[ GR No. L-18994, Jun 29, 1963]
00, and an
MELECIO R. DOMINGO v. LORENZO C.
GARLITOS
This is a petition for certiorari and mandamus
against the Judge of the Court of First Instance of
Leyte, Hon. 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
Domingo vs. Hon. Judge S. C. Moscoso, 106 Phil.,
1138, 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 Inestate 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 of P368,140.
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
R. promulgated July 30, 1960 in 106 Phil., 1138, 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 pay its accounts to its citizens-creditors
before it can insist in the prompt payment cf the letter's
account to it, specially taking into consideration that
the amount due the Government draws interests while
the credit due to the present estate 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 claims of
the Government against the estate must be denied for
lack of merit. The ordinary procedure by which to
settle claims or 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, 85 Phil., 228, 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
administration should be paid out of the proceeds of
the sale or mortgage. The order for the sale or
mortgage should be issued upon motion of the
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.
"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; Italics ours.)
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 a 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.
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 as 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. 1290. When all the requisites mentioned
in article 1279 are present, compensation takes effect
by operation of law, and extinguishes both debts to the
concurrent amount, even though 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.
Padilla, Bautista Angelo, Concepcion, Barrera, ISSUE: Whether or not the contention of Francia that
Paredes, Dizon, Regala, and Makalintal, JJ., concur. his tax delinquency of P2,400.00 has been
Reyes, J.B.L. in the result. extinguished by legal compensation is correct
claiming that the government owed him P4,116.00
when a portion of his land was expropriated on
ENGRACIO FRANCIA vs. INTERMEDIATE October 15, 1977.
APPELLATE COURT
RULING: This principal contention of the petitioner
G.R. No. L-67649, June 28, 1988 has no merit. We have consistently ruled that there can
be no off-setting of taxes against the claims that the
FACTS: Engracio Francia is the registered owner of a
taxpayer may have against the government. A person
residential lot and a two-story house located in Pasay
cannot refuse to pay a tax on the ground that the
City. On October 15, 1977, a 125 square meter portion
government owes him an amount equal to or greater
of Francia's property was expropriated by the Republic
than the tax is being collected. The collection of a tax
for the sum of P4,116.00. Since 1963 up to 1977
cannot await the results of a lawsuit against the
inclusive, Francia failed to pay his real estate taxes.
government. A claim for taxes is not such a debt,
Thus, on December 5, 1977, his property was sold at
demand, contract or judgment as is allowed to be set-
public auction pursuant the Real Property Tax Code in
off under the statutes of set-off, which are construed
order to satisfy a tax delinquency of P2, 400.00. Ho
uniformly, in the light of public policy, to exclude the
Fernandez was the highest bidder for the property.
remedy in an action or any indebtedness of the state or
Francia was not present during the auction sale since
municipality to one who is liable to the state or
he was in Iligan City at that time helping his uncle ship
municipality for taxes. Neither are they a proper
bananas. On March 3, 1979, Francia received a notice
subject of recoupment since they do not arise out of
of hearing “In re: Petition for Entry of New Certificate
the contract or transaction sued on.
of Title" filed by Ho Fernandez, seeking the
cancellation of TCT and the issuance in his name of a
new certificate of title. Upon verification through his
lawyer, Francia discovered that a Final Bill of Sale had
been issued in favour of Ho Fernandez by the City
G.R. No. L-67649 June 28, 1988
Treasurer on December 11, 1978. The auction sale and
the final bill of sale were both annotated at the back of ENGRACIO FRANCIA, petitioner,
vs.
TCT No. 4739 (37795) by the Register of Deeds. On INTERMEDIATE APPELLATE COURT and HO
March 20, 1979, Francia filed a complaint to annul the FERNANDEZ, respondents.

