CASE 1: FRANCIS A. CHURCHILL and STEWART TAIT, ET AL, plaintiffs-appellants, NO.
NO. The only limitation, in so far as these questions are concerned, placed upon
vs. VENANCIO CONCEPCION, as Acting Collector of Internal Revenue, defendant-
appellee
G.R. No. 11572 September 22, 1916
FACTS:
Section 100 of Act No. 2339, passed February 27, 1914, effective July 1, 1914,
imposed an annual tax of P4 per square meter upon "electric signs, billboards, and
spaces used for posting or displaying temporary signs, and all signs displayed on
premises not occupied by buildings." This section was subsequently amended by Act
No. 2432, effective January 1, 1915, by reducing the tax on such signs, billboards, etc.,
to P2 per square meter or fraction thereof.
Francis A. Churchill and Stewart Tait, copartners doing business under the firm
name and style of the Mercantile Advertising Agency, owners of a sign or billboard
containing an area of 52 square meters constructed on private property in the city of
Manila and exposed to public view, were taxes thereon P104. The tax was paid under
protest and the plaintiffs having exhausted all their administrative remedies instituted the
present action under section 140 of Act No. 2339 against the Collector of Internal
Revenue to recover back the amount thus paid.
The trial court dismissed the original petition; during cross-examination, the
plaintiffs were asked if they made an effort to raise the charges for advertising purposes
in connection with the boards and it appeared that no effort has been made on mere
hypothetical answers that the merchants couldn’t afford it anymore.
ISSUE:
Whether or not the tax in question is confiscatory as to the business of the
plaintiff.
RULING:
the Philippine Legislature in the exercise of its taxing power is that found in section 5 of
the Philippine Bill, wherein it is declared "that the rule of taxation in said Islands shall be
uniform."
Uniformity in taxation — says Black on Constitutional Law, page 292 — means
that all taxable articles or kinds of property, of the same class, shall be taxed at
the same rate. It does not mean that lands, chattels, securities, incomes,
occupations, franchises, privileges, necessities, and luxuries, shall all be
assessed at the same rate. articles may be taxed at different amounts, provided
the rate is uniform on the same class everywhere, with all people, and at all
times.
The statute under consideration imposes a tax of P2 per square meter or fraction thereof
upon every electric sign, bill-board, etc., wherever found in the Philippine Islands. Or in
other words, "the rule of taxation" upon such signs is uniform throughout the Islands. The
rule, which we have just quoted from the Philippine Bill, does not require taxes to be
graded according to the value of the subject or subjects upon which they are imposed,
especially those levied as privilege or occupation taxes. We can hardly see wherein the
tax in question constitutes double taxation. The fact that the land upon which the
billboards are located is taxed at so much per unit and the billboards at so much per
square meter does not constitute "double taxation." Double taxation, within the true
meaning of that expression, does not necessarily affect its validity. (1 Cooley on
Taxation, 3d ed., 389.) And again, it is not for the judiciary to say that the classification
upon which the tax is based "is mere arbitrary selection and not based upon any
reasonable grounds." The Legislature selected signs and billboards as a subject for
taxation and it must be presumed that it, in so doing, acted with a full knowledge of the
situation.
CASE 2: COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. ALGUE, INC., and THE COURT OF TAX APPEALS, respondents
G.R. No. L-28896 February 17, 1988
FACTS:
Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and
Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation,
inducing other persons to invest in it.14 Ultimately, after its incorporation largely through
the promotion of the said persons, this new corporation purchased the PSEDC
properties.15 For this sale, Algue received as agent a commission of P126,000.00, and it
was from this commission that the P75,000.00 promotional fees were paid to the
aforenamed individuals.16
The petitioner contends that the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or necessary business expense.
The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the
said amount had been legitimately paid by the private respondent for actual services
rendered. The payment was in the form of promotional fees. These were collected by the
Payees for their work in the creation of the Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate
Development Company.
ISSUE:
Whether or not the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by private respondent Algue as legitimate business
expenses in its income tax returns.
RULING:
YES. SEC. 30. Deductions from gross income.--In computing net income there
shall be allowed as deductions —
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business, including a
reasonable allowance for salaries or other compensation for personal
services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and
necessary expenses paid or incurred in carrying on any trade or business
may be included a reasonable allowance for salaries or other
compensation for personal services actually rendered. The test of
deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and
deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its
practical application may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the
purchase price of services, is not deductible. (a) An ostensible salary paid
by a corporation may be a distribution of a dividend on stock. This is likely
to occur in the case of a corporation having few stockholders, Practically
all of whom draw salaries. If in such a case the salaries are in excess of
those ordinarily paid for similar services, and the excessive payment
correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for
services rendered, but the excessive payments are a distribution of
earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No.
18, 325.)
THE PHILIPPINE GUARANTY CO., INC., petitioner, 1953
vs. THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents Gross premium per investigation . . . . . . . . . . P768,580.00
Withholding tax due thereon at 24% . . . . . . . . P184,459.00
G.R. No. L-22074 April 30, 1965
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00
FACTS:
Compromise for non-filing of withholding
100.00
The Philippine Guaranty Co., Inc., a domestic insurance company, entered into income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
reinsurance contracts, on various dates, with foreign insurance companies not doing
business in the Philippines namely: Imperio Compañia de Seguros, La Union y El Fenix TOTAL AMOUNT DUE & COLLECTIBLE . . . . P230,673.00
Español, Overseas Assurance Corp., Ltd., Socieded Anonima de Reaseguros Alianza, ==========
Tokio Marino & Fire Insurance Co., Ltd., Union Assurance Society Ltd., Swiss
Reinsurance Company and Tariff Reinsurance Limited. Philippine Guaranty Co., Inc., 1954
thereby agreed to cede to the foreign reinsurers a portion of the premiums on insurance
it has originally underwritten in the Philippines, in consideration for the assumption by the Gross premium per investigation . . . . . . . . . . P780.880.68
latter of liability on an equivalent portion of the risks insured. Said reinsurrance contracts
Withholding tax due thereon at 24% . . . . . . . . P184,411.00
were signed by Philippine Guaranty Co., Inc. in Manila and by the foreign reinsurers
outside the Philippines, except the contract with Swiss Reinsurance Company, which 25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . P184,411.00
was signed by both parties in Switzerland.
Compromise for non-filing of withholding
100.00
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
the foreign reinsurers the following premiums:
TOTAL AMOUNT DUE & COLLECTIBLE . . . . P234,364.00
1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71 ==========
1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85
Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance
premiums ceded to foreign reinsurers not doing business in the Philippines are not
Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income subject to withholding tax. Its protest was denied and it appealed to the Court of Tax
when it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold or Appeals.
pay tax on them. Consequently, per letter dated April 13, 1959, the Commissioner of
Internal Revenue assessed against Philippine Guaranty Co., Inc. withholding tax on the
ceded reinsurance premiums, thus:
ISSUE: business therein, and (2) more than eighty-five per centum of the gross income of
such corporation for the three-year period ending with the close of its taxable
Whether or not reinsurance premiums ceded to foreign reinsurers not doing year preceding the declaration of such dividends (or for such part of such period
business in the Philippines are subject to withholding tax under Section 53 and 54 of the as the corporation has been in existence)was derived from sources within the
Tax Code. Philippines as determined under the provisions of section thirty-
seven: Provided, further, That the Collector of Internal Revenue may authorize
RULING:
such tax to be deducted and withheld from the interest upon any securities the
YES. owners of which are not known to the withholding agent.

