LUTZ VS. ARANETA [98 Phil 148; G.R. No.

L-7859; 22 Dec 1955]

Facts: Walter Lutz, as the Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma,
seeks to recover from J. Antonio Araneta, the Collector of Internal Revenue, the sum of money paid
by the estate as taxes, pursuant to the Sugar Adjustment Act. Under Section 3 of said Act, taxes are
levied on the owners or persons in control of the lands devoted to the cultivation of sugar cane.
Furthermore, Section 6 states all the collections made under said Act shall be for aid and support of
the sugar industry exclusively. Lutz contends that such purpose is not a matter of public concern
hence making the tax levied for that cause unconstitutional and void. The Court of First Instance
dismissed his petition, thus this appeal before the Supreme Court.

Issue: Whether or Not the tax levied under the Sugar Adjustment Act ( Commonwealth Act 567) is
unconstitutional.

Held: The tax levied under the Sugar Adjustment Act is constitutional. The tax under said Act is
levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the
threatened sugar industry. Since sugar production is one of the great industries of our nation, its
promotion, protection, and advancement, therefore redounds greatly to the general welfare. Hence,
said objectives of the Act is a public concern and is therefore constitutional. It follows that the
Legislature may determine within reasonable bounds what is necessary for its protection and
expedient for its promotion. If objectives 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 with the implement of the state’s police power. In addition, it is only rational that the
taxes be obtained from those that will directly benefit from it. Therefore, the tax levied under the
Sugar Adjustment Act is held to be constitutional.
Caltex Philippines, Inc. v COA (1992)

Caltex Philippines, Inc. v Commission on Audit GR No. 92585, May 8, 1992

FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization
Fund (OPSF), excluding that unremitted for the years 1986 and 1988, of the additional tax on
petroleum products authorized under the PD 1956. Pending such remittance, all of its claims for
reimbursement from the OPSF shall be held in abeyance. The grant total of its unremitted collections
of the above tax is P1,287,668,820.
Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the
proposal but prohibited Caltex from further offsetting remittances and reimbursements for the current
and ensuing years. Caltex moved for reconsideration but was denied. Hence, the present petition.

ISSUE:
Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex’s outstanding
claims from said funds

RULING:
No. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence
of government. Taxes may be levied with a regulatory purpose to provide means for the rehabilitation
and stabilization of a threatened industry which is affected with public interest as to be within the
police power of the State.
PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer
may not offset taxes due from the claims he may have against the government. Taxes cannot be
subject of compensation because the government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a debt, demand,, contract or judgment as is
allowed to be set-off.
Hence, COA decision is affirmed except that Caltex’s claim for reimbursement of underrecovery
arising from sales to the National Power Corporation is allowed.

PAL v Edu (1988)

Philippine Airlines v Edu

GR No L-41383, August 15, 1988

FACTS:
PAL is engaged in the air transportation business under a legislative franchise (Act 4271), wherein it
is exempt from the
payment of taxes. On the strength of an opinion of the Secretary of Justice, PAL was determined to
have not been paying motor vehicle registration fees since 1956. The Land Transportation
Commissioner required all tax-exempt entities, including PAL, to pay motor vehicle registration fees.
PAL protested. The trial court dismissed PAL’s complaint. Hence, this petition.

ISSUE:
Are motor vehicle registration fees taxes or regulatory taxes?

RULING:
They are taxes. Tax are for revenue, whereas fees are exactions for purposes of regulation and
inspection, and are for that reason limited in amount to what is necessary to cover the cost of the
services rendered in that connection.
It is the object of the charge, and not the name, that determines whether a charge is a tax or a fee.
The money collected under the Motor Vehicle Law is not intended for the expenditures of the Motor
Vehicle Law is not intended for the expenditures of the Motor Vehicles Office but accrues to the funds
for the construction and maintenance of public roads, streets and bridges.
As the fees are not collected for regulatory purposes as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, but to provide revenue with which the
Government is to construct and maintain public highways for everyone’s use, they are veritable taxes,
not merely fees.
PAL is, thus, exempt from paying such fees, except for the period between June 27, 1968 to April 9,
1979, where its tax exception in the franchise was repealed.