auction sale. The lower court rendered a decision

against his favour. The Intermediate Appellate Court
affirmed the decision of the lower court in toto. Hence,
this petition for review.
FACTS:
EngracioFrancia is the registered owner of a
residential lot and a two-story house built upon it
situated in Pasay City, Metro Manila. On October 15,
1977, a 125 square meter portion of Francia's property
was expropriated by the Republic of the Philippines
for the sum of P4,116.00 representing the estimated
amount equivalent to the assessed value of the
aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay
his real estate taxes. Thus, on December 5, 1977, his
property was sold at public auction by the City
Treasurer of Pasay City pursuant to Section 73 of
Presidential Decree No. 464 known as the Real
Property Tax Code in order to satisfy a tax delinquency
of P2,400.00. Ho Fernandez was the highest bidder for
the property.
Francia contends that his tax delinquency of P2,400.00
has been extinguished by legal compensation. He
claims that the government owed him P4,116.00 when
a portion of his land was expropriated on October 15,
1977. Hence, his tax obligation had been set-off by
operation of law as of October 15, 1977.
ISSUE:WON there is legal compensation to off-set
Francia’s tax obligation to the government
RULING:No. There is no legal basis for the
contention. By legal compensation, obligations of
persons, who in their own right are reciprocally
debtors and creditors of each other, are extinguished
(Art. 1278, Civil Code). The circumstances of the case
do not satisfy the requirements provided by Article
1279, to wit:
(1) that each one of the obligors be
bound principally and that he be at
the same time a principal creditor of
the other;
xxx xxxxxx
(3) that the two debts be due.
xxx xxxxxx
This principal contention of the petitioner has no
merit. 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.
MELECIO R. DOMINGO vs. HON. LORENZO
C. GARLITOS
G.R. No. L-18994, June 29, 1963
FACTS: This is a petition for certiorari and mandamus
against respondent judge seeking to annul certain
orders of the court and for an order in this Court to
direct respondent 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
ISSUE: Whether or not the petitioner has the clear
right to execute the judgment for taxes against the
estate of the deceased Walter Scott Price.
RULING: 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. Another ground for denying the
petition 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. 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.
Abra Valley College v. Aquino
[GR L-39086, 15 June 1988]
Facts: Petitioner Abra Valley College is an educational
corporation and institution of higher learning duly
incorporated with the SEC in 1948. On 6 July 1972,
the Municipal and Provincial treasurers (Gaspar
Bosque and Armin Cariaga, respectively) and issued a
Notice of Seizure upon the petitioner for the college
lot and building (OCT Q-83) for the satisfaction of said
taxes thereon. The treasurers served upon the
petitioner a Notice of Sale on 8 July 1972, the sale
being held on the same day. Dr. Paterno Millare, then
municipal mayor of Bangued, Abra, offered the
highest bid of P 6,000 on public auction involving the
sale of the college lot and building. The certificate of
sale was correspondingly issued to him.
The petitioner filed a complaint on 10 July
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. On 12 April 1973, the parties entered
into a stipulation of facts adopted and embodied by the
trial court in its questioned decision. The trial court
ruled for the government, holding that the second floor
of the building is being used by the director for
residential purposes and that the ground floor used and
rented by Northern Marketing Corporation, a
commercial establishment, and thus the property is not
being used “exclusively” for educational purposes.
Instead of perfecting an appeal, petitioner availed of
the instant petition for review on certiorari with prayer
for preliminary injunction before the Supreme Court,
by filing said petition on 17 August 1974.
The Supreme Court affirmed the decision of
the CFI Abra (Branch I) subject to the modification
that half of the assessed tax be returned to the
petitioner. The modification is derived from the fact
that the ground floor is being used for commercial
purposes (leased) and the second floor being used as
incidental to education (residence of the director).
Issue: Should there be tax exemption?
Interpretation of the phrase “used
exclusively for educational purposes”
Section 22, paragraph 3, Article VI, of the then 1935
Philippine Constitution, expressly 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.” This
constitution is relative to Section 54, paragraph c,
Commonwealth Act 470 as amended by RA 409
(Assessment Law). An institution used exclusively for
religious, charitable and educational purposes, and as
such, it is entitled to be exempted from taxation;
notwithstanding that it keeps a lodging and a boarding
house and maintains a restaurant for its members
(YMCA case). A 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 (Bishop of Nueva
Segovia case).
 Exemption in favour of property used
exclusively for charitable or educational purposes is
‘not limited to property actually indispensable’
therefor but extends to facilities which are incidental
to and reasonably necessary for the accomplishment of
said purposes (Herrera v. Quezon City Board of
Assessment Appeals). While the Court allows a more
liberal and non-restrictive interpretation of the phrase
“exclusively used for educational purposes,”
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. The use of the school building or
lot for commercial purposes is neither contemplated
by law, nor by jurisprudence. In the case at bar, the
lease of the first floor of the building to the Northern
Marketing Corporation cannot by any stretch of the
imagination be considered incidental to the purpose of
education.
Abra Valley College vs. Aquino, 162 SCRA 106
(1988) G.R. No. L-39086 June 15, 1988
Fact: Petitioner, filed a complaint 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. The “Notice of Sale” was caused to be
served upon the petitioner by the respondent treasurers
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 which was duly accepted.
the respondent filed through counstel a motion to
dismiss the complaint. 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. Hence petitioner instead availed of
the instant petition for review on certiorari with prayer
for preliminary injunction before the Supreme Court.
Adrian Avilado Antazo
Issue: Whether the Educational Institution Properties
which is not exclusively used for educational purposes
is not eligible for tax exemption.
Held: Yes, 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. Moreover, the exemption in
