached a total of P452,544.00.
Sometime in May 1958, the WHO received an opinion from the Commissioner of the Bureau of
Internal Revenue stating that "as the 3% contractor's tax is an indirect tax on the assets and
income of the Organization, the gross receipts derived by contractors from their contracts with the
WHO for the construction of its new building, are exempt from tax in accordance with . . . the Host
Agreement." Subsequently, however, on June 3, 1958, the Commissioner of Internal Revenue
reversed his opinion and stated that "as the 3% contractor's tax is not a direct nor an indirect tax
on the WHO, but a tax that is primarily due from the contractor, the same is not covered by . . . the
Host Agreement."
On January 2, 1960, the WHO issued a certification state 91 inter alia,:
When the request for bids for the construction of the World Health Organization
office building was called for, contractors were informed that there would be no
taxes or fees levied upon them for their work in connection with the construction
of the building as this will be considered an indirect tax to the Organization
caused by the increase of the contractor's bid in order to cover these taxes. This
was upheld by the Bureau of Internal Revenue and it can be stated that the
contractors submitted their bids in good faith with the exemption in mind.
The undersigned, therefore, certifies that the bid of John Gotamco & Sons,
made under the condition stated above, should be exempted from any taxes in
connection with the construction of the World Health Organization office
building.
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% contractor's tax plus surcharges on 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 the Commissioner's decision.
The Court of Tax Appeal's decision is now before us for review on certiorari.
In his first assignment of error, petitioner questions the entitlement of the WHO to tax exemption,
contending that the Host Agreement is null and void, not having been ratified by the Philippine
Senate as required by the Constitution. We find no merit in this contention. While treaties are
required to be ratified by the Senate under the Constitution, less formal types of international
agreements may be entered into by the Chief Executive and become binding without the
concurrence of the legislative body. 1 The Host Agreement comes within the latter category; it is a
valid and binding international agreement even without the concurrence of the Philippine Senate.
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The privileges and immunities granted to the WHO under the Host Agreement have been
recognized by this Court as legally binding on Philippine authorities. 2
Petitioner maintains that even assuming that the Host Agreement granting tax exemption to the
WHO is valid and enforceable, the 3% contractor's tax assessed on Gotamco is not an "indirect
tax" within its purview. 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 enjoyment of a privilege or the
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 WHO, it cannot be deemed an
indirect taxation upon it."
We agree with the Court of Tax Appeals in rejecting this contention of the petitioner. Said the
respondent court:
In context, direct taxes are those that are demanded from the very person who,
it is intended or desired, should pay them; while indirect taxes are those that are
demanded in the first instance from one person in the expectation and intention
that he can shift the burden to someone else. (Pollock vs. Farmers, L & T Co.,
1957 US 429, 15 S. Ct. 673, 39 Law. Ed. 759.) The contractor's tax is of course
payable by the contractor but in the last analysis it 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, it is an indirect
tax. And it is 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 pay the tax indirectly through the contractor and it certainly cannot
be said that 'this tax has no bearing upon the World Health Organization.
While the Organization will not, as a general rule, in the case of minor
purchases, claim exemption from excise duties, and from taxes on the sale of
movable and immovable property which form part of the price to be paid,
nevertheless, when the Organization is making important purchases for official
use of property on which such duties and taxes have been charged or are
chargeable the Government of the Republic of the Philippines shall make
appropriate administrative arrangements for the remission or return of the
amount of duty or tax. (Emphasis supplied).
The above-quoted provision, although referring only to purchases made by the WHO, elucidates
the clear intention of the Agreement to exempt the WHO from "indirect" taxation.
The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor,
Gotamco, from any taxes in connection with the construction of the WHO office building. The 3%
contractor's tax would be within this category and should be viewed as a form of an "indirect tax"
On the Organization, as the payment thereof or its inclusion in the bid price would have meant an
increase in the construction cost of the building.
Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the
appealed decision is hereby affirmed.
SO ORDERED.

Petitioner claims that under the authority of the Philippine Acetylene Company versus
Commissioner of Internal Revenue, et al., 3 the 3% contractor's tax fans directly on Gotamco and
cannot be shifted to the WHO. The Court of Tax Appeals, however, held that the said case is not
controlling in this case, since the Host Agreement specifically exempts the WHO from "indirect
taxes." We agree. The Philippine Acetylene case involved a tax on sales of goods which under the
law had to be paid by the manufacturer or producer; the fact that the manufacturer or producer
might have added the amount of the tax to the price of the goods did not make the sales tax "a tax
on the purchaser." The Court held that the sales tax must be paid by the manufacturer or producer
even if the sale is made to tax-exempt entities like the National Power Corporation, an agency of
the Philippine Government, and to the Voice of America, an agency of the United States
Government.

The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes
which, although not imposed upon or paid by the Organization directly, form part of the price paid
or to be paid by it. This is made clear in Section 12 of the Host Agreement which provides:

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G.R. No. 115349 April 18, 1997 deficiency contractor's tax by increasing the amount due to P193,475.55.
Unsatisfied, private respondent requested for a reconsideration or
COMMISSIONER OF INTERNAL REVENUE, petitioner, reinvestigation of the modified assessment. At the same time, it filed in the
vs. respondent court a petition for review of the said letter-decision of the petitioner.
THE COURT OF APPEALS, THE COURT OF TAX APPEALS and ATENEO DE MANILA While the petition was pending before the respondent court, petitioner issued a
UNIVERSITY, respondents. final decision dated August 3, 1988 reducing the assessment for deficiency
contractor's tax from P193,475.55 to P46,516.41, exclusive of surcharge and
interest.

On July 12, 1993, the respondent court rendered the questioned decision which
PANGANIBAN, J.: dispositively reads:

In conducting researches and studies of social organizations and cultural values thru its Institute of WHEREFORE, in view of the foregoing, respondent's decision
Philippine Culture, is the Ateneo de Manila University performing the work of an independent is SET ASIDE. The deficiency contractor's tax assessment in
contractor and thus taxable within the purview of then Section 205 of the National Internal the amount of P46,516.41 exclusive of surcharge and interest
Revenue Code levying a three percent contractor's tax? This question is answer by the Court in for the fiscal year ended March 31, 1978 is hereby
the negative as it resolves this petition assailing the Decision 1 of the Respondent Court of CANCELED. No pronouncement as to cost.
Appeals 2 in CA-G.R. SP No. 31790 promulgated on April 27, 1994 affirming that of the Court of
Tax Appeals. 3
SO ORDERED.
The Antecedent Facts
Not in accord with said decision, petitioner has come to this Court via the present petition
for review raising the following issues:
The antecedents as found by the Court of Appeals are reproduced hereinbelow, the same being
largely undisputed by the parties.
1) WHETHER OR NOT PRIVATE RESPONDENT FALLS
UNDER THE PURVIEW OF INDEPENDENT CONTRACTOR
Private respondent is a non-stock, non-profit educational institution with auxiliary PURSUANT TO SECTION 205 OF THE TAX CODE; and
units and branches all over the Philippines. One such auxiliary unit is the
Institute of Philippine Culture (IPC), which has no legal personality separate and
distinct from that of private respondent. The IPC is a Philippine unit engaged in 2) WHETHER OR NOT PRIVATE RESPONDENT IS
social science studies of Philippine society and culture. Occasionally, it accepts SUBJECT TO 3% CONTRACTOR'S TAX UNDER SECTION
sponsorships for its research activities from international organizations, private 205 OF THE TAX CODE.
foundations and government agencies.
The pertinent portions of Section 205 of the National Internal Revenue Code, as amended,
On July 8, 1983, private respondent received from petitioner Commissioner of provide:
Internal Revenue a demand letter dated June 3, 1983, assessing private
respondent the sum of P174,043.97 for alleged deficiency contractor's tax, and Sec. 205. Contractor, proprietors or operators of dockyards, and others. — A
an assessment dated June 27, 1983 in the sum of P1,141,837 for alleged contractor's tax of three per centum of the gross receipts is hereby imposed on
deficiency income tax, both for the fiscal year ended March 31, 1978. Denying the following:
said tax liabilities, private respondent sent petitioner a letter-protest and
subsequently filed with the latter a memorandum contesting the validity of the xxx xxx xxx
assessments.
(16) Business agents and other independent contractors
On March 17, 1988, petitioner rendered a letter-decision canceling the except persons, associations and corporations under contract
assessment for deficiency income tax but modifying the assessment for
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 for embroidery and apparel for export, as well as their agents
and contractors and except gross receipts of or from a pioneer
industry registered with the Board of Investments under
Republic Act No. 5186:
xxx xxx xxx
The term "independent contractors" include persons (juridical
or natural) not enumerated above (but not including
individuals subject to the occupation tax under Section 12 of
the Local Tax Code) whose activity consists essentially of the
sale of all kinds of services for a fee regardless of whether or
not the performance of the service calls for the exercise or
use of the physical or mental faculties of such contractors or
their employees.
xxx xxx xxx
Petitioner contends that the respondent court erred in holding that private
respondent is not an "independent contractor" within the purview of Section 205
of the Tax Code. To petitioner, the term "independent contractor", as defined by
the Code, encompasses all kinds of services rendered for a fee and that the
only exceptions are the following:
a. Persons, association and corporations under contract for embroidery and
apparel for export and gross receipts of or from pioneer industry registered with
the Board of Investment under R.A. No. 5186;
b. Individuals occupation tax under Section 12 of the Local Tax Code (under the
old Section 182 [b] of the Tax Code); and
c. Regional or area headquarters established in the Philippines by multinational
corporations, including their alien executives, and which headquarters do not
earn or derive income from the Philippines and which act as supervisory,
communication and coordinating centers for their affiliates, subsidiaries or
branches in the Asia Pacific Region (Section 205 of the Tax Code).
Petitioner thus submits that since private respondent falls under the definition of
an "independent contractor" and is not among the aforementioned exceptions,
private respondent is therefore subject to the 3% contractor's tax imposed under
the same Code. 4
The Court of Appeals disagreed with the Petitioner Commissioner of Internal Revenue and
affirmed the assailed decision of the Court of Tax Appeals. Unfazed, petitioner now asks us to
reverse the CA through this petition for review.
The Issues
Petitioner submits before us the following issues:
1) Whether or not private respondent falls under the purview of independent
contractor pursuant to Section 205 of the Tax Code.
2) Whether or not private respondent is subject to 3% contractor's tax under
Section 205 of the Tax Code. 5
In fine, these may be reduced to a single issue: Is Ateneo de Manila University, through its
auxiliary unit or branch — the Institute of Philippine Culture — performing the work of an
independent contractor and, thus, subject to the three percent contractor's tax levied by then
Section 205 of the National Internal Revenue Code?
The Court's Ruling
The petition is unmeritorious.
Interpretation of Tax Laws
The parts of then Section 205 of the National Internal Revenue Code germane to the case before
us read:
Sec. 205. Contractors, proprietors or operators of dockyards, and others. — A
contractor's tax of three per centum of the gross receipts is hereby imposed on
the following:
xxx xxx xxx
(16) Business agents and other independent contractors, except persons,
associations and corporations under contract for embroidery and apparel for
export, as well as their agents and contractors, and except gross receipts of or
from a pioneer industry registered with the Board of Investments under the
provisions of Republic Act No. 5186;
xxx xxx xxx
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 The term "independent contractors" include persons (juridical or natural) not
enumerated above (but not including individuals subject to the occupation tax
under Section 12 of the Local Tax Code) whose activity consists essentially of
the sale of all kinds of services for a fee regardless of whether or not the
performance of the service calls for the exercise or use of the physical or mental
faculties of such contractors or their employees.
The term "independent contractor" shall not include regional or area
headquarters established in the Philippines by multinational corporations,
including their alien executives, and which headquarters do not earn or derive
income from the Philippines and which act as supervisory, communications and
coordinating centers for their affiliates, subsidiaries or branches in the Asia-
Pacific Region.
The term "gross receipts" means all amounts received by the prime or principal
contractor as the total contract price, undiminished by amount paid to the
subcontractor, shall be excluded from the taxable gross receipts of the
subcontractor.
Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo de Manila
University "falls within the definition" of an independent contractor and "is not one of those
mentioned as excepted"; hence, it is properly a subject of the three percent contractor's tax levied
by the foregoing provision of law. 6 Petitioner states that the "term 'independent contractor' is not
specifically defined so as to delimit the scope thereof, so much so that any person who . . .
renders physical and mental service for a fee, is now indubitably considered an independent
contractor liable to 3% contractor's tax." 7 According to petitioner, Ateneo has the burden of proof
to show its exemption from the coverage of the law.
We disagree. Petitioner Commissioner of Internal Revenue 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 obviously both illogical and impractical to determine who are exempted without first
determining who are covered by the aforesaid provision. The Commissioner should have
determined first if private respondent was covered by 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 therefrom. The Court takes this 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, expressly, and unambiguously . . . (A) tax cannot be imposed without clear and express
words for that purpose. Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act
are not to be extended by implication." 8 Parenthetically, in answering the question of who is
subject to tax statutes, it is basic that "in case of doubt, such statutes are to be construed most
strongly against the government and in favor of the subjects or citizens because burdens are not
to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import." 9
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 services. Hence, to impose the
three percent contractor's tax on Ateneo's Institute of Philippine Culture, it should be sufficiently
proven that the private respondent is indeed selling its services for a fee in pursuit of an
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 therefrom would arise. Only after 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's position. This is the main line of
reasoning of the Court of Tax Appeals in its decision, 10 which was affirmed by the CA.
The Ateneo de Manila University Did Not Contract
for the Sale of the Service of its Institute of Philippine Culture
After reviewing the records of this case, we find no evidence that Ateneo's Institute of Philippine
Culture ever sold its services for a fee to anyone or was ever engaged in a business apart from
and independently of the academic purposes of the university.
Stressing that "it is not the Ateneo de Manila University per se which is being taxed," Petitioner
Commissioner of Internal Revenue contends that "the tax is due on its activity of conducting
researches for a fee. The tax is due on the gross receipts made in favor of IPC pursuant to the
contracts the latter entered to conduct researches for the benefit primarily of its clients. The tax is
imposed on the exercise of a taxable activity. . . . [T]he sale of services of private respondent is
made under a contract and the various contracts entered into between private respondent and its
clients are almost of the same terms, showing, among others, the compensation and terms of
payment." 11(Emphasis supplied.)
In theory, the Commissioner of Internal Revenue may be correct. However, the records do not
show that Ateneo's IPC in fact contracted to sell its research services for a fee. Clearly then, as