RENATO V. DIAZ v. SECRETARY OF FINANCE, GR No. 193007, 2011-07-19

Facts:
petitioners... filed this petition for declaratory relief... assailing the validity of the impending imposition
of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of... tollway
operators.
Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as
regular users of tollways in stopping the BIR action. Additionally, Diaz claims that he sponsored the
approval of
EVAT Law... and... the 1997 National Internal Revenue Code... at the House of
Representatives. Timbol, on the other hand, claims that she served as Assistant Secretary of the
Department of Trade and Industry and consultant of the Toll Regulatory Board (TRB) in... the past
administration.
Petitioners allege that the BIR attempted during the administration of President Gloria Macapagal-
Arroyo to impose VAT on toll fees. The imposition was deferred, however, in view of the consistent
opposition of Diaz and other sectors to such move. But, upon President Benigno C.
Aquino III's assumption of office in 2010, the BIR revived the idea and would impose the challenged
tax on toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees
within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's tax," not a
sale of services; that to impose VAT on toll fees would amount to a... tax on public service; and that,
since VAT was never factored into the formula for computing toll fees, its imposition would violate the
non-impairment clause of the constitution.
On August 13, 2010 the Court issued a
TRO... enjoining the implementation of the VAT.
The Court required the government, represented by respondents Cesar V. Purisima, Secretary of the
Department of Finance, and Kim S. Jacinto-Henares, Commissioner of
Internal Revenue, to comment on the petition within 10 days from notice.
Later, the Court issued another resolution treating the petition as one for prohibition.
The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees,
including tollway operations, except where the law provides... otherwise; that the Court should seek
the meaning and intent of the law from the words used in the statute; and that the imposition of VAT
on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars.
The government also argues that petitioners have no right to invoke the non-impairment of contracts
clause since they clearly have no personal interest in existing toll operating agreements... between
the government and tollway operators.
Finally, the government contends that the non-inclusion of VAT in the parametric formula for
computing toll rates cannot exempt tollway operators from VAT.
Issues:
Whether or not the imposition of VAT on tollway operators... is not administratively feasible and
cannot be... implemented.
Ruling:
Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax
system should be capable of being effectively administered and enforced with the least
inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax...
imposition invalid "except to the extent that specific constitutional or statutory limitations are
impaired."
Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement, it is
not necessarily invalid unless some aspect... of it is shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway
operations. Any declaration by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. Although the transcript of the August 12, 2010 Senate... hearing
provides some clue as to how the BIR intends to go about it,... the facts pertaining to the matter are
not sufficiently established for the Court to pass judgment on. Besides, any concern about how the
VAT on tollway operations will be enforced... must first be addressed to the BIR on whom the task of
implementing tax laws primarily and exclusively rests. The Court cannot preempt the BIR's discretion
on the matter, absent any clear violation of law or the Constitution.
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT
law's coverage when she sought to impose VAT on tollway operations. Section 108(A) of the Code
clearly states that services of all other franchise grantees are subject to
VAT, except as may be provided under Section 119 of the Code. Tollway operators are not among
the franchise grantees subject to franchise tax under the latter provision. Neither are their services
among the VAT-exempt transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege,
then it would have been well for the law to clearly say so. Tax exemptions must be justified by clear
statutory grant and based on language in the law too plain to be... mistaken.
But as the law is written, no such exemption obtains for tollway operators.
Principles:
GR No. L-18330. July 31, 1963.
JOSE DE BORJA, petitioner-appellee,
vs.
VlCENTE G. GELLA, ET AL., respondents-appellants.