favor of property used exclusively for charitable or
educational purposes is ‘not limited to property
actually indispensable’ therefor but extends to
facilities which are incidental to and reasonably
necessary for the accomplishment of said purposes.
But it must be stressed however, that while the court
allows a more liberal and non-restrictive interpretation
of the phrase “exclusively used for educational
purposes”, 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, 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.
PROVINCE OF ABRA vs. HERNANDO
G.R. No. L-49336 August 31, 1981
FACTS: On the face of this certiorari and mandamus
petition, it clearly appears that the actuation of
respondent Judge Hernando left much to be desired.
There was a denial of a motion to dismiss an action for
declaratory relief by Roman Catholic Bishop of
Bangued desirous of being exempted from a real estate
tax followed by a summary judgment granting such
exemption, without even hearing the side of petitioner.
It was the submission of counsel that an action for
declaratory relief would be proper only before a breach
or violation of any statute, executive order or
regulation. Moreover, there being a tax assessment
made by the Provincial Assessor on the properties of
respondent, petitioner failed to exhaust the
administrative remedies available under PD No. 464
before filing such court action. Respondent Judge
alleged that there "is no question that the real
properties sought to be taxed by the Province of Abra
are properties of the respondent Roman Catholic
Bishop of Bangued, Inc." The very next sentence
assumed the very point it asked when he categorically
stated: "Likewise, there is no dispute that the
properties including their procedure are actually,
directly and exclusively used by the Roman Catholic
Bishop of Bangued, Inc. for religious or charitable
purposes." For him then: "The proper remedy of the
petitioner is appeal and not this special civil action."
ISSUE: Whether or not the properties of respondent
Roman Catholic Bishop should be exempt from
taxation
RULING: Respondent Judge would not have erred so
grievously had he merely compared the provisions of
the present Constitution with that appearing in the
1935 Charter on the tax exemption of "lands,
buildings, and improvements." There is a marked
difference. 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.
CALTEX PHILIPPINES VS CA
G.R. 925585 MAY 8, 1992
Davide, J.:
FACTS: In 1989, COA sent a letter to Caltex directing
it to remit to OPSF its collection of the additional tax
on petroleum authorized under PD 1956 and pending
such remittance, all of its claims from the OPSF shall
be held in abeyance. Petitioner requested COA for the
early release of its reimbursement certificates from the
OPSF covering claims with the Office of Energy
Affairs. COA denied the same.
ISSUE: Whether or not petitioner can avail of the right
to offset any amount that it may be required under the
law to remit to the OPSF against any amount that it
may receive by way of reimbursement.
RULING:
It is a settled rule that a taxpayer may not offset taxes
due from the claims that he may have against the
government. Taxes cannot be the subject of
compensation because the government and taxpayer
are not mutually debtors and creditors of each other
and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off.
The oil companies merely acted as agents for the
government in the latter’s collection since taxes are
passed unto the end-users, the consuming public.
Herrera vs. Quezon City Board of Assessment
Appeals
G.R. L-15270
Facts: In 1952, the Director of the Bureau of Hospitals
authorized Jose V. Herrera and Ester Ochangco
Herrera to establish and operate the St. Catherine’s
Hospital. In 1953, the Herreras sent a letter to the
Quezon City Assessor requesting exemption from
payment of real estate tax on the hospital, stating that
the same was established for charitable and
humanitarian purposes and not for commercial gain.
The exemption was granted effective years 1953 to
1955. In 1955, however, the Assessor reclassified the
properties from “exempt” to “taxable” effective 1956,
as it was ascertained that out 32 beds in the hospital,
12 of which are for pay-patients. A school of
midwifery is also operated within the premises of the
hospital.
Issue: Whether St. Catherine’s Hospital is exempt
from reallty tax.
Ruling: The admission of pay-patients does not detract
from the charitable character of a hospital, if all its
funds are devoted exclusively to the maintenance of
the institution as a public charity. The exemption in
favour of property used exclusively for charitable or
educational purpose is not limited to property actually
indispensable therefore, but extends to facilities which
are incidental to and reasonably necessary for the
accomplishment of said purpose, such as in the case of
hospitals — a school for training nurses; a nurses’
home; property used 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.
Within the purview of the Constitution, St. Catherine’s
Hospital is a charitable institution exempt from
taxation
LUNG CENTER VS. QUEZON CITY
GR 144104 June29, 2004
En Banc, Callejo J:
Facts:
The lung center is a charitable institution within the
context of 1973 and 1987 constitutions. The elements
considered in determining a charitable institution are:
the statue creating the enterprise; its corporate
purposes; constitution and by-laws, methods of
administration, nature of actual work performed,
character of the services rendered, indefiniteness of the
beneficiaries, and the use occupation of properties. As
a gen. principle, a charitable institution doe not lose its
character as such and its exemption form taxes simply
because it derives income from paying patients, or Issue: can tax be subject for set-off?
receives subsidies from government; and no money
Ruling: No. tax cannot be the subject for compensation
insures to the private benefit of the persons managing
for simple reason that the government and the tax
or operating the institution.
payer are not mutual creditors and debtors of each
Issue: other. Debts are due in the government in its’ corporate
capacity while taxes are due to the government in its’
Whether or not the real properties of the lung center
sovereign capacity. A tax payer cannot refuse to pay
are exempt from real property taxes.
his taxes when they fall due simply because he has a
Ruling. claim against the government that the collection of the
tax is contingent on the result of the law suit it filed
Partly No. Those portions of its real property that are
against the government.
leased to private entities are not exempt from actually,
direct and exclusively used for charitable purpose.
Under PD 1823, the lung center does not enjoy any
REPUBLIC OF THE PHILIPPINES vs.
property tax exemption privileges for its real
MAMBULAO LUMBER COMPANY, ET AL…
properties as well as the building constructed thereon.

