Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
L-9637 April 30, 1957 paid to the defendant under protest the said permit and license fees
in the aforementioned amount, giving at the same time notice to
AMERICAN BIBLE SOCIETY, plaintiff-appellant, the City Treasurer that suit would be taken in court to question the
vs. legality of the ordinances under which, the said fees were being
CITY OF MANILA, defendant-appellee. collected (Annex C), which was done on the same date by filing
the complaint that gave rise to this action. In its complaint plaintiff
City Fiscal Eugenio Angeles and Juan Nabong for appellant. prays that judgment be rendered declaring the said Municipal
Assistant City Fiscal Arsenio Nañawa for appellee. Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028
and 3364 illegal and unconstitutional, and that the defendant be
FELIX, J.: ordered to refund to the plaintiff the sum of P5,891.45 paid under
protest, together with legal interest thereon, and the costs, plaintiff
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, further praying for such other relief and remedy as the court may
missionary corporation duly registered and doing business in the deem just equitable.
Philippines through its Philippine agency established in Manila in
November, 1898, with its principal office at 636 Isaac Peral in said Defendant answered the complaint, maintaining in turn that said
City. The defendant appellee is a municipal corporation with ordinances were enacted by the Municipal Board of the City of
powers that are to be exercised in conformity with the provisions Manila by virtue of the power granted to it by section 2444,
of Republic Act No. 409, known as the Revised Charter of the City subsection (m-2) of the Revised Administrative Code, superseded
of Manila. on June 18, 1949, by section 18, subsection (1) of Republic Act
No. 409, known as the Revised Charter of the City of Manila, and
In the course of its ministry, plaintiff's Philippine agency has been praying that the complaint be dismissed, with costs against
distributing and selling bibles and/or gospel portions thereof plaintiff. This answer was replied by the plaintiff reiterating the
(except during the Japanese occupation) throughout the Philippines unconstitutionality of the often-repeated ordinances.
and translating the same into several Philippine dialects. On May
29 1953, the acting City Treasurer of the City of Manila informed Before trial the parties submitted the following stipulation of facts:
plaintiff that it was conducting the business of general merchandise
since November, 1945, without providing itself with the necessary COME NOW the parties in the above-entitled case, thru
Mayor's permit and municipal license, in violation of Ordinance their undersigned attorneys and respectfully submit the
No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364, following stipulation of facts:
and required plaintiff to secure, within three days, the
corresponding permit and license fees, together with compromise 1. That the plaintiff sold for the use of the purchasers at its
covering the period from the 4th quarter of 1945 to the 2nd quarter principal office at 636 Isaac Peral, Manila, Bibles, New
of 1953, in the total sum of P5,821.45 (Annex A). Testaments, bible portions and bible concordance in
English and other foreign languages imported by it from
Plaintiff protested against this requirement, but the City Treasurer the United States as well as Bibles, New Testaments and
demanded that plaintiff deposit and pay under protest the sum of bible portions in the local dialects imported and/or
P5,891.45, if suit was to be taken in court regarding the same purchased locally; that from the fourth quarter of 1945 to
(Annex B). To avoid the closing of its business as well as further the first quarter of 1953 inclusive the sales made by the
fines and penalties in the premises on October 24, 1953, plaintiff plaintiff were as follows:
Quarter Amount of Sales 1st quarter 1951 37,841.21
2nd quarter 1948 14,715.26 WHEREFORE, it is respectfully prayed that this case be set
for hearing so that the parties may present further evidence
3rd quarter 1948 38,333.83 on their behalf. (Record on Appeal, pp. 15-16).