The pertinent section of the Tax Code States: The above-quoted provisions allow no deduction from the income therein enumerated in
determining the amount to be withheld. According, in computing the withholding tax due
Sec. 54. Payment of corporation income tax at source. — In the case of foreign on the reinsurance premium in question, no deduction shall be recognized.
corporations subject to taxation under this Title not engaged in trade or business
within the Philippines and not having any office or place of business therein,
there shall be deducted and withheld at the source in the same manner and upon
the same items as is provided in Section fifty-three a tax equal to twenty-four per
centum thereof, and such tax shall be returned and paid in the same manner and
subject to the same conditions as provided in that section.

The applicable portion of Section 53 provides:

(b) Nonresident aliens. — All persons, corporations and general copartnerships

(compañias colectivas), in what ever capacity acting, including lessees or
mortgagors of real or personal property, trustees acting in any trust capacity,
executors, administrators, receivers, conservators, fiduciaries, employers, and all
officers and employees of the Government of the Philippines having the control,
receipt, custody, disposal, or payment of interest, dividends, rents, salaries,
wages, premiums, annuities, compensation, remunerations, emoluments, or
other fixed or determinable annual or periodical gains, profits, and income of any
nonresident alien individual, not engaged in trade or business within the
Philippines and not having any office or place of business therein, shall (except in
the case provided for in subsection [a] of this section) deduct and withhold from
such annual or periodical gains, profits, and income a tax equal to twelve per
centum thereof: Provided That no deductions or withholding shall be required in
the case of dividends paid by a foreign corporation unless (1) such corporation is
engaged in trade or business within the Philippines or has an office or place of
 CASE 4: [No. 43082. June 18, 1937] PABLO LORENZO, as trustee of the estate of Thomas
Hanley, deceased, plaintiff and appellant, vs. JUAN POSADAS, JR., Collector of Internal
Revenue, defendant and appellant.
Facts:
The plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley,
deceased, brought this action in the Court of First Instance of Zamboanga against the defendant,
Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of
P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the
collection of interest thereon at the rate of 6 per cent per annum, computed from September
15, 1932, the date when the aforesaid tax was [paid under protest. The defendant set up a
counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not
included in the original assessment. From the decision of the Court of First Instance of
Zamboanga dismissing both the plaintiff's complaint and the defendant's counterclaim, both
parties appealed to this court.
On May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will
(Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922,
proceedings for the probate of his will and the settlement and distribution of his estate were
begun in the Court of First Instance of Zamboanga. The will was admitted to probate.
The Court of First Instance of Zamboanga considered it proper for the best interests of
their estate to appoint a trustee to administer the real properties which, under the will, were to
pass to Matthew Hanley ten years after the two executors named in the will, was, on March 8,
1924, appointed trustee.
The defendant filed a motion in the testamentary proceedings pending before the Court
of First Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff
herein, be ordered to pay to the Government the said sum of P2,052.74. The motion was
granted. On September 15, 1932, the plaintiff paid said amount under protest, notifying the
defendant at the same time that unless the amount was promptly refunded suit would be
brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund
the said amount hausted, plaintiff went to court with the result herein above indicated.
Issue: When does estate, also known as inheritance, tax accrue and when must it be satisfied
Ruling:
The accrual of the inheritance tax is distinct from the obligation to pay the same. Section
1536 as amended, of the Administrative Code, imposes the tax upon "every transmission by
virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of
inheritance,devise, or bequest." The tax therefore is upon transmission or the transfer or
devolution of property of a decedent, made effective by his death. It is in reality an excise or
privilege tax imposed on the right to succeed to, receive, or take property by or under a will or
the intestacy law, or deed, grant, or gift to become operative at or after death.
Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the
obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is
clearly fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in
relation to section 1543 of the same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. - The following shall not
be taxed:
( a) The merger of the usufruct in the owner of the naked title.
( b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the trustees.
( c) The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor.
In the last two cases, if the scale of taxation appropriate to the new beneficiary is
greater than that paid by the first, the former must pay the difference.
SEC. 1544. When tax to be paid. - The tax fixed in this article shall be paid:
 ( a) In the second and third cases of the next preceding section, before entrance into
possession of the property.chanroblesvirtualawlibrary chanrobles virtual law library

( b) In other cases, within the six months subsequent to the death of the predecessor;
but if judicial testamentary or intestate proceedings shall be instituted prior to the
expiration of said period, the payment shall be made by the executor or administrator
before delivering to each beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of
twelve per centum per annum shall be added as part of the tax; and to the tax and interest due
and unpaid within ten days after the date of notice and demand thereof by the collector, there