found by the Court of Appeals and the Court of Tax Appeals, petitioner's theory is inapplicable to
the established factual milieu obtaining in the instant case.
In the first place, the petitioner has presented no evidence to prove its bare contention that,
indeed, contracts for sale of services were ever entered into by the private respondent. As
appropriately pointed out by the latter:
An examination of the Commissioner's Written Formal Offer of Evidence in the
Court of Tax Appeals shows that only the following documentary evidence was
presented:
Exhibit 1 BIR letter of authority no. 331844
2 Examiner's Field Audit Report
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 3 Adjustments to Sales/Receipts
4 Letter-decision of BIR Commissioner
Bienvenido A. Tan Jr.
None of the foregoing evidence even comes close to purport to be contracts
between private respondent and third parties. 12
Moreover, the Court of Tax Appeals accurately and correctly declared that the " funds received by
the Ateneo de Manila University are technically not a fee. They may however fall as gifts or
donations which are tax-exempt" as shown by private respondent's compliance with the
requirement of Section 123 of the National Internal Revenue Code providing for the exemption of
such gifts to an educational institution. 13
Respondent Court of Appeals elucidated on the ruling of the Court of Tax Appeals:
To our mind, private respondent hardly fits into the definition of an "independent
contractor".
For one, the established facts show that IPC, as a unit of the private respondent,
is not engaged in business. Undisputedly, private respondent is mandated by
law to undertake research activities to maintain its university status. In fact, the
research activities being carried out by the IPC is focused not on business or
profit but on social sciences studies of Philippine society and culture. Since it
can only finance a limited number of IPC's research projects, private respondent
occasionally accepts sponsorship for unfunded IPC research projects from
international organizations, private foundations and governmental
agencies. However, such sponsorships are subject to private respondent's
terms and conditions, among which are, that the research is confined to topics
consistent with the private respondent's academic agenda; that no proprietary or
commercial purpose research is done; and that private respondent retains not
only the absolute right to publish but also the ownership of the results of the
research conducted by the IPC. Quite clearly, the aforementioned terms and
conditions belie the allegation that private respondent is a contractor or is
engaged in business.
For another, it bears stressing that private respondent is a non-stock, non-profit
educational corporation. The fact that it accepted sponsorship for IPC's
unfunded projects is merely incidental. For, the main function of the IPC is to
undertake research projects under the academic agenda of the private
respondent. Moreover the records do not show that in accepting sponsorship of
research work, IPC realized profits from such work. On the contrary, the
evidence shows that for about 30 years, IPC had continuously operated at a
loss, which means that sponsored funds are less than actual expenses for its
research projects. That IPC has been operating at a loss loudly bespeaks of the
fact that education and not profit is the motive for undertaking the research
projects.
Then, too, granting arguendo that IPC made profits from the sponsored
research projects, the fact still remains that there is no proof that part of such
earnings or profits was ever distributed as dividends to any stockholder, as in
fact none was so distributed because they accrued to the benefit of the private
respondent which is a non-profit educational institution. 14
Therefore, it is clear that the funds received by Ateneo's Institute of Philippine Culture are not
given in the concept of a fee or price in exchange for the performance of a service or delivery of an
object. Rather, the amounts are in the nature of an endowment or donation given by IPC's
benefactors solely for the purpose of sponsoring or funding the research with no strings attached.
As found by the two courts below, such sponsorships are subject to IPC's terms and conditions.
No proprietary or commercial research is done, and IPC retains the ownership of the results of the
research, including the absolute right to publish the same. The copyrights over the results of the
research are owned by
Ateneo and, consequently, no portion thereof may be reproduced without its permission. 15 The
amounts given to IPC, therefore, may not be deemed, it bears stressing as fees or gross receipts
that can be subjected to the three percent contractor's tax.
It is also well to stress that the questioned transactions of Ateneo's Institute of Philippine Culture
cannot be deemed either as a contract of sale or a contract of a piece of work. "By the contract of
sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent." 16 By its
very nature, a contract of sale requires a transfer of ownership. Thus, Article 1458 of the Civil
Code "expressly makes the obligation to transfer ownership as an essential element of the
contract of sale, following modern codes, such as the German and the Swiss. Even in the absence
of this express requirement, however, most writers, including Sanchez Roman, Gayoso, Valverde,
Ruggiero, Colin and Capitant, have considered such transfer of ownership as the primary purpose
of sale. Perez and Alguer follow the same view, stating that the delivery of the thing does not
mean a mere physical transfer, but is a means of transmitting ownership. Transfer of title or an
agreement to transfer it for a price paid or promised to be paid is the essence of sale." 17 In the
case of a contract for a piece of work, "the contractor binds himself to execute a piece of work for
the employer, in consideration of a certain price or compensation. . . . If the contractor agrees to
produce the work from materials furnished by him, he shall deliver the thing produced to the
employer and transfer dominion over the thing, . . ." 18 Ineludably, whether the contract be one of
sale or one for a piece of work, a transfer of ownership is involved and a party necessarily walks
away with an object. 19 In the case at bench, it is clear from the evidence on record that there was
no sale either of objects or services because, as adverted to earlier, there was no transfer of
ownership over the research data obtained or the results of research projects undertaken by the
Institute of Philippine Culture.
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Furthermore, it is clear that the research activity of the Institute of Philippine Culture is done in
pursuance of maintaining Ateneo's university status and not in the course of an independent
business of selling such research with profit in mind. This is clear from a reading of the regulations
governing universities:
31. In addition to the legal requisites an institution must meet, among others, the
following requirements before an application for university status shall be
considered:
xxx xxx xxx
(e) The institution must undertake research and operate with a competent
qualified staff at least three graduate departments in accordance with the rules
and standards for graduate education. One of the departments shall be science
and technology. The competence of the staff shall be judged by their effective
teaching, scholarly publications and research activities published in its school
journal as well as their leadership activities in the profession.
(f) The institution must show evidence of adequate and stable financial
resources and support, a reasonable portion of which should be devoted to
institutional development and research. (emphasis supplied)
xxx xxx xxx
32. University status may be withdrawn, after due notice and hearing, for failure
to maintain satisfactorily the standards and requirements therefor. 20
Petitioner's contention that it is the Institute of Philippine Culture that is being taxed and not the
Ateneo is patently erroneous because the former is not an independent juridical entity that is
separate and distinct form the latter.
Factual Findings and Conclusions of the Court of Tax Appeals Affirmed by the Court of
Appeals Generally Conclusive
In addition, we reiterate that the "Court of Tax Appeals is a highly specialized body specifically
created for the purpose of reviewing tax cases. Through its expertise, it is undeniably competent to
determine the issue of whether" 21 Ateneo de Manila University may be deemed a subject of the
three percent contractor's tax "through the evidence presented before it." Consequently, "as a
matter of principle, this Court will not set aside the conclusion reached by . . . the Court of Tax
Appeals which is, by the very nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an expertise on the subject unless
there has been an abuse or improvident exercise of authority . . ." 22 This point becomes more
evident in the case before us where the findings and conclusions of both the Court of Tax Appeals
and the Court of Appeals appear untainted by any abuse of authority, much less grave abuse of
discretion. Thus, we find the decision of the latter affirming that of the former free from any
palpable error.
Public Service, Not Profit, is the Motive
The records show that the Institute of Philippine Culture conducted its research activities at a huge
deficit of P1,624,014.00 as shown in its statements of fund and disbursements for the period 1972
to 1985. 23 In fact, it was Ateneo de Manila University itself that had funded the research projects
of the institute, and it was only when Ateneo could no longer produce the needed funds that the
institute sought funding from outside. The testimony of Ateneo's Director for Accounting Services,
Ms. Leonor Wijangco, provides significant insight on the academic and nonprofit nature of the
institute's research activities done in furtherance of the university's purposes, as follows:
Q Now it was testified to earlier by Miss Thelma Padero (Office Manager of the
Institute of Philippine Culture) that as far as grants from sponsored research it is
possible that the grant sometimes is less than the actual cost. Will you please
tell us in this case when the actual cost is a lot less than the grant who
shoulders the additional cost?
A The University.
Q Now, why is this done by the University?
A Because of our faculty development program as a university, because a
university has to have its own research institute. 24
So, why is it that Ateneo continues to operate and conduct researches through its Institute of
Philippine Culture when it undisputedly loses not an insignificant amount in the process? The plain
and simple answer is that private respondent is not a contractor selling its services for a fee but an
academic institution conducting these researches pursuant to its commitments to education and,
ultimately, to public service. For the institute to have tenaciously continued operating for so long
despite its accumulation of significant losses, we can only agree with both the Court of Tax