4th quarter 1948 16,179.90
When the case was set for hearing, plaintiff proved, among other
1st quarter 1949 23,975.10 things, that it has been in existence in the Philippines since 1899,
and that its parent society is in New York, United States of
2nd quarter 1949 17,802.08 America; that its, contiguous real properties located at Isaac Peral
are exempt from real estate taxes; and that it was never required to
3rd quarter 1949 16,640.79 pay any municipal license fee or tax before the war, nor does the
4th quarter 1949 15,961.38 American Bible Society in the United States pay any license fee or
sales tax for the sale of bible therein. Plaintiff further tried to
1st quarter 1950 18,562.46 establish that it never made any profit from the sale of its bibles,
which are disposed of for as low as one third of the cost, and that
2nd quarter 1950 21,816.32 in order to maintain its operating cost it obtains substantial
remittances from its New York office and voluntary contributions
3rd quarter 1950 25,004.55 and gifts from certain churches, both in the United States and in
the Philippines, which are interested in its missionary work.
4th quarter 1950 45,287.92
Regarding plaintiff's contention of lack of profit in the sale of
bibles, defendant retorts that the admissions of plaintiff-appellant's 2. In holding that subsection m-2 of Section 2444 of the
lone witness who testified on cross-examination that bibles bearing Revised Administrative Code under which Ordinances Nos.
the price of 70 cents each from plaintiff-appellant's New York 2592 and 3000 were promulgated, was not repealed by
office are sold here by plaintiff-appellant at P1.30 each; those Section 18 of Republic Act No. 409;
bearing the price of $4.50 each are sold here at P10 each; those
bearing the price of $7 each are sold here at P15 each; and those 3. In not holding that an ordinance providing for taxes
bearing the price of $11 each are sold here at P22 each, clearly based on gross sales or receipts, in order to be valid under
show that plaintiff's contention that it never makes any profit from the new Charter of the City of Manila, must first be
the sale of its bible, is evidently untenable. approved by the President of the Philippines; and
After hearing the Court rendered judgment, the last part of which is 4. In holding that, as the sales made by the plaintiff-
as follows: appellant have assumed commercial proportions, it cannot
escape from the operation of said municipal ordinances
As may be seen from the repealed section (m-2) of the under the cloak of religious privilege.
Revised Administrative Code and the repealing portions (o)
of section 18 of Republic Act No. 409, although they The issues. — As may be seen from the proceeding statement of
seemingly differ in the way the legislative intent is the case, the issues involved in the present controversy may be
expressed, yet their meaning is practically the same for the reduced to the following: (1) whether or not the ordinances of the
purpose of taxing the merchandise mentioned in said legal City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364,
provisions, and that the taxes to be levied by said are constitutional and valid; and (2) whether the provisions of said
ordinances is in the nature of percentage graduated taxes ordinances are applicable or not to the case at bar.
(Sec. 3 of Ordinance No. 3000, as amended, and Sec. 1,
Group 2, of Ordinance No. 2529, as amended by Ordinance Section 1, subsection (7) of Article III of the Constitution of the
No. 3364). Republic of the Philippines, provides that:
IN VIEW OF THE FOREGOING CONSIDERATIONS, (7) No law shall be made respecting an establishment of
this Court is of the opinion and so holds that this case religion, or prohibiting the free exercise thereof, and the
should be dismissed, as it is hereby dismissed, for lack of free exercise and enjoyment of religious profession and
merits, with costs against the plaintiff. worship, without discrimination or preference, shall forever
be allowed. No religion test shall be required for the
Not satisfied with this verdict plaintiff took up the matter to the exercise of civil or political rights.
Court of Appeals which certified the case to Us for the reason that
the errors assigned to the lower Court involved only questions of Predicated on this constitutional mandate, plaintiff-appellant
law. contends that Ordinances Nos. 2529 and 3000, as respectively
amended, are unconstitutional and illegal in so far as its society is
Appellant contends that the lower Court erred: concerned, because they provide for religious censorship and
restrain the free exercise and enjoyment of its religious profession,
1. In holding that Ordinances Nos. 2529 and 3000, as to wit: the distribution and sale of bibles and other religious
respectively amended, are not unconstitutional; literature to the people of the Philippines.