shall be further added a surcharge of twenty-five per centum. A certified of all letters
testamentary or of admisitration shall be furnished the Collector of Internal Revenue by the
Clerk of Court within thirty days after their issuance.
CASE 5: No. L-23645. October 29, 1968. BENJAMIN P. GOMEZ, petitioner-appellee, vs. ENRICO
PALOMAR, in his capacity as Postmaster General; HON. BRIGIDO R. VALENCIA, in his capacity
as Secretary of Public Works and Communications and DOMINGO GOPEZ, in his capacity as
Acting Postmaster of San Fernando, Pampanga, respondents-appellants.
Facts:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall
order for the period from August 19 to September 30 every year the printing and issue of semi-
postal stamps of different denominations with face value showing the regular postage charge
plus the additional amount of five centavos for the said purpose, and during the said period, no
mail matter shall be accepted in the mails unless it bears such semi-postal stamps: Provided,
That no such additional charge of five centavos shall be imposed on newspapers. The additional
proceeds realized from the sale of the semi-postal stamps shall constitute a special fund and be
deposited with the National Treasury to be expended by the Philippine Tuberculosis Society in
carrying out its noble work to prevent and eradicate tuberculosis.
During the period from August 19 to September 30 each year starting in 1958, no mail
matter of whatever class, and whether domestic or foreign, posted at any Philippine Post Office
and addressed for delivery in this country or abroad, shall be accepted for mailing unless it bears
at least one such semi-postal stamp showing the additional value of five centavos intended for
the Philippine Tuberculosis Society.
On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post
office in San Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of
1014 Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp required by the
statute, it was returned to the petitioner.
The petitioner brought suit for declaratory relief in the Court of First Instance of
Pampanga, to test the constitutionality of the statute, as well as the implementing
administrative orders issued, contending that it violates the equal protection clause of the
Constitution as well as the rule of uniformity and equality of taxation. The lower court declared
the statute and the orders unconstitutional; hence this appeal by the respondent postal
authorities. For the reasons set out in this opinion, the judgment appealed from must be
reversed.
While conceding that the mailing by the petitioner of a letter without the additional
anti-TB stamp was a violation of Republic Act 1635, as amended, the trial court nevertheless
refused to dismiss the action on the ground that under section 6 of Rule 64 of the Rules of
Court, "If before the final termination of the case a breach or violation of ... a statute ... should
take place, the action may thereupon be converted into an ordinary action."
Issue: 1. WON the Anti-TB law violates the equal protection clause of the constitution
2. WON the tax in question is valid
Ruling:
1. No. The five centavo charge levied by Republic Act 1635, as amended, is in the nature of
an excise tax, laid upon the exercise of a privilege, namely, the privilege of using the
mails. As such the objections levelled against it must be viewed in the light of applicable
principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the
subjects of taxation and to grant exemptions. This power has aptly been described as "of wide
range and flexibility."Indeed, it is said that in the field of taxation, more than in other areas, the
legislature possesses the greatest freedom in classification. The reason for this is that
traditionally, classification has been a device for fitting tax programs to local needs and usages in
order to achieve an equitable distribution of the tax burden.
That legislative classifications must be reasonable is of course undenied. But what the
petitioner asserts is that statutory classification of mail users must bear some reasonable
relationship to the end sought to be attained, and that absent such relationship the selection of
mail users is constitutionally impermissible. This is altogether a different proposition. As
explained in Commonwealth v. Life Assurance Co.: While the principle that there must be a
reasonable relationship between classification made by the legislation and its purpose is
undoubtedly true in some contexts, it has no application to a measure whose sole purpose is to
raise revenue ... So long as the classification imposed is based upon some standard capable of
reasonable comprehension, be that standard based upon ability to produce revenue or some
other legitimate distinction, equal protection of the law has been afforded.
We are not wont to invalidate legislation on equal protection grounds except by the
clearest demonstration that it sanctions invidious discrimination, which is all that the
Constitution forbids. The remedy for unwise legislation must be sought in the legislature. Now,
the classification of mail users is not without any reason. It is based on ability to pay, let alone
the enjoyment of a privilege, and on administrative convenience. In the allocation of the tax
burden, Congress must have concluded that the contribution to the anti-TB fund can be assured
by those whose who can afford the use of the mails.
in sustaining the validity of a stamp act which imposed a flat rate of two cents on every $100
face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172.
The inequality of the tax, so far as actual values are concerned, is manifest. But, here again
equality in this sense has to yield to practical considerations and usage. There must be a fixed
and indisputable mode of ascertaining a stamp tax. In another sense, moreover, there is
equality. When the taxes on two sales are equal, the same number of shares is sold in each case;
that is to say, the same privilege is used to the same extent. Valuation is not the only thing to be
considered. As was pointed out by the court of appeals, the familiar stamp tax of 2 cents on
checks, irrespective of income or earning capacity, and many others, illustrate the necessity and
practice of sometimes substituting count for weight.