Facts:
Jose de Borja has been delinquent in the payment of his real estate taxes since 1958 for properties
located in the City of Manila and Pasay City and has offered to pay them with two negotiable
certificates of indebtedness in the amounts of P793.40 and P717.69, respectively. Borja ,was,
however, a mere assignee of the aforesaid negotiable certificates. The said negotiable certificates
were from Rafael Vizcaya and Pablo Batario Luna were the applicants for backpay rights covered by
the instrument.

The offer to pay the real estate tax through the instrument in question were rejected by the City
Treasurers of both Manila and Pasay. They based it on the ground of the instrument’s limited
negotiability under Section 2, Republic Act No. 304, as amended by Republic Act 800

Furthermore, the City Treasurer of Manila: rejected it on the ground that he was ordered not to accept
them by the city mayor.

Borja was prompted to bring the question before the Treasurer of the Philippines.

The Treasurer of the Philippines opined that the negotiable certificates cannot be accepted as
payment of real estate taxes inasmuch as the law provides for their acceptance from their backpay
holder only or the original applicant himself, but not his assignee.

Frustrated, Borja filed an action., against the treasurers of both the City of Manila and Pasay City, and
the Treasurer of the Philippines, to impel them to execute an act which the law allegedly requires
them to perform which is to accept the above-mentioned certificates of indebtedness considering that
they were already due and redeemable so as not to deprive him illegally of his privilege to pay his
obligation to the government thru such means.

Trial Court: Treasurer of the Philippines, and the treasurers of the City of Manila and Pasay City are
ordered to accept petitioner's Negotiable Certificates of Indebtedness in the sums of P793.40 and
P717.39 in payment of real estate taxes of his properties in the City of Manila and Pasay City,
respectively, without costs.

Issue:
Whether Borja has the right to apply to the payment of his real estate taxes to the government of
Manila and Pasay through the certificates of indebtedness he holds while appellants have the
correlative legal duty to accept the certificates in payment of said taxes

Ruling:
No. The appellants are not duty bound bound to accept the negotiable certificates of indebtedness
held by appellee in payment of his real estate taxes for the simple reason that they were not
obligations subsisting at the time of the approval of Republic Act No. 304 which took effect on June
18, 1948.
It should be noted that the real estate taxes in question have reference to those due in 1958 and
subsequent years. The law is explicit that in order that a certificate may be used in payment of an
obligation the same must be subsisting at the time of its approval even if we hold that a tax partakes
of this character, neither can it be contended that appellee can compel the government to accept the
alleged certificates of indebtedness in payment of his real estate taxes under Section 2 of RA 304,
also for the reason that in order that such payment may be allowed the tax must be owed by the
applicant himself. This is the correct implication that may be drawn from the use by the law of the
words "his taxes". Verily, the right to use the backpay certificate in settlement of taxes is given only to
the applicant and not to any holder of any negotiable certificate to whom the law only gives the right
to have it discounted by a Filipino citizen or corporation under certain limitations.

Here appellee is not himself the applicant of the certificate. in question. He is merely an assignee
thereof, Or a subsequent holder whose right is at most to have it discounted upon maturity—or to
negotiate it in the meantime. A fortiori, it may be included that, not having the right to use said
certificates to pay his taxes, appellee cannot compel appellants to accept them as he requests in the
present petition for mandamus.

As a consequence, we cannot but hold that mandamus does not lie against appellants because they
have in no way neglected to perform an act enjoined upon them by law as a duty, nor have they
unlawfully excluded appellee from the use or enjoyment of a right to which he is entitled.

VERA v. FERNANDEZ
GR No. L-31364 March 30, 1979
89 SCRA 199

FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and for payment of taxes
representing the estate's tax deficiencies in 1963 to 1964 in the intestate proceedings of Luis Tongoy.
The administrator opposed arguing that the claim was already barred by the statute of limitation,
Section 2 and Section 5 of Rule 86 of the Rules of Court which provides that 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 the notice; otherwise
they are barred forever.

ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of the government for
unpaid taxes?

HELD: No. 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. (CIR vs.
Pineda, 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.