Appeals and the Court of Appeals that "education and not profit is [IPC's] motive for undertaking
the research
projects." 25
WHEREFORE, premises considered, the petition is DENIED and the assailed Decision of the
Court of Appeals is hereby AFFIRMED in full.
SO ORDERED.
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G.R. No. L-29485 November 21, 1980
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
AYALA SECURITIES CORPORATION and THE HONORABLE COURT OF TAX
APPEALS, respondents.
TEEHANKEE, J.:
Before the Court is petitioner Commissioner of Internal Revenue's motion for reconsideration of
the Court's decision of April 8, 1976 wherein the Court affirmed in toto the appealed decision of
respondent Court of Tax Appeals, the dispositive portion of which provides as follows:
WHEREFORE, the decision of the respondent Commissioner of Internal
Revenue assessing petitioner the amount of P758,687.04 as 25% surtax and
interest is reversed. Accordingly, said assessment of respondent for 1955 is
hereby cancelled and declared of no force and effect, Without pronouncement
as to costs.
This Court's decision under reconsideration held that the assessment made on February 21, 1961
by petitioner against respondent corporation (and received by the latter on March 22, 1961) in the
sum of P758,687.04 on its surplus of P2,758,442.37 for its fiscal year ending September 30, 1955
fell under the five-year prescriptive period provided in section 331 of the National Internal Revenue
Code and that the assessment had, therefore, been made after the expiration of the said five-year
prescriptive period and was of no binding force and effect .
Petitioner has urged that
A perusal of Sections 331 and 332(a) will reveal that they refer to a tax, the
basis of which is required by law to be reported in a return such as for example,
income tax or sales tax. However, the surtax imposed by Section 25 of the Tax
Code is not one such tax. Accumulated surplus are never returned for tax
purposes, as there is no law requiring that such surplus be reported in a return
for purposes of the 25% surtax. In fact, taxpayers resort to all means and
devices to cover up the fact that they have unreasonably accumulated surplus.
Petitioner, therefore, submits that
As there is no law requiring taxpayers to file returns of their accumulated
surplus, it is obvious that neither Section 33 nor Section 332(a) of the Tax Code
applies in a case involving the 25% surtax imposed by Section 25 of the Tax
Code. ...
Petitioner cites the Court of Tax Appeals' ruling in the earlier case of United Equipment & Supply
Company vs. Commissioner of Internal Revenue (CTA Case No. 1795, October 30, 1971) which
was appealed by petitioner taxpayer to this Court in G. R. No. L-35653 bearing the same title,
which appeal was denied by this Court en banc for lack of merit as per its Resolution of October
25, 1972, In said case, the tax court squarely ruled that the provisions of sections 331 and 332 of
the National Internal Revenue Code for prescriptive periods of five 5 and ten (10) years after the
filing of the return do not apply to the tax on the taxpayer's unreasonably accumulated surplus
under section 25 of the Tax Code since no return is required to be filed by law or by regulation on
such unduly ac cumulated surplus on earnings, reasoning as follows:
In resisting the assessment amounting to P10,864.26 as accumulated earnings tax for 1957,
petitioner also invoked the defense of prescription against the right of respondent to assess the
said tax. It is contended that since its income tax return for 1957 was filed in 1958, and with the
clarification by respondent in his letter dated May 14, 1963, that the amount sought to be collected
was petitioner's surtax liability under Section 25 rather than deficiency corporate income tax under
Section 24 of the National Internal Revenue Code, the assessment has already prescribed under
Section 331 of the same Code.
Section 331 of the Revenue Code provides:
SEC. 331. Period of limitation upon assessment and collection. — Except as
provided in the succeeding section, internal revenue taxes shall be assessed
within five years after the return was filed, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of
such period. For the purpose of this section a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last
day; Provided, That this limitation shall not apply to cases already investigated
prior to the approval of this Code.
Obviously, Section 331 applies to, assessment of National Internal Revenue
Taxes which requires the filing of returns. A return, the filing of which is
necessary to start the running of tile five-year period for making an assessment,
must be one which is required for the particular tax. Consequently, it has been
held that the filing of an income tax return does not start the running of the
statute of limitation for assessment of the sales tax. (Butuan Sawmill, Inc. v.
Court of Tax Appeals, G.R. No. L-20601, Feb. 28, 1966, 16 SCRA 277).
Although petitioner filed an income tax return, no return was filed covering its
surplus profits which were improperly accumulated. In fact, no return could have
been filed, and the law could not possibly require, for obvious reasons, the filing
of a return covering unreasonable accumulation of corporate surplus profits. A
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tax imposed upon unreasonable accumulation of surplus is in the nature of a
penalty. (Helvering v. National Grocery Co., 304 U.S. 282). It would not be
proper for the law to compel a corporation to report improper accumulation of
surplus. Accordingly, Section 331 limiting the right to assess internal revenue
taxes within five years from the date the return was filed or was due does not
apply.
Neither does Section 332 apply. Said Section provides:
SEC. 332 Exceptions as to period of limitation of assessment and collection of
taxes.— (a) In the case of a false or fraudulent return with intent to evade tax or
of failure to file a return, the tax may be assessed, or a proceeding in court for
the collection of such tax may be begun without assessment, at any time within
ten years after the discovery of the falsity, fraud, or omission.
(b) Where before the expiration of the time prescribed in the
preceding section for the assessment of the tax, both the
Commissioner of Internal Revenue and the taxpayer have
consented in writing to its assessment after such time, the tax
may be assessed at any time prior to the expiration of the
period agreed upon. The period so agreed upon may be
extended by subsequent agreements in writing made before
the expiration of the period previously agreed upon.
(c) Where the assessment of any internal revenue tax has
been made within the period of limitation above-prescribed
such tax may be collected by distraint or levy by a proceeding
in court, but only if begun (1) within five years after the
assessment of the tax, or (2) prior to the expiration of any
period for collection agreed upon in writing by the
Commissioner of Internal Revenue and the taxpayer before
the expiration of such five-year period. The period so agreed
upon may be extended by subsequent agreements in writing
made before the expiration of the period previously agreed
upon.
It will be noted that Section 332 has reference to national internal revenue taxes
which require the filing of returns. This is implied, from the provision that the ten-
year period for assessment specified therein treats of the filing of a false or
fraudulent return or of a failure to file a return. There can be no failure or
omission to file a return where no return is required to be filed by law or by
regulation. It is, therefore, our opinion that the ten-year period for making in
assessment under Section 332 does not apply to internal revenue taxes which
do not require the filing of a return.
It is well settled limitations upon the right of the government to assess and
collect taxes will not be presumed in the absence of clear legislation to the
contrary. The existence of a time limit beyond which the government may
recover unpaid taxes is purely dependent upon some express statutory
provision, (51 Am. Jur. 867; 10 Mertens Law of Federal Income Taxation, par.
57. 02.). It follows that in the absence of express statutory provision, the right of
the government to assess unpaid taxes is imprescriptible. Since there is no
express statutory provision limiting the right of the Commissioner of Internal
Revenue to assess the tax on unreasonable accumulation of surplus provided in
Section 25 of the Revenue Code, said tax may be assessed at any time.
(Emphasis supplied)
Such ruling was in effect upheld by this Court en banc upon its dismissal of the taxpayer's appeal
for lack of merit as above stated.
The Court is persuaded by the fundamental principle invoked by petitioner that limitations upon the
right of the government to assess and collect taxes will not be presumed in the absence of clear
legislation to the contrary and that where the government has not by express statutory provision
provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible.
The Court, therefore, reconsiders its ruling in its decision under reconsideration that the right to
assess and collect the assessment in question had prescribed after five years, and instead rules
that there is no such time limit on the right of the Commissioner of Internal Revenue to assess the
25% tax on unreasonably accumulated surplus provided in section 25 of the Tax Code, since there
is no express statutory provision limiting such right or providing for its prescription. The underlying
purpose of the additional tax in question on a corporation's improperly accumulated profits or
surplus is as set forth in the text of section 25 of the Tax Code itself 1 to avoid the situation where
a corporation unduly retains its surplus instead of declaring and paving dividends to its
shareholders or members who would then have to pay the income tax due on such dividends
received by them. The record amply shows that respondent corporation is a mere holding
company of its shareholders through its mother company, a registered co-partnership then set up
by the individual shareholders belonging to the same family and that the prima facie evidence and
presumption set up by the Tax Code, therefore applied without having been adequately rebutted
by the respondent corporation.
Thus, Mr. Lamberto J. Cabral, the accountant of the corporation, testified before the court as
follows:
Atty. Garces
The investigation, Your Honor, shows that for the year 1955,
the Ayala Securities Corporation had 175,000 outstanding
shares of stock and out of these shares of Ayala Securities
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Corporation, the Ayala and Company owned 174,996 shares What is the materiality of the case if it is a mere investment
of stock. company. In fact, we are here in court to prove the
reasonableness or unreasonableness of the accumulation of
Q. Is that right, Mr. Cabral? profit. I think counsel for the respondent is trying to harp on
presumption; but actually we will not be delving on
presumption but on actual facts proving the reasonableness of
Atty. Ong the accumulation based on actual evidence.