Granted the power to select the subject of taxation, the State's power to grant According to the trial court, the money raised from the sales of the anti-TB stamps is
exemption must likewise be conceded as a necessary corollary. Tax exemptions are too common spent for the benefit of the Philippine Tuberculosis Society, a private organization, without
in the law; they have never been thought of as raising issues under the equal protection clause. appropriation by law. But as the Solicitor General points out, the Society is not really the
beneficiary but only the agency through which the State acts in carrying out what is essentially a
2. No. The eradication of a dreaded disease is a public purpose, but if by public purpose public function. The money is treated as a special fund and as such need not be appropriated by
the petitioner means benefit to a taxpayer as a return for what he pays, then it is law.
sufficient answer to say that the only benefit to which the taxpayer is constitutionally
entitled is that derived from his enjoyment of the privileges of living in an organized
society, established and safeguarded by the devotion of taxes to public purposes. Any
other view would preclude the levying of taxes except as they are used to compensate
for the burden on those who pay them and would involve the abandonment of the most
fundamental principle of government - that it exists primarily to provide for the
common good.

Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat
rate rather than a graduated tax. A tax need not be measured by the weight of the mail or the
extent of the service rendered. We have said that considerations of administrative convenience
and cost afford an adequate ground for classification. The same considerations may induce the
legislature to impose a flat tax which in effect is a charge for the transaction, operating equally
on all persons within the class regardless of the amount involved.16 As Mr. Justice Holmes said
 CASE 6: G.R. No. 172509. February 4, 2015. CHINA BANKING CORPORATION, petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Facts:
Petitioner CBC is a universal bank duly organized and existing under the laws of the
Philippines. For the taxable years 1982 to 1986, CBC was engaged in transactions involving sales
of foreign exchange to the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas),
commonly known as SWAP transactions.5 Petitioner did not file tax returns or pay tax on the
SWAP transactions for those taxable years.
On 19 April 1989, petitioner CBC received an assessment from the Bureau of Internal
Revenue (BIR) finding CBC liable for deficiency DST on the sales of foreign bills of exchange to
the Central Bank.
On 8 May 1989, petitioner CBC, through its vice-president, sent a letter of protest to the
BIR. CBC raised the following defenses: (1) double taxation, as the bank had previously paid the
DST on all its transactions involving sales of foreign bills of exchange to the Central Bank;
(2) absence of liability, as the liability for the DST in a sale of foreign exchange through
telegraphic transfers to the Central Bank falls on the buyer, in this case, the Central Bank;
(3) due process violation, as the bank’s records were never formally examined by the BIR
examiners; (4) validity of the assessment, as it did not include the factual basis therefore;
(5) exemption, as neither the tax-exempt entity nor the other party was liable for the payment
of DST before the effectivity of Presidential Decree Nos. (PD) 1177 and 1931 for the years 1982
to 1986.7 In the protest, the taxpayer requested a reinvestigation so as to substantiate its
assertions.
On 6 December 2001, more than 12 years after the filing of the protest, the
Commissioner of Internal Revenue (CIR) rendered a decision reiterating the deficiency DST
assessment and ordered the payment thereof plus increments within 30 days from receipt of
the Decision. On 18 January 2002, CBC filed a Petition for Review with the CTA. On 11 March
2002, the CIR filed an Answer with a demand for CBC to pay the assessed DST. On 23 February
2005, and after trial on the merits, the CTA Second Division denied the Petition of CBC. The CTA
ruled that a SWAP arrangement should be treated as a telegraphic transfer subject to
documentary stamp tax. On 30 March 2005, petitioner CBC filed a Motion for Reconsideration,
but it was denied in a Resolution dated 14 July 2005.On 5 August 2005, petitioner appealed to
the CTA En Banc. The appellate tax court, however, dismissed the Petition for Review in a
Decision dated 1 December 2005. CBC filed a Motion for Reconsideration on 21 December 2005,
but it was denied in a 20 March 2006 Resolution.
The taxpayer now comes to this Court with a Rule 45 Petition, reiterating the arguments
it raised at the CTA level and invoking for the first time the argument of prescription. Petitioner
CBC states that the government has three years from 19 April 1989, the date the former
received the assessment of the CIR, to collect the tax. Within that time frame, however, neither
a warrant of distraint or levy was issued, nor a collection case filed in court.
Issue: WON the right of the BIR to collect the assessed Documentary Stamp Tax (DST) from
CBC is barred by prescription
Ruling:
Yes. The records do not show when the assessment notice was mailed, released or sent
to CBC. Nevertheless, the latest possible date that the BIR could have released, mailed or sent