Before entering into a discussion of the constitutional aspect of the 79. All other businesses, trades or occupations not
case, We shall first consider the provisions of the questioned mentioned in this Ordinance, except those upon which the
ordinances in relation to their application to the sale of bibles, etc. City is not empowered to license or to tax P5.00
by appellant. The records, show that by letter of May 29, 1953
(Annex A), the City Treasurer required plaintiff to secure a Therefore, the necessity of the permit is made to depend upon the
Mayor's permit in connection with the society's alleged business of power of the City to license or tax said business, trade or
distributing and selling bibles, etc. and to pay permit dues in the occupation.
sum of P35 for the period covered in this litigation, plus the sum of
P35 for compromise on account of plaintiff's failure to secure the As to the license fees that the Treasurer of the City of Manila
permit required by Ordinance No. 3000 of the City of Manila, as required the society to pay from the 4th quarter of 1945 to the 1st
amended. This Ordinance is of general application and not quarter of 1953 in the sum of P5,821.45, including the sum of P50
particularly directed against institutions like the plaintiff, and it as compromise, Ordinance No. 2529, as amended by Ordinances
does not contain any provisions whatever prescribing religious Nos. 2779, 2821 and 3028 prescribes the following:
censorship nor restraining the free exercise and enjoyment of any
religious profession. Section 1 of Ordinance No. 3000 reads as SEC. 1. FEES. — Subject to the provisions of section 578
follows: of the Revised Ordinances of the City of Manila, as
amended, there shall be paid to the City Treasurer for
SEC. 1. PERMITS NECESSARY. — It shall be unlawful engaging in any of the businesses or occupations below
for any person or entity to conduct or engage in any of the enumerated, quarterly, license fees based on gross sales or
businesses, trades, or occupations enumerated in Section 3 receipts realized during the preceding quarter in accordance
of this Ordinance or other businesses, trades, or with the rates herein prescribed: PROVIDED, HOWEVER,
occupations for which a permit is required for the proper That a person engaged in any businesses or occupation for
supervision and enforcement of existing laws and the first time shall pay the initial license fee based on the
ordinances governing the sanitation, security, and welfare probable gross sales or receipts for the first quarter
of the public and the health of the employees engaged in beginning from the date of the opening of the business as
the business specified in said section 3 hereof, WITHOUT indicated herein for the corresponding business or
FIRST HAVING OBTAINED A PERMIT THEREFOR occupation.
FROM THE MAYOR AND THE NECESSARY
LICENSE FROM THE CITY TREASURER. xxx xxx xxx
The business, trade or occupation of the plaintiff involved in this GROUP 2. — Retail dealers in new (not yet used)
case is not particularly mentioned in Section 3 of the Ordinance, merchandise, which dealers are not yet subject to the
and the record does not show that a permit is required therefor payment of any municipal tax, such as (1) retail dealers in
under existing laws and ordinances for the proper supervision and general merchandise; (2) retail dealers exclusively engaged
enforcement of their provisions governing the sanitation, security in the sale of . . . books, including stationery.
and welfare of the public and the health of the employees engaged
in the business of the plaintiff. However, sections 3 of Ordinance xxx xxx xxx
3000 contains item No. 79, which reads as follows:
As may be seen, the license fees required to be paid quarterly in trial Judge, although Section 2444 (m-2) of the former Manila
Section 1 of said Ordinance No. 2529, as amended, are not Charter and section 18 (o) of the new seemingly differ in the way
imposed directly upon any religious institution but upon those the legislative intent was expressed, yet their meaning is practically
engaged in any of the business or occupations therein enumerated, the same for the purpose of taxing the merchandise mentioned in
such as retail "dealers in general merchandise" which, it is alleged, both legal provisions and, consequently, Ordinances Nos. 2529 and
cover the business or occupation of selling bibles, books, etc. 3000, as amended, are to be considered as still in full force and
effect uninterruptedly up to the present.