The property tax exemption under Sec. 28(3), Art. Vi

of the property taxes only. This provision was
implanted by Sec.243 (b) of RA 7160.which provides
that in order to be entitled to the exemption, the lung
center must be able to prove that: it is a charitable
institution and; its real properties are actually, directly
and exclusively used for charitable purpose.
Accordingly, the portions occupied by the hospital
used for its patients are exempt from real property
taxes while those leased to private entities are not
exempt from such taxes.
Philex Mining vs. CIR
GR 125704, August 28, 1998
Facts: Philex Mining Corporation assails the decision
of the court of appeals which affirmed the decision of
the court of tax appeals ordering philex to pay its
excise tax liability philex refused to pay and contended
it has pending claims for vat input credit or refund
against the government which should be made
compensate or set-off its tax liability.
G.R. No. L-17725, February 28, 1962
FACTS: There are three causes of action in this case
in which the defendants admitted all these three
liabilities with an aggregate amount of P4, 802.37.
Though such liabilities are admitted it interposed the
defence though exhibits 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 total
amount of the reforestation charges paid by Mambulao
Lumber Company is P9,127.50, and it is the
contention of the defendant 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.

ISSUE: Whether or not the sum of P9, 127.50 paid by

defendant company to plaintiff 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 defendant to plaintiff.

RULING: The court find defendants claim devoid of

any merit. 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. 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.