the assessment notice was on the same date that CBC received it, 19 April 1989. Assuming
therefore that 19 April 1989 is the reckoning date, the BIR had three years to collect the
assessed DST. However, the records of this case show that there was neither a warrant of
distraint or levy served on CBC's properties nor a collection case filed in court by the BIR within
the three-year period.
The attempt of the BIR to collect the tax through its Answer with a demand for CBC to
pay the assessed DST in the CTA on 11 March 2002 did not comply with Section 319(c) of the
1977 Tax Code, as amended. The demand was made almost thirteen years from the date from
which the prescriptive period is to be reckoned. Thus, the attempt to collect the tax was made
way beyond the three-year prescriptive period.
The BIR’s Answer in the case filed before the CTA could not, by any means, have
qualified as a collection case as required by law. Under the rule prevailing at the time the BIR
filed its Answer, the regular courts, and not the CTA, had jurisdiction over judicial actions for
collection of internal revenue taxes. It was only on 23 April 2004, when Republic Act Number
9282 took effect,17 that the jurisdiction of the CTA was expanded to include, among others,
original jurisdiction over collection cases in which the principal amount involved is one million
pesos or more. Consequently, the claim of the CIR for deficiency DST from petitioner is forever
lost, as it is now barred by time. This Court has no other option but to dismiss the present case.
 CASE 7: G.R. Nos. 49839-46. April 26, 1991. JOSE B. L. REYES and EDMUNDO A. REYES,
petitioners, vs. PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their capacities as
appointed and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA
H. NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed and
Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL, in
his capacity as City Assessor of Manila, respondents.
Facts:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of
land situated in Tondo and Sta. Cruz Districts, City of Manila, which are leased and
entirely occupied as dwelling sites by tenants. Said tenants were paying monthly rentals
not exceeding three hundred pesos (P300.00)
On July 14, 1971, the National Legislature enacted Republic Act No. 6359 prohibiting for
one year from its effectivity, an increase in monthly rentals of dwelling units or of lands on
which another's dwelling is located, where such rentals do not exceed three hundred pesos
(P300.00) a month but allowing an increase in rent by not more than 10% thereafter. The said
Act also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its
effectivity thereby disallowing the ejectment of lessees upon the expiration of the usual legal
period of lease. Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by indefinitely suspending the
aforementioned provision of the Civil Code, excepting leases with a definite period.
Consequently, the Reyeses, petitioners herein, were precluded from raising the
rentals and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-
classified and reassessed the value of the subject properties based on the schedule of
market values duly reviewed by the Secretary of Finance. The revision, as expected,
entailed an increase in the corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement with the Board of Tax Assessment Appeals. They
averred that the reassessments made were "excessive, unwarranted, inequitable,
confiscatory and unconstitutional" considering that the taxes imposed upon them
greatly exceeded the annual income derived from their properties. They argued that the
income approach should have been used in determining the land values instead of the
comparable sales approach which the City Assessor adopted (Rollo, pp. 9-10-A). The Board
of Tax Assessment Appeals, however, considered the assessments valid.
The Reyeses appealed to the Central Board of Assessment Appeals. They submitted,
among others, the summary of the yearly rentals to show the income derived from the
properties. Respondent City Assessor, on the other hand, submitted three (3) deeds of sale
showing the different market values of the real property situated in the same vicinity where the
subject properties of petitioners are located.
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the
dispositive portion of which reads: WHEREFORE, the appealed decision insofar as the valuation
and assessment of the lots covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-
5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-266, the
appealed Decision is modified by allowing a 20% reduction in their respective market values and
applying therein the assessment level of 30% to arrive at the corresponding assessed value.
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
Issue: WON the approach on tax assessment used by the City Assessor reasonable
Ruling: No. The taxing power has the authority to make a reasonable and natural classification
for purposes of taxation but the government's act must not be prompted by a 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.
Verily, taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. However, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the
real purpose of taxations, which is the promotion of the common good, may be achieved
(Commissioner of Internal Revenue v. Algue Inc., et al., 158 SCRA 9 [1988]).