Chapter 60 of the Revised Administrative Code which includes
section 2444, subsection (m-2) of said legal body, as amended by Often the legislature, instead of simply amending the pre-
Act No. 3659, approved on December 8, 1929, empowers the existing statute, will repeal the old statute in its entirety and
Municipal Board of the City of Manila: by the same enactment re-enact all or certain portions of the
preexisting law. Of course, the problem created by this sort
(M-2) To tax and fix the license fee on (a) dealers in new of legislative action involves mainly the effect of the repeal
automobiles or accessories or both, and (b) retail dealers in upon rights and liabilities which accrued under the original
new (not yet used) merchandise, which dealers are not yet statute. Are those rights and liabilities destroyed or
subject to the payment of any municipal tax. preserved? The authorities are divided as to the effect of
simultaneous repeals and re-enactments. Some adhere to
For the purpose of taxation, these retail dealers shall be the view that the rights and liabilities accrued under the
classified as (1) retail dealers in general merchandise, and repealed act are destroyed, since the statutes from which
(2) retail dealers exclusively engaged in the sale of (a) they sprang are actually terminated, even though for only a
textiles . . . (e) books, including stationery, paper and office very short period of time. Others, and they seem to be in
supplies, . . .: PROVIDED, HOWEVER, That the the majority, refuse to accept this view of the situation, and
combined total tax of any debtor or manufacturer, or both, consequently maintain that all rights an liabilities which
enumerated under these subsections (m-1) and (m-2), have accrued under the original statute are preserved and
whether dealing in one or all of the articles mentioned may be enforced, since the re-enactment neutralizes the
herein, SHALL NOT BE IN EXCESS OF FIVE HUNDRED repeal, therefore, continuing the law in force without
PESOS PER ANNUM. interruption. (Crawford-Statutory Construction, Sec. 322).
and appellee's counsel maintains that City Ordinances Nos. 2529 Appellant's counsel states that section 18 (o) of Republic Act No,
and 3000, as amended, were enacted in virtue of the power that 409 introduces a new and wider concept of taxation and is different
said Act No. 3669 conferred upon the City of Manila. Appellant, from the provisions of Section 2444(m-2) that the former cannot be
however, contends that said ordinances are longer in force and considered as a substantial re-enactment of the provisions of the
effect as the law under which they were promulgated has been latter. We have quoted above the provisions of section 2444(m-2)
expressly repealed by Section 102 of Republic Act No. 409 passed of the Revised Administrative Code and We shall now copy
on June 18, 1949, known as the Revised Manila Charter. hereunder the provisions of Section 18, subdivision (o) of Republic
Act No. 409, which reads as follows:
Passing upon this point the lower Court categorically stated that
Republic Act No. 409 expressly repealed the provisions of Chapter (o) To tax and fix the license fee on dealers in general
60 of the Revised Administrative Code but in the opinion of the merchandise, including importers and indentors, except
those dealers who may be expressly subject to the payment per section 18, subsection (ii) of Republic Act No. 409, which
of some other municipal tax under the provisions of this reads as follows:
section.
(ii) To tax, license and regulate any business, trade or
Dealers in general merchandise shall be classified as (a) occupation being conducted within the City of Manila, not
wholesale dealers and (b) retail dealers. For purposes of the otherwise enumerated in the preceding subsections,
tax on retail dealers, general merchandise shall be classified including percentage taxes based on gross sales or
into four main classes: namely (1) luxury articles, (2) semi- receipts, subject to the approval of the PRESIDENT, except
luxury articles, (3) essential commodities, and (4) amusement taxes.
miscellaneous articles. A separate license shall be
prescribed for each class but where commodities of but this requirement of the President's approval was not contained
different classes are sold in the same establishment, it shall in section 2444 of the former Charter of the City of Manila under
not be compulsory for the owner to secure more than one which Ordinance No. 2529 was promulgated. Anyway, as stated by
license if he pays the higher or highest rate of tax appellee's counsel, the business of "retail dealers in general
prescribed by ordinance. Wholesale dealers shall pay the merchandise" is expressly enumerated in subsection (o), section 18
license tax as such, as may be provided by ordinance. of Republic Act No. 409; hence, an ordinance prescribing a
municipal tax on said business does not have to be approved by the
For purposes of this section, the term "General President to be effective, as it is not among those referred to in said
merchandise" shall include poultry and livestock, subsection (ii). Moreover, the questioned ordinances are still in
agricultural products, fish and other allied products. force, having been promulgated by the Municipal Board of the
City of Manila under the authority granted to it by law.