CITY GOVERNMENT OF QUEZON CITY VS. ERICTA [122 SCRA 759; G.R. No. L-34915; 24 Jun
1983]
Friday, January 30, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Political Law

Facts: Section 9 of Ordinance No. 6118, S-64, entitled "Ordinance Regulating The Establishment,
Maintenance And Operation Of Private Memorial Type Cemetery Or Burial Ground Within The
Jurisdiction Of Quezon City And Providing Penalties For The Violation Thereof" provides:

Sec. 9. At least six (6) percent of the total area of the memorial park cemetery shall be set aside for
charity burial of deceased persons who are paupers and have been residents of Quezon City for at
least 5 years prior to their death, to be determined by competent City Authorities. The area so
designated shall immediately be developed and should be open for operation not later than six
months from the date of approval of the application.

For several years, the aforequoted section of the Ordinance was not enforced but seven years after
the enactment of the ordinance, the Quezon City Council passed a resolution to request the City
Engineer, Quezon City, to stop any further selling and/or transaction of memorial park lots in Quezon
City where the owners thereof have failed to donate the required 6% space intended for paupers
burial.

The Quezon City Engineer then notified respondent Himlayang Pilipino, Inc. in writing that Section 9
of the ordinance would be enforced.

Respondent Himlayang Pilipino reacted by filing a petition for declaratory relief, prohibition and
mandamus with preliminary injunction seeking to annul Section 9 of the Ordinance in question.
Respondent alleged that the same is contrary to the Constitution, the Quezon City Charter, the Local
Autonomy Act, and the Revised Administrative Code.

Issue: Whether or Not Section 9 of the ordinance in question is a valid exercise of police power.

Held: Section 9 of the City ordinance in question is not a valid exercise of police power. Section 9
cannot be justified under the power granted to Quezon City to tax, fix the license fee, and regulate
such other business, trades, and occupation as may be established or practiced in the City.

Bill of rights states that 'no person shall be deprived of life, liberty or property without due process of
law' (Art. Ill, Section 1 subparagraph 1, Constitution). On the other hand, there are three inherent
powers of government by which the state interferes with the property rights, namely-. (1) police
power, (2) eminent domain, (3) taxation.

The police power of Quezon City is defined in sub-section 00, Sec. 12, Rep. Act 537 that reads as
follows:

“To make such further ordinance and regulations not repugnant to law as may be necessary to carry
into effect and discharge the powers and duties conferred by this act and such as it shall deem
necessary and proper to provide for the health and safety, …, and for the protection of property
therein; and enforce obedience thereto with such lawful fines or penalties as the City Council may
prescribe under the provisions of subsection (jj) of this section.”

The power to regulate does not include the power to prohibit. The power to regulate does not include
the power to confiscate. The ordinance in question not only confiscates but also prohibits the
operation of a memorial park cemetery, because under Section 13 of said ordinance, 'Violation of the
provision thereof is punishable with a fine and/or imprisonment and that upon conviction thereof the
permit to operate and maintain a private cemetery shall be revoked or cancelled’. The confiscatory
clause and the penal provision in effect deter one from operating a memorial park cemetery.

Moreover, police power is defined by Freund as 'the power of promoting the public welfare by
restraining and regulating the use of liberty and property'. It is usually exerted in order to merely
regulate the use and enjoyment of property of the owner. If he is deprived of his property outright, it is
not taken for public use but rather to destroy in order to promote the general welfare.

It seems to the court that Section 9 of Ordinance No. 6118, Series of 1964 of Quezon City is not a
mere police regulation but an outright confiscation. It deprives a person of his private property without
due process of law, nay, even without compensation.

Velasco vs Villegas
G.R. No. L-24153 February 14, 1983
Facts: In their own behalf and in representation of the other owners of barbershops in the City of
Manila, petitioners challenge the constitutionality based on Ordinance No. 4964 of the City of Manila,
which prohibited the business of massaging customers of a barber shop. They contend that it
amounts to a deprivation of property of their means of livelihood without due process of law. The
contention being that it amounts to a deprivation of property of petitioners-appellants of their means of
livelihood without due process of law. Lower Court dismissed the petition for declaratory relief.