Consequently, it stands to reason that petitioners who are burdened by the

government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of
social justice should not now be penalized by the same government by the imposition of
excessive taxes petitioners can ill afford and eventually result in the forfeiture of their
properties. By the public respondents' own computation the assessment by income approach
would amount to only P10.00 per sq. meter at the time in question.
CASE 8: PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,
vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.
G.R. No. 167330 September 18, 2009
Facts:
Petitioner is a domestic corporation. Individuals enrolled in said corporation pay an
annual membership fee and are entitled to various curative medical services provided by its duly
licensed physicians.
On January 27, 2000, respondent sent petitioner a demand letter and the corresponding
assessment notices demanding the payment of deficiency taxes, including surcharges and interest,
for the taxable years 1996 and 1997 in the total amount of ₱224,702,641.18.
*The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s
health care agreement with the members of its health care program pursuant to Section 185 of the
1997 Tax Code*
Petitioner protested the assessment. As respondent did not act on the protest, petitioner
filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the
deficiency VAT and DST assessments.
CTA partially granted the petition to review and ordered the petitioner to PAY the
deficiency VAT amounting to ₱22,054,831.75 inclusive of 25% surcharge plus 20% interest from
January 20, 1997 until fully paid for the 1996 VAT deficiency and ₱31,094,163.87 inclusive of
25% surcharge plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT
deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without force and effect.
The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED AND
SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.
Respondent appealed to the Court of Appeals. He contented that petitioner’s health care
agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA held that petitioner’s health care agreement was in the
nature of a non-life insurance contract subject to DST hence petition for review is granted CTA's
decision was REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as
deficiency Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late
payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of
the Tax Code, until the same shall have been fully paid. a motion for reconsideration was filed by
the petitioner but was denied by the CA.
*Petitioner appealed but was denied again*
petitioner filed the present motion for reconsideration and supplemental motion for
reconsideration, asserting the following arguments:
(c) Section 185 should be strictly construed.
(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year
2005 and all prior years. Therefore, the questioned assessments on the DST are now
rendered moot and academic.6
Issue:
Whether or not Section 185 of the 1997 Tax Code should be strictly construed against the
government
Whether or not DST is one of the taxes covered by the tax amnesty program under RA
9480.
Whether or not health care agreements are within the scope of Section 185 of the NIRC
Whether or not imposing the said DST is just and correct
Held:
 Yes. In construing this provision, we should be guided by the principle that tax statutes
are strictly construed against the taxing authority. This is because taxation is a destructive power
which interferes with the personal and property rights of the people and takes from them a portion
of their property for the support of the government. Hence, tax laws may not be extended by
implication beyond the clear import of their language, nor their operation enlarged so as to
embrace matters not specifically provided.
As aptly held in Roxas, et al. v. CTA, et al., 23 SCRA 276 (1968): 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.”

Yes. We held in a recent case that DST is one of the taxes covered by the tax amnesty
program under RA 9480. There is no other conclusion to draw than that petitioner’s liability for
DST for the taxable years 1996 and 1997 was totally extinguished by its availment of the tax
amnesty under RA 9480.