The only essential difference that We find between these two
provisions that may have any bearing on the case at bar, is that, The question that now remains to be determined is whether said
while subsection (m-2) prescribes that the combined total tax of ordinances are inapplicable, invalid or unconstitutional if applied
any dealer or manufacturer, or both, enumerated under subsections to the alleged business of distribution and sale of bibles to the
(m-1) and (m-2), whether dealing in one or all of the articles people of the Philippines by a religious corporation like the
mentioned therein, shall not be in excess of P500 per annum, the American Bible Society, plaintiff herein.
corresponding section 18, subsection (o) of Republic Act No. 409,
does not contain any limitation as to the amount of tax or license With regard to Ordinance No. 2529, as amended by Ordinances
fee that the retail dealer has to pay per annum. Hence, and in Nos. 2779, 2821 and 3028, appellant contends that it is
accordance with the weight of the authorities above referred to that unconstitutional and illegal because it restrains the free exercise
maintain that "all rights and liabilities which have accrued under and enjoyment of the religious profession and worship of
the original statute are preserved and may be enforced, since the appellant.
reenactment neutralizes the repeal, therefore continuing the law in
force without interruption", We hold that the questioned Article III, section 1, clause (7) of the Constitution of the
ordinances of the City of Manila are still in force and effect. Philippines aforequoted, guarantees the freedom of religious
profession and worship. "Religion has been spoken of as a
Plaintiff, however, argues that the questioned ordinances, to be profession of faith to an active power that binds and elevates man
valid, must first be approved by the President of the Philippines as to its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has reference to
one's views of his relations to His Creator and to the obligations 80 L. ed. 660, 668, 56 S. Ct. 444. We have here something
they impose of reverence to His being and character, and quite different, for example, from a tax on the income of
obedience to His Will (Davis vs. Beason, 133 U.S., 342). The one who engages in religious activities or a tax on property
constitutional guaranty of the free exercise and enjoyment of used or employed in connection with activities. It is one
religious profession and worship carries with it the right to thing to impose a tax on the income or property of a
disseminate religious information. Any restraints of such right can preacher. It is quite another to exact a tax from him for the
only be justified like other restraints of freedom of expression on privilege of delivering a sermon. The tax imposed by the
the grounds that there is a clear and present danger of any City of Jeannette is a flat license tax, payment of which is a
substantive evil which the State has the right to prevent". (Tañada condition of the exercise of these constitutional privileges.
and Fernando on the Constitution of the Philippines, Vol. 1, 4th The power to tax the exercise of a privilege is the power to
ed., p. 297). In the case at bar the license fee herein involved is control or suppress its enjoyment. . . . Those who can tax
imposed upon appellant for its distribution and sale of bibles and the exercise of this religious practice can make its exercise
other religious literature: so costly as to deprive it of the resources necessary for its
maintenance. Those who can tax the privilege of engaging
In the case of Murdock vs. Pennsylvania, it was held that an in this form of missionary evangelism can close all its
ordinance requiring that a license be obtained before a doors to all those who do not have a full purse. Spreading
person could canvass or solicit orders for goods, paintings, religious beliefs in this ancient and honorable manner
pictures, wares or merchandise cannot be made to apply to would thus be denied the needy. . . .