Objection, Your Honor, on the materiality of Judge Alvarez

the question.
In order to determine the reasonableness or
Judge Alvarez unreasonableness, there must be a basis. witness will have to
answer the question.
What is the materiality of the question?
A. Yes.
Atty. Garces
xxx xxx xxx
We want to prove to this honorable Court that Ayala Securities
Corporation is a holding or investment company, the parent Q. As of September 30, 1955 when the Ayala Securities
company being Ayala and Company. Corporation tiled its income tax return, were the officers of the
Ayala Securities Corporation and the Ayala and Company
Judge Alvarez housed in the same building?

Witness may answer. A. Yes, sir; they were.

A. I think so; yes. Q. And also are the employees of the Ayala Securities
corporation and the Ayala and Company the same - meaning
Q. And Ayala and Company's owned almost wholly by the that the employees of the Ayala Securities Corporation are
Zobel Family and the Ayala Family? also the employees of the Ayala and Company?

Atty. Ong A. At the time, if I remember right, Ayala and Company was
the operating company and the employees were the
employees of the Ayala and Company; (t.s.n., pp. 32-37).
If Your Honor please, objection again on the materiality. What
would counsel for the respondent prove on this point?
Another witness, Mr. Salvador J. Lorayes the Secretary and head of the Legal Department of the
corporation, also testified that:
Atty. Garces
Judge Alvarez questions
Same purpose, Your If Honor to prove that Ayala Securities
corporation is a mere investment or holding company
Q. May we know from you whether Ayala Securities
corporation is an affiliate of Ayala and Company?
Atty. Ong

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 A. Yes, Your honor.
Q. Do we understand from you that Ayala and Company is the
mother corporation of this affiliate?
A. That is correct.
Q. And that the policy of Ayala Securities Corporation is
practically governed by the officers or partners of Ayala and
company
ACCORDINGLY, the Court's decision of April 8, 1976 is set aside and in lieu thereof, judgment is
hereby rendered ordering respondent corporation to pay the assessment in the sum of
P758,687.04 as 25% surtax on its unreasonably accumulated surplus, plus the 5% surcharge and
1% monthly interest thereon, pursuant to section 51 (e) of the National Internal Revenue Code, as
amended by R. A. 2343. With Costs.
Makasiar, Fernandez, Guerrero and De Castro, JJ., concur.
Melencio-Herrera, J., took no part.

A. They have a strong influence over the policy of Ayala

Securities Corporation.

Q. So that whatever is decided by the partners of Ayala and

Company for a certain investment or project would also be
followed by Ayala Securities Corporation?

A. If the project is assigned to Ayala Securities Corporation it

will be followed by Ayala Securities Corporation; if to another
affiliate, no (t.s.n., pp. 149-150). ...

Respondent corporation was therefore fully shown to fall under Revenue Regulation No. 2
implementing the provisions of the income tax law which provides on holding and investment
companies that

SEC. 20. Holding and Investment Companies. — A corporation having

practically no activities except holding property, and collecting the income
therefrom or investing therein, shall be considered a holding company within the
meaning of section 25.