Issue: Whether said ordinance was unconstitutional, and therefore an improper exercise of police
power
Held: No. The attack against the validity cannot succeed. As pointed out in the brief of respondents-
appellees, it is a police power measure. The objectives behind its enactment are: “(1) To be able to
impose payment of the license fee for engaging in the business of massage clinic under Ordinance
No. 3659 as amended by Ordinance 4767, an entirely different measure than the ordinance
regulating the business of barbershops and, (2) in order to forestall possible immorality which might
grow out of the construction of separate rooms for massage of customers.”
The Court has been most liberal in sustaining ordinances based on the general welfare clause. As far
back as U.S. v. Salaveria, 4 a 1918 decision, this Court through Justice Malcolm made clear the
significance and scope of such a clause, which “delegates in statutory form the police power to a
municipality. As above stated, this clause has been given wide application by municipal authorities
and has in its relation to the particular circumstances of the case been liberally construed by the
courts. Such, it is well to really is the progressive view of Philippine jurisprudence.”

TIO VS. VIDEOGRAM REGULATORY BOARD [151 SCRA 208; G.R. No. L-75697; 18 Jun 1987]
Friday, January 30, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Political Law

Facts: The case is a petition filed by petitioner on behalf of videogram operators adversely affected
by Presidential Decree No. 1987, “An Act Creating the Videogram Regulatory Board" with broad
powers to regulate and supervise the videogram industry.

A month after the promulgation of the said Presidential Decree, the amended the National Internal
Revenue Code provided that:

"SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready
for playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or
imported blank video tapes shall be subject to sales tax."
"Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of
law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or
rental rate, as the case may be, for every sale, lease or disposition of a videogram containing a
reproduction of any motion picture or audiovisual program.”

“Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the other
fifty percent (50%) shall accrue to the municipality where the tax is collected; PROVIDED, That in
Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan
Manila Commission.”

The rationale behind the tax provision is to curb the proliferation and unregulated circulation of
videograms including, among others, videotapes, discs, cassettes or any technical improvement or
variation thereof, have greatly prejudiced the operations of movie houses and theaters. Such
unregulated circulation have caused a sharp decline in theatrical attendance by at least forty percent
(40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and other
taxes, thereby resulting in substantial losses estimated at P450 Million annually in government
revenues.

Videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and
disposition of videograms, and these earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year.

The unregulated activities of videogram establishments have also affected the viability of the movie
industry.

Issues:

(1) Whether or not tax imposed by the DECREE is a valid exercise of police power.

(2) Whether or nor the DECREE is constitutional.

Held: Taxation has been made the implement of the state's police power. The levy of the 30% tax is
for a public purpose. It was imposed primarily to answer the need for regulating the video industry,
particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and
the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to
protect the movie industry, the tax remains a valid imposition.

We find no clear violation of the Constitution which would justify us in pronouncing Presidential
Decree No. 1987 as unconstitutional and void. While the underlying objective of the DECREE is to
protect the moribund movie industry, there is no question that public welfare is at bottom of its
enactment, considering "the unfair competition posed by rampant film piracy; the erosion of the moral
fiber of the viewing public brought about by the availability of unclassified and unreviewed video tapes
containing pornographic films and films with brutally violent sequences; and losses in government
revenues due to the drop in theatrical attendance, not to mention the fact that the activities of video
establishments are virtually untaxed since mere payment of Mayor's permit and municipal license
fees are required to engage in business."

WHEREFORE, the instant Petition is hereby dismissed. No costs.