members of Jehovah's Witnesses who went about from
door to door distributing literature and soliciting people to It is contended however that the fact that the license tax can
"purchase" certain religious books and pamphlets, all suppress or control this activity is unimportant if it does not
published by the Watch Tower Bible & Tract Society. The do so. But that is to disregard the nature of this tax. It is a
"price" of the books was twenty-five cents each, the "price" license tax — a flat tax imposed on the exercise of a
of the pamphlets five cents each. It was shown that in privilege granted by the Bill of Rights . . . The power to
making the solicitations there was a request for additional impose a license tax on the exercise of these freedom is
"contribution" of twenty-five cents each for the books and indeed as potent as the power of censorship which this
five cents each for the pamphlets. Lesser sum were Court has repeatedly struck down. . . . It is not a nominal
accepted, however, and books were even donated in case fee imposed as a regulatory measure to defray the expenses
interested persons were without funds. of policing the activities in question. It is in no way
apportioned. It is flat license tax levied and collected as a
On the above facts the Supreme Court held that it could not condition to the pursuit of activities whose enjoyment is
be said that petitioners were engaged in commercial rather guaranteed by the constitutional liberties of press and
than a religious venture. Their activities could not be religion and inevitably tends to suppress their exercise.
described as embraced in the occupation of selling books That is almost uniformly recognized as the inherent vice
and pamphlets. Then the Court continued: and evil of this flat license tax."
"We do not mean to say that religious groups and the press Nor could dissemination of religious information be
are free from all financial burdens of government. conditioned upon the approval of an official or manager
See Grosjean vs. American Press Co., 297 U.S., 233, 250, even if the town were owned by a corporation as held in the
case of Marsh vs. State of Alabama (326 U.S. 501), or by exemption clearly indicates that the act of distributing and selling
the United States itself as held in the case of Tucker vs. bibles, etc. is purely religious and does not fall under the above
Texas (326 U.S. 517). In the former case the Supreme legal provisions.
Court expressed the opinion that the right to enjoy freedom
of the press and religion occupies a preferred position as It may be true that in the case at bar the price asked for the bibles
against the constitutional right of property owners. and other religious pamphlets was in some instances a little bit
higher than the actual cost of the same but this cannot mean that
"When we balance the constitutional rights of owners of appellant was engaged in the business or occupation of selling said
property against those of the people to enjoy freedom of "merchandise" for profit. For this reason We believe that the
press and religion, as we must here, we remain mindful of provisions of City of Manila Ordinance No. 2529, as amended,
the fact that the latter occupy a preferred position. . . . In cannot be applied to appellant, for in doing so it would impair its
our view the circumstance that the property rights to the free exercise and enjoyment of its religious profession and worship
premises where the deprivation of property here involved, as well as its rights of dissemination of religious beliefs.
took place, were held by others than the public, is not
sufficient to justify the State's permitting a corporation to With respect to Ordinance No. 3000, as amended, which requires
govern a community of citizens so as to restrict their the obtention the Mayor's permit before any person can engage in
fundamental liberties and the enforcement of such restraint any of the businesses, trades or occupations enumerated therein,
by the application of a State statute." (Tañada and Fernando We do not find that it imposes any charge upon the enjoyment of a
on the Constitution of the Philippines, Vol. 1, 4th ed., p. right granted by the Constitution, nor tax the exercise of religious
304-306). practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427,
this point was elucidated as follows:
Section 27 of Commonwealth Act No. 466, otherwise known as
the National Internal Revenue Code, provides: An ordinance by the City of Griffin, declaring that the
practice of distributing either by hand or otherwise,
SEC. 27. EXEMPTIONS FROM TAX ON circulars, handbooks, advertising, or literature of any kind,
CORPORATIONS. — The following organizations shall whether said articles are being delivered free, or whether
not be taxed under this Title in respect to income received same are being sold within the city limits of the City of
by them as such — Griffin, without first obtaining written permission from the
city manager of the City of Griffin, shall be deemed a
(e) Corporations or associations organized and operated nuisance and punishable as an offense against the City of
exclusively for religious, charitable, . . . or educational Griffin, does not deprive defendant of his constitutional
purposes, . . .: Provided, however, That the income of right of the free exercise and enjoyment of religious
whatever kind and character from any of its properties, real profession and worship, even though it prohibits him from
or personal, or from any activity conducted for profit, introducing and carrying out a scheme or purpose which
regardless of the disposition made of such income, shall be he sees fit to claim as a part of his religious system.