Petitioner commissioner's plausible alternative contention is that even if the 25% surtax were to be
deemed subject to prescription, computed from the filing of the income tax return in 1955, the
intent to evade payment of the surtax is an inherent quality of the violation and the return filed
must necessarily partake of a false and/or fraudulent character which would make applicable the
10-year prescriptive period provided in section 332(a) of the Tax Code and since the assessment
was made in 1961 (the sixth year), the assessment was clearly within the 10-year prescriptive
period. The Court sees no necessity, however, for ruling on this point in view of its adherence to
the ruling in the earlier raise of United Equipment & Supply Co., supra, holding that the 25% surtax
is not subject to any statutory prescriptive period.

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G.R. No. L-17725 February 28, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
MAMBULAO LUMBER COMPANY, ET AL., defendants-appellants.
Office of the Solicitor General for plaintiff-appellee.
Arthur Tordesillas for defendants-appellants.
BARRERA, J.:
From the decision of the Court of First Instance of Manila (in Civil Case No. 34100) ordering it to
pay to plaintiff Republic of the Philippines the sum of P4,802.37 with 6% interest thereon from the
date of the filing of the complaint until fully paid, plus costs, defendant Mambulao Lumber
Company interposed the present appeal.1
The facts of the case are briefly stated in the decision of the trial court, to wit: .
The facts of this case are not contested and may be briefly summarized as follows: (a)
under the first cause of action, for forest charges covering the period from September 10,
1952 to May 24, 1953, defendants admitted that they have a liability of P587.37, which
liability is covered by a bond executed by defendant General Insurance & Surety
Corporation for Mambulao Lumber Company, jointly and severally in character, on July
29, 1953, in favor of herein plaintiff; (b) under the second cause of action, both
defendants admitted a joint and several liability in favor of plaintiff in the sum of P296.70,
also covered by a bond dated November 27, 1953; and (c) under the third cause of
action, both defendants admitted a joint and several liability in favor of plaintiff for
P3,928.30, also covered by a bond dated July 20, 1954. These three liabilities aggregate
to P4,802.37. If the liability of defendants in favor of plaintiff in the amount already
mentioned is admitted, then what is the defense interposed by the defendants? The
defense presented by the defendants is quite unusual in more ways than one. It appears
from Exh. 3 that from July 31, 1948 to December 29, 1956, defendant Mambulao Lumber
Company paid to the Republic of the Philippines P8,200.52 for 'reforestation charges' and
for the period commencing from April 30, 1947 to June 24, 1948, said defendant paid
P927.08 to the Republic of the Philippines for 'reforestation charges'. These reforestation
were paid to the plaintiff in pursuance of Section 1 of Republic Act 115 which provides
that there shall be collected, in addition to the regular forest charges provided under
Section 264 of Commonwealth Act 466 known as the National Internal Revenue Code,
the amount of P0.50 on each cubic meter of timber... cut out and removed from any
public forest for commercial purposes. The amount collected shall be expended by the
director of forestry, with the approval of the secretary of agriculture and commerce, for
reforestation and afforestation of watersheds, denuded areas ... and other public forest
lands, which upon investigation, are found needing reforestation or afforestation .... The
total amount of the reforestation charges paid by Mambulao Lumber Company is
P9,127.50, and it is the contention of the defendant Mambulao Lumber Company that
since the Republic of the Philippines has not made use of those reforestation charges
collected from it for reforesting the denuded area of the land covered by its license, the
Republic of the Philippines should refund said amount, or, if it cannot be refunded, at
least it should be compensated with what Mambulao Lumber Company owed the
Republic of the Philippines for reforestation charges. In line with this thought, defendant
Mambulao Lumber Company wrote the director of forestry, on February 21, 1957 letter
Exh. 1, in paragraph 4 of which said defendant requested "that our account with your
bureau be credited with all the reforestation charges that you have imposed on us from
July 1, 1947 to June 14, 1956, amounting to around P2,988.62 ...". This letter of
defendant Mambulao Lumber Company was answered by the director of forestry on
March 12, 1957, marked Exh. 2, in which the director of forestry quoted an opinion of the
secretary of justice, to the effect that he has no discretion to extend the time for paying
the reforestation charges and also explained why not all denuded areas are being
reforested.
The only issue to be resolved in this appeal is whether the sum of P9,127.50 paid by defendant-
appellant company to plaintiff-appellee as reforestation charges from 1947 to 1956 may be set off
or applied to the payment of the sum of P4,802.37 as forest charges due and owing from appellant
to appellee. It is appellant's contention that said sum of P9,127.50, not having been used in the
reforestation of the area covered by its license, the same is refundable to it or may be applied in
compensation of said sum of P4,802.37 due from it as forest charges.1äwphï1.ñët
We find appellant's claim devoid of any merit. Section 1 of Republic Act No. 115, provides:
SECTION 1. There shall be collected, in addition to the regular forest charges provided
for under Section two hundred and sixty-four of Commonwealth Act Numbered Four
Hundred Sixty-six, known as the National Internal Revenue Code, the amount of fifty
centavos on each cubic meter of timber for the first and second groups and forty
centavos for the third and fourth groups cut out and removed from any public forest for
commercial purposes. The amount collected shall be expended by the Director of
Forestry, with the approval of the Secretary of Agriculture and Natural Resources
(commerce), for reforestation and afforestation of watersheds, denuded areas and cogon
and open lands within forest reserves, communal forest, national parks, timber lands,
sand dunes, and other public forest lands, which upon investigation, are found needing
reforestation or afforestation, or needing to be under forest cover for the growing of
economic trees for timber, tanning, oils, gums, and other minor forest products or
medicinal plants, or for watersheds protection, or for prevention of erosion and floods and
preparation of necessary plans and estimate of costs and for reconnaisance survey of
public forest lands and for such other expenses as may be deemed necessary for the
proper carrying out of the purposes of this Act.
All revenues collected by virtue of, and pursuant to, the provisions of the preceding
paragraph and from the sale of barks, medical plants and other products derived from
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 plantations as herein provided shall constitute a fund to be known as Reforestation Fund,
to be expended exclusively in carrying out the purposes provided for under this Act. All
provincial or city treasurers and their deputies shall act as agents of the Director of
Forestry for the collection of the revenues or incomes derived from the provisions of this
Act. (Emphasis supplied.)
Under this provision, it seems quite clear that the amount collected as reforestation charges from a
timber licenses or concessionaire shall constitute a fund to be known as the Reforestation Fund,
and that the same shall be expended by the Director of Forestry, with the approval of the
Secretary of Agriculture and Natural Resources for the reforestation or afforestation, among
others, of denuded areas which, upon investigation, are found to be needing reforestation or
afforestation. Note that there is nothing in the law which requires that the amount collected as
reforestation charges should be used exclusively for the reforestation of the area covered by the
license of a licensee or concessionaire, and that if not so used, the same should be refunded to
him. Observe too, that the licensee's area may or may not be reforested at all, depending on
whether the investigation thereof by the Director of Forestry shows that said area needs
reforestation. The conclusion seems to be that the amount paid by a licensee as reforestation
charges is in the nature of a tax which forms a part of the Reforestation Fund, payable by him
irrespective of whether the area covered by his license is reforested or not. Said fund, as the law
expressly provides, shall be expended in carrying out the purposes provided for thereunder,
namely, the reforestation or afforestation, among others, of denuded areas needing reforestation
or afforestation.
subject of recoupment since they do not arise out of the contract or transaction sued on.
... (80 C.J.S. 73-74. ) .
The general rule, based on grounds of public policy is well-settled that no set-off is
admissible against demands for taxes levied for general or local governmental purposes.
The reason on which the general rule is based, is that taxes are not in the nature of
contracts between the party and party but grow out of a duty to, and are the positive acts
of the government, to the making and enforcing of which, the personal consent of
individual taxpayers is not required. ... If the taxpayer can properly refuse to pay his tax
when called upon by the Collector, because he has a claim against the governmental
body which is not included in the tax levy, it is plain that some legitimate and necessary
expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax
must await and abide the result of a lawsuit, and meanwhile the financial affairs of the
government will be thrown into great confusion. (47 Am. Jur. 766-767.)
WHEREFORE, the judgment of the trial court appealed from is hereby affirmed in all respects,
with costs against the defendant-appellant. So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon
and De Leon, JJ., concur.