No. Taking into account that health care agreements are clearly not within the ambit of
Section 185 of the NIRC and there was never any legislative intent to impose the same on HMOs
like petitioner, the same should not be arbitrarily and unjustly included in its coverage. It is a
matter of common knowledge that there is a great social need for adequate medical services at a
cost which the average wage earner can afford. HMOs arrange, organize and manage health care
treatment in the furtherance of the goal of providing a more efficient and inexpensive health care
system made possible by quantity purchasing of services and economies of scale. They offer
advantages over the pay-for-service system (wherein individuals are charged a fee each time they
receive medical services), including the ability to control costs. They protect their members from
exposure to the high cost of hospitalization and other medical expenses brought about by a
fluctuating economy. Accordingly, they play an important role in society as partners of the State
in achieving its constitutional mandate of providing its citizens with affordable health services.

No. As a general rule, the power to tax is an incident of sovereignty and is unlimited in its
range, acknowledging in its very nature no limits, so that security against its abuse is to be found
only in the responsibility of the legislature which imposes the tax on the constituency who is to
pay it. So potent indeed is the power that it was once opined that “the power to tax involves the
power to destroy.” Petitioner claims that the assessed DST to date which amounts to P376 million
is way beyond its net worth of P259 million. Respondent never disputed these assertions. Given
the realities on the ground, imposing the DST on petitioner would be highly oppressive. It is not
the purpose of the government to throttle private business. On the contrary, the government ought
to encourage private enterprise. Petitioner, just like any concern organized for a lawful economic
activity, has a right to maintain a legitimate business.
CASE 9: G.R. No. 149110. April 9, 2003. NATIONAL POWER CORPORATION, petitioner, vs. CITY
OF CABANATUAN, respondent.
Facts:
Petitioner is a government-owned and controlled corporation under Commonwealth Act
No. 120, as amended to undertake the "development of hydroelectric generations of power and
the production of electricity from nuclear, geothermal and other sources, as well as, the
transmission of electric power on a nationwide basis.
For many years now, petitioner sells electric power to the residents of Cabanatuan City,
posting a gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No.
165-92,8 the respondent assessed the petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the latter's gross receipts for the preceding year.
Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government, refused to pay the tax assessment. It argued that the respondent has no authority
to impose tax on government entities. Petitioner also contended that as a non-profit
organization, it is exempted from the payment of all forms of taxes, charges, duties or fees in
accordance with sec. 13 of Rep. Act No. 6395
"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and Other Charges by Government and Governmental Instrumentalities.- The
Corporation shall be non-profit and shall devote all its return from its capital investment, as well
as excess revenues from its operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees
in any court or administrative proceedings in which it may be a party, restrictions and
duties to the Republic of the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage
fees on import of foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power."
The respondent filed in the Regional Trial Court of Cabanatuan City, demanding that
petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax,
and 2% monthly interest.13 Respondent alleged that petitioner's exemption from local taxes has
been repealed by section 193 of Rep. Act No. 7160.
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided
in this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A. No.
6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code."
On January 25, 1996, the trial court issued an Order15 dismissing the case. It
ruled that the tax exemption privileges granted to petitioner subsist despite the passage
of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is a particular law
and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) section 193
of Rep. Act No. 7160 is in the nature of an implied repeal which is not favored; and (3)
local governments have no power to tax instrumentalities of the national government.
On appeal, the Court of Appeals reversed the trial court's Order on the ground that
section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions
granted to the petitioner. It ordered the petitioner to pay the respondent city government the
following: (a) the sum of P808,606.41 representing the franchise tax due based on gross receipts
for the year 1992, (b) the tax due every year thereafter based in the gross receipts earned by
NPC, (c) in all cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P
10,000.00 as litigation expense.
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's
Decision. This was denied by the appellate court
"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated
therein that the taxing power of the province under Art. 137 (sic) of the Local
Government Code refers merely to private persons or corporations in which category it
(NPC) does not belong, and that the LGC (RA 7160) which is a general law may not
impliedly repeal the NPC Charter which is a special law—finds the answer in Section 193
of the LGC to the effect that 'tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-owned or
controlled corporations except local water districts xxx are hereby withdrawn.' The
repeal is direct and unequivocal, not implied."
Issue:
Whether or not court of appeals erred in holding petitioner is liable to pay the
franchise tax as it failed to consider that section 131 of the Local Government code in relation to
sec 131 applies only to private persons or corporation enjoying a franchise?
Whether or not petitioner's exemption from all forms of taxes repealed by the
provisions of the Local Government Code
Whether or not the charter of the NPC, being a valid exercise of police power, should
prevail over the LGC
held:
NO. Franchise”, defined.—Section 131 (m) of the LGC defines a “franchise” as “a right or
privilege, affected with public interest which is conferred upon private persons or corporations,
under such terms and conditions as the government and its political subdivisions may impose in
the interest of the public welfare, security and safety. To stress, a franchise tax is imposed based
not on the ownership but on the exercise by the corporation of a privilege to do business. The
taxable entity is the corporation which exercises the franchise, and not the individual
stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity
from the National Government. It can sue and be sued under its own name, and can exercise all
the powers of a corporation under the Corporation Code.
Yes. One of the most significant provisions of the LGC is the removal of the blanket
exclusion of instrumentalities and agencies of the national government from the coverage of
local taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind
on the National Government, its agencies and instrumentalities, this rule now admits an
exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or
charges on the aforementioned entities, viz.: “Section 133. Common Limitations on the Taxing
Powers of the Local Government Units". Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of
the following: x x x (o) Taxes, fees, or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units.The legislative purpose to withdraw
tax privileges enjoyed under existing laws or charter is clearly manifested by the language used
on Sec. 137 and 193 categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be tedious and impractical to attempt to enumerate all the existing
statutes providing for special tax exemptions or privileges, the LGC provided for an express,
albeit general, withdrawal of such exemptions or privileges. No more unequivocal language
could have been used.
No. Taxes are the lifeblood of the government, for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power
derives its source from the very existence of the state whose social contract with its citizens
obliges it to promote public interest and common good. The theory behind the exercise of the
power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people.
CASE 10: G.R. No. 112024. January 28, 1999. PHILIPPINE BANK OF COMMUNICATIONS,
petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT
OF APPEALS, respondents.
Facts:
Petitioner, a commercial banking corporation duly organized under Philippine laws, filed
its quarterly income tax returns for the first and second quarters of 1985, reported profits, and
paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax
credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo
Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively.however, PBCom
suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December
31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax
payable for the year.
But during these two years, PBCom earned rental income from leased properties. The
lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985
and P234,077.69 in 1986.On August 7, 1987, petitioner requested the Commissioner of Internal
Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes
in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes
withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for
P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue,
petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax
Appeals (CTA). The losses petitioner incurred as per the summary of petitioner's claims for
refund and tax credit for 1985 and 1986, filed before the Court of Tax Appeals.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied
the request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the
ground that it was filed beyond the two-year reglementary period provided for by law. The
petitioner's claim for refund in 1986 amounting to P234,077.69 was likewise denied on the
assumption that it was automatically credited by PBCom against its tax payment in the
succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's decision but
the same was denied due course for lack of merit.
Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA
with the Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in
toto the CTA's resolution dated July 20, 1993.
Issue:
Whether or not the Court of Appeals erred in denying the plea for tax refund or tax
credits on the ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing
the prescriptive period of two years to ten years?
Whether or not Court of Appeals seriously erred in affirming CTA's decision denying its
claim for refund of P234,077.69 (tax overpaid in 1986), based on mere speculation, without
proof, that PBCom availed of the automatic tax credit in 1987.
Held:
No. it is of utmost importance that the modes adopted to enforce the collection of taxes
levied should be summary and interfered with as little as possible.— Basic is the principle that
“taxes are the lifeblood of the nation.” The primary purpose is to generate funds for the State to
finance the needs of the citizenry and to advance the common weal. Due process of law under
the Constitution does not require judicial proceedings in tax cases. This must necessarily be so
because it is upon taxation that the government chiefly relies to obtain the means to carry on its
operations and it is of utmost importance that the modes adopted to enforce the collection of
taxes levied should be summary and interfered with as little as possible.
Claims for refund or tax credit should be exercised within the time fixed by law because the BIR
being an administrative body enforced to collect taxes, its functions should not be unduly
delayed or hampered by incidental matters. The taxpayer may file a claim for refund or credit
with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before
any suit in CTA is commenced.—The rule states that the taxpayer may file a claim for refund or
credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax,
before any suit in CTA is commenced. The two-year prescriptive period provided, should be
computed from the time of filing the Adjustment Return and final payment of the tax for the
year.

No. The corporation must signify in its annual corporate adjustment return (by marking the
option box provided in the BIR form) its intention, whether to request for a refund or claim for
an automatic tax credit for the succeeding taxable year. To ease the administration of tax
collection, these remedies are in the alternative, and the choice of one precludes the other.

As stated by respondent Court of Appeals:

Finally, as to the claimed refund of income tax over-paid in 1986 — the Court of
Tax Appeals, after examining the adjusted final corporate annual income tax
return for taxable year 1986, found out that petitioner opted to apply for
automatic tax credit. This was the basis used (vis-avis the fact that the 1987
annual corporate tax return was not offered by the petitioner as evidence) by the
CTA in concluding that petitioner had indeed availed of and applied the
automatic tax credit to the succeeding year, hence it can no longer ask for
refund, as to [sic] the two remedies of refund and tax credit are alternative.

That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the
1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which
we must respect. Moreover, the 1987 annual corporate tax return of the petitioner was not
offered as evidence to controvert said fact. Thus, we are bound by the findings of fact by
respondent courts, there being no showing of gross error or abuse on their part to disturb our
reliance thereon.