ORTIGAS VS. FEATI BANK [94 SCRA 533; NO.L-24670; 14 DEC 1979]
Monday, February 09, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Political Law

Facts: Plaintiff is engaged in real estate business, developing and selling lots to the public,
particularly the Highway Hills Subdivision along EDSA. On March 4, 1952, plaintiff, as vendor, and
Augusto Padilla and Natividad Angeles, as vendees, entered into separate agreements of sale on
installments over two parcels of land of the Subdivision. On July 19, 1962, the said vendees
transferred their rights and interests over the aforesaid lots in favor of one Emma Chavez. Upon
completion of payment of the purchase price, the plaintiff executed the corresponding deeds of sale in
favor of Emma Chavez. Both the agreements (of sale on installment) and the deeds of sale contained
the stipulations or restrictions that:

1. The parcel of land shall be used exclusively for residential purposes, and she shall not be entitled
to take or remove soil, stones or gravel from it or any other lots belonging to the Seller.
2. All buildings and other improvements (except the fence) which may be constructed at any time in
said lot must be, (a) of strong materials and properly painted, (b) provided with modern sanitary
installations connected either to the public sewer or to an approved septic tank, and (c) shall not be at
a distance of less than two (2) meters from its boundary lines.

Eventually said lots were bought by defendant. Lot 5 directly from Chavez and Lot 6 from Republic
Flour Mills by deed of exchange, with same restrictions. Plaintiff claims that restriction is for the
beautification of the subdivision. Defendant claimed of the commercialization of western part of
EDSA. Defendant began constructing a commercial bank building. Plaintiff demand to stop it, which
forced him to file a case, which was later dismissed, upholding police power. Motion for recon was
denied, hence the appeal.

Issue: Whether or Not non-impairment clause violated.

Held: No. Resolution is a valid exercise of police power. EDSA, a main traffic artery which runs
through several cities and municipalities in the Metro Manila area, supports an endless stream of
traffic and the resulting activity, noise and pollution are hardly conducive to the health, safety or
welfare of the residents in its route. Health, safety, peace, good order and general welfare of the
people in the locality are justifications for this. It should be stressed, that while non-impairment of
contracts is constitutionally guaranteed, the rule is not absolute, since it has to be reconciled with the
legitimate exercise of police power.
CIR v Palanca (1966)

CIR v Palanca, Jr.

GR No L-16626, October 29, 1966

FACTS:
The late Don Carlos Palanca, Sr. donated in favor of his son, Carlos Palanca, Jr. shares of stock in
La Tondeña Inc.
amounting to 12,500 shares. Later, the BIR considered the donation as transfer in contemplation of
death; consequently, the BIR assessed against the respondent, Palanca Jr., the sum of P191,591.62
as estate and inheritance taxes on the transfer of said 12,500 shares of stock, including therein
interest for delinquency of P60,581.80. The respondent then filed an amended income tax return,
claiming an additional deduction in the amount P60,581.80; hence, his new income tax due is only
P428. He attached a letter requesting the refund of P20,624.01. However, the said request for refund
was denied by the BIR. Court of tax appeals ordered the refund. Hence, this petition.
ISSUES:
1. Whether the interest on the delinquent estate and inheritance tax is deductible from the gross
income
2. Whether the respondent’s claim for refund has prescribed
RULING:
1. Yes, the interest is deductible. The rule is settled that although taxes already due have not,
strictly speaking, the same
concept as debts, they are, however, obligations that may be considered as such. In CIR v
Prieto, the Court explicitly announced that while the distinction between “taxes” and “debts”
was recognized in this jurisdiction, the variance in their legal conception does not extend to the
interests paid on them.
2. No, respondent’s claim has not yet prescribed. Considering that it is the interest paid on this
latter-assessed estate and inheritance tax that respondent is claiming for refund, then the 30-
day period for prescription under RA 1125 should be computed from the receipt of the final
denial by the BIR of the said claim.
Inasmuch as the said account was paid by him by installment, then the computation of the two-
year prescriptive period, under Section 306 of the National Internal Revenue Code, should be
from the date of the last installment.
Respondent Palanca paid the last installment on his 1955 income tax account on August 14,
1956. His claim for refund was filed on August 13, 1958. It was, therefore, still timely instituted.