Appellant maintains that the principle of a compensation in Article 1278 of the new Civil Code 2 is
applicable, such that the sum of P9,127.50 paid by it as reforestation charges may compensate its
indebtedness to appellee in the sum of P4,802.37 as forest charges. But in the view we take of
this case, appellant and appellee are not mutually creditors and debtors of each other.
Consequently, the law on compensation is inapplicable. On this point, the trial court correctly
observed: .

Under Article 1278, NCC, compensation should take place when two persons in their own
right are creditors and debtors of each other. With respect to the forest charges which the
defendant Mambulao Lumber Company has paid to the government, they are in the
coffers of the government as taxes collected, and the government does not owe anything,
crystal clear that the Republic of the Philippines and the Mambulao Lumber Company are
not creditors and debtors of each other, because compensation refers to mutual debts. ..

And the weight of authority is to the effect that internal revenue taxes, such as the forest charges
in question, can be the subject of set-off or compensation.

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off under the statutes of set-off, which are construed uniformly, in the light of public
policy, to exclude the remedy in an action or any indebtedness of the state or municipality
to one who is liable to the state or municipality for taxes. Neither are they a proper
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G.R. No. L-18994 June 29, 1963
MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of
Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott
Price, respondents.
Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.
Benedicto and Martinez for respondents.
LABRADOR, J.:
This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of
Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an
order in this Court directing the respondent court below to execute the judgment in favor of the
Government against the estate of Walter Scott Price for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January
30, 1960, this Court declared as final and executory the order for the payment by the estate of the
estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the
Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the
Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the estate
the fiscal presented a petition dated June 21, 1961, to the court below for the execution of the
judgment. The petition was, however, denied by the court which held that the execution is not
justifiable as the Government is indebted to the estate under administration in the amount of
P262,200. The orders of the court below dated August 20, 1960 and September 28, 1960,
respectively, are as follows:
Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price,
Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo
Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged before
Notary Public Salvador V. Esguerra, legal adviser in Malacañang to Executive Secretary
De Leon dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to
Director Castrillo dated August 2, 1958, directing the latter to pay to Mrs. Price the sum
ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the
sum of P262.200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by
the administratrix Simeona K. Price, as directed in the above note of the President.
Considering these facts, the Court orders that the payment of inheritance taxes in the
sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court
on July 5, 1960 in accordance with the order of the Supreme Court promulgated July 30,
1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00 due and
payable to the Administratrix Simeona K. Price, in this estate, the balance to be paid by
the Government to her without further delay. (Order of August 20, 1960)
The Court has nothing further to add to its order dated August 20, 1960 and it orders that
the payment of the claim of the Collector of Internal Revenue be deferred until the
Government shall have paid its accounts to the administratrix herein amounting to
P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a
debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment
of the latter's account to it, specially taking into consideration that the amount due to the
Government draws interests while the credit due to the present state does not accrue any
interest. (Order of September 28, 1960)
The petition to set aside the above orders of the court below and for the execution of the claim of
the Government against the estate must be denied for lack of merit. The ordinary procedure by
which to settle claims of indebtedness against the estate of a deceased person, as an inheritance
tax, is for the claimant to present a claim before the probate court so that said court may order the
administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs.
Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:
. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the
payment of debts and expenses of administration. The proper procedure is for the court
to order the sale of personal estate or the sale or mortgage of real property of the
deceased and all debts or expenses of administrator and with the written notice to all the
heirs legatees and devisees residing in the Philippines, according to Rule 89, section 3,
and Rule 90, section 2. And when sale or mortgage of real estate is to be made, the
regulations contained in Rule 90, section 7, should be complied with.1äwphï1.ñët
Execution may issue only where the devisees, legatees or heirs have entered into
possession of their respective portions in the estate prior to settlement and payment of
the debts and expenses of administration and it is later ascertained that there are such
debts and expenses to be paid, in which case "the court having jurisdiction of the estate
may, by order for that purpose, after hearing, settle the amount of their several liabilities,
and order how much and in what manner each person shall contribute, and may issue
execution if circumstances require" (Rule 89, section 6; see also Rule 74, Section 4;
Emphasis supplied.) And this is not the instant case.
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle
the estate of a deceased person, the properties belonging to the estate are under the jurisdiction
of the court and such jurisdiction continues until said properties have been distributed among the
heirs entitled thereto. During the pendency of the proceedings all the estate is in custodia
legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize
the properties but to ask the court for an order to require the administrator to pay the amount due
from the estate and required to be paid.
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Another ground for denying the petition of the provincial fiscal is the fact that the court having
jurisdiction of the estate had found that the claim of the estate against the Government has been
recognized and an amount of P262,200 has already been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the
Government for inheritance taxes and the claim of the intestate for services rendered have already
become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place
by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code,
and both debts are extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are present, compensation
takes effect by operation of law, and extinguished both debts to the concurrent amount,
eventhough the creditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against
the estate of the deceased Walter Scott Price. Furthermore, the petition
for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy.

The petition is, therefore, dismissed, without costs.

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G.R. No. 125704 August 28, 1998
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX
APPEALS, respondents.
ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8,
1996 in CA-G.R. SP No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No.
4872 dated March 16, 1995 2ordering it to pay the amount of P110,677,668.52 as excise tax
liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual
interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of
1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax
liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the
total amount of P123,821.982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88
————— ————— —————— ——————
47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39
————— ————— —————— ——————
1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88
————— ————— —————— ——————
43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13
————— ————— —————— ——————
90,325,895.64 22,581,473.91 10,914,612.97
123,821,982.52 3
========= ========= ========= =========
In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities
stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989
to 1991 in the amount of P119,977,037.02 plus interest. Therefore these claims for tax
credit/refund should be applied against the tax liabilities, citing our ruling in Commissioner of
Internal Revenue v. Itogon-Suyoc Mines, Inc. 5
In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since
these pending claims have not yet been established or determined with certainty, it follows that no
legal compensation can take place. Hence, the BIR reiterated its demand that Philex settle the
amount plus interest within 30 days from the receipt of the letter.
In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its
excise tax obligation, Philex raised the issue to the Court of Tax Appeals on November 6,
1992. 7 In the course of the proceedings, the BIR issued Tax Credit Certificate SN 001795 in the
amount of P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52;
effectively lowered the latter's tax obligation to P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance
of P110,677,688.52 plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated
and demandable. "Liquidated" debts are those where the exact amount has
already been determined (PARAS, Civil Code of the Philippines, Annotated, Vol.
IV, Ninth Edition, p. 259). In the instant case, the claims of the Petitioner for VAT
refund is still pending litigation, and still has to be determined by this Court
(C.T.A. Case No. 4707). A fortiori, the liquidated debt of the Petitioner to the
government cannot, therefore, be set-off against the unliquidated claim which
Petitioner conceived to exist in its favor (see Compañia General de Tabacos vs.
French and Unson, No. 14027, November 8, 1918, 39 Phil. 34). 8
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Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation
since claim for taxes is not a debt or contract." 9 The dispositive portion of the CTA
decision 10 provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit
and Petitioner is hereby ORDERED to PAY the Respondent the amount of
P110,677,668.52 representing excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August
6, 1994 until fully paid pursuant to Section 248 and 249 of the Tax Code, as
amended.
Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as
CA-GR. CV No. 36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the
Court of Tax Appeals observation. The pertinent portion of which reads: 12
WHEREFORE, the appeal by way of petition for review is hereby DISMISSED
and the decision dated March 16, 1995 is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated
July 11, 1996. 13
However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its
VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994,
computed as follows: 14
Period Covered Tax Credit Date
By Claims For Certificate of
VAT refund/credit Number Issue Amount
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso
jure, off-set its excise tax liabilities 15 since both had already become "due and demandable, as
well as fully liquidated;" 16 hence, legal compensation can properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made the pronouncement that
taxes cannot be subject to compensation for the simple reason that the government and the
taxpayer are not creditors and debtors of each other. 17 There is a material distinction between a
tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to
the Government in its sovereign capacity. 18 We find no cogent reason to deviate from the
aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held
that taxes cannot be subject to set-off or compensation, thus:
We have consistently ruled that there can be no off-setting of taxes against the
claims that the taxpayer may have against the government. A person cannot
refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax being collected. The collection of a tax cannot
await the results of a lawsuit against the government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v.
Commission on Audit, 20 which reiterated that:
. . . a taxpayer may not offset taxes due from the claims that he may have
against the government. Taxes cannot be the subject of compensation because
the government and taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is not such a debt, demand, contract or judgment as
is allowed to be set-off.
Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc
Mines Inc., wherein we ruled that a pending refund may be set off against an existing tax liability
even though the refund has not yet been approved by the Commissioner, 21 is no longer without
any support in statutory law.
It is important to note, that the premise of our ruling in the aforementioned case was anchored on
Section 51 (d) of the National Revenue Code of 1939. However, when the National Internal
Revenue Code of 1977 was enacted, the same provision upon which the Itogon-
Suyoc pronouncement was based was omitted. 22 Accordingly, the doctrine enunciated in Itogon-
Suyoc cannot be invoked by Philex.
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Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of
surcharge and interest for the non-payment of the excise taxes within the time prescribed was
unjustified. Philex posits the theory that it had no obligation to pay the excise tax liabilities within
the prescribed period since, after all, it still has pending claims for VAT input credit/refund with
BIR. 23
We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax
law that taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. 24 Evidently, to countenance Philex's whimsical reason would render ineffective our tax
collection system. Too simplistic, it finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it
has a pending tax claim for refund or credit against the government which has not yet been
granted. It must be noted that a distinguishing feature of a tax is that it is compulsory rather than a
matter of bargain. 25 Hence, a tax does not depend upon the consent of the taxpayer. 26 If any
taxpayer can defer the payment of taxes by raising the defense that it still has a pending claim for
refund or credit, this would adversely affect the government revenue system. A taxpayer cannot
refuse to pay his taxes when they fall due simply because he has a claim against the government
or that the collection of the tax is contingent on the result of the lawsuit it filed against the
government. 27 Moreover, Philex's theory that would automatically apply its VAT input credit/refund
against its tax liabilities can easily give rise to confusion and abuse, depriving the government of
authority over the manner by which taxpayers credit and offset their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government
is immaterial for the imposition of charges and penalties prescribed under Section 248 and 249 of
the Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with
any authority to waive the collection thereof. 28 The same cannot be condoned for flimsy
reasons, 29 similar to the one advanced by Philex in justifying its non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue
Code of 1977, which requires the refund of input taxes within 60 days, 31 when it took five years for
the latter to grant its tax claim for VAT input credit/refund. 32
In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of
proof to establish the factual basis of his or her claim for tax credit or refund, 33 however, once the
claimant has submitted all the required documents it is the function of the BIR to assess these
documents with purposeful dispatch. After all, since taxpayers owe honestly to government it is but
just that government render fair service to the taxpayers. 34
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these
erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and
judicious with their duty, it could have granted the refund earlier. We need not remind the BIR that
simple justice requires the speedy refund of wrongly-held taxes. 35 Fair dealing and nothing less, is
expected by the taxpayer from the BIR in the latter's discharge of its function. As aptly held
in Roxas v. Court of Tax Appeals: 36
The power of taxation is sometimes called also the power to destroy. Therefore
it should be exercised with caution to minimize injury to the proprietary rights of
a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the "hen that lays the golden egg" And, in order to maintain the
general public's trust and confidence in the Government this power must be
used justly and not treacherously.
Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a
settled rule that in the performance of governmental function, the State is not bound by the neglect
of its agents and officers. Nowhere is this more true than in the field of taxation. 37 Again, while we
understand Philex's predicament, it must be stressed that the same is not a valid reason for the
non-payment of its tax liabilities.
To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or
employees, especially BIR examiners who, in investigating tax claims are seen to drag their feet
needlessly. First, if the BIR takes time in acting upon the taxpayer's claim for refund, the latter can
seek judicial remedy before the Court of Tax Appeals in the manner prescribed by law. 38 Second,
if the inaction can be characterized as willful neglect of duty, then recourse under the Civil Code
and the Tax Code can also be availed of.
Art. 27 of the Civil Code provides:
Art. 27. Any person suffering material or moral loss because a public servant or
employee refuses or neglects, without just cause, to perform his official duty
may file an action for damages and other relief against the latter, without
prejudice to any disciplinary action that may be taken.
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:
xxx xxx xxx
(c) Wilfully neglecting to give receipts, as by law required for any sum collected
in the performance of duty or wilfully neglecting to perform, any other duties
enjoyed by law.
Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the
performance of official duties. 39 In no uncertain terms must we stress that every public employee
or servant must strive to render service to the people with utmost diligence and efficiency.
Insolence and delay have no place in government service. The BIR, being the government
collecting arm, must and should do no less. It simply cannot be apathetic and laggard in rendering
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service to the taxpayer if it wishes to remain true to its mission of hastening the country's WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed
development. We take judicial notice of the taxpayer's generally negative perception towards the decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.
BIR; hence, it is up to the latter to prove its detractors wrong.
SO ORDERED.
In sum, while we can never condone the BIR's apparent callousness in performing its duties, still,
the same cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take
the law into his own hands" should have guided Philex's action.

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