liable to the tax imposed under this Code;
It seems clear, therefore, that Ordinance No. 3000 cannot be
Appellant's counsel claims that the Collector of Internal Revenue considered unconstitutional, even if applied to plaintiff Society.
has exempted the plaintiff from this tax and says that such But as Ordinance No. 2529 of the City of Manila, as amended, is
not applicable to plaintiff-appellant and defendant-appellee is
powerless to license or tax the business of plaintiff Society
involved herein for, as stated before, it would impair plaintiff's
right to the free exercise and enjoyment of its religious profession
and worship, as well as its rights of dissemination of religious
beliefs, We find that Ordinance No. 3000, as amended is also
inapplicable to said business, trade or occupation of the plaintiff.
Even from the standpoint that the Act is a pure tax measure, it
cannot be said that the devotion of tax money to experimental
stations to seek increase of efficiency in sugar production,
utilization of by-products and solution of allied problems, as well
[G.R. No. 137377. December 18, 2001.] an ammonia storage complex also at the Leyte Industrial
Development Estate.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v.
MARUBENI CORPORATION, Respondent. On March 1, 1986, petitioner’s revenue examiners recommended
an assessment for deficiency income, branch profit remittance,
DECISION contractor’s and commercial broker’s taxes. Respondent
questioned this assessment in a letter dated June 5, 1986.
The period of amnesty under E.O. No. 64 was extended to January (2) Whether or not respondent is liable to pay the income, branch
31, 1987 by E.O No. 95 dated December 17, 1986. profit remittance, and contractor’s taxes assessed by petitioner." 5
On December 15, 1986, respondent filed a supplemental tax The main controversy in this case lies in the interpretation of the
amnesty return under the benefit of E.O. No. 64 and paid a further exception to the amnesty coverage of E.O. Nos. 41 and 64. There
amount of P1,445,637.00 to the BIR equivalent to five percent are three (3) types of taxes involved herein — income tax, branch
(5%) of the increase of its net worth between 1981 and 1986. profit remittance tax and contractor’s tax. These taxes are covered
by the amnesties granted by E.O. Nos. 41 and 64. Petitioner
On July 29, 1996, almost ten (10) years after filing of the case, the claims, however, that respondent is disqualified from availing of
Court of Tax Appeals rendered a decision in CTA Case No. 4109. the said amnesties because the latter falls under the exception in
The tax court found that respondent had properly availed of the tax Section 4 (b) of E.O. No. 41.
amnesty under E.O. Nos. 41 and 64 and declared the deficiency
taxes subject of said case as deemed cancelled and withdrawn. The Section 4 of E.O. No. 41 enumerates which taxpayers cannot avail
Court of Tax Appeals disposed of as of the amnesty granted thereunder, viz:jgc:chanrobles.com.ph
follows:jgc:chanrobles.com.ph
"Sec. 4. Exceptions. — The following taxpayers may not avail
"WHEREFORE, the respondent Commissioner of Internal themselves of the amnesty herein granted:chanrob1es virtual 1aw
Revenue is hereby ORDERED to DESIST from collecting the library
1985 deficiency taxes it had assessed against petitioner and the
same are deemed considered [sic] CANCELLED and a) Those falling under the provisions of Executive Order Nos. 1, 2
WITHDRAWN by reason of the proper availment by petitioner of and 14;
the amnesty under Executive Order No. 41, as amended." 4
b) Those with income tax cases already filed in Court as of the
Petitioner challenged the decision of the tax court by filing CA- effectivity hereof;
G.R. SP No. 42518 with the Court of Appeals.
c) Those with criminal cases involving violations of the income tax
On January 15, 1999, the Court of Appeals dismissed the petition law already filed in court as of the effectivity hereof;
and affirmed the decision of the Court of Tax Appeals. Hence, this
recourse. d) Those that have withholding tax liabilities under the National
Internal Revenue Code, as amended, insofar as the said liabilities
Before us, petitioner raises the following are concerned;
issues:jgc:chanrobles.com.ph
e) Those with tax cases pending investigation by the Bureau of E.O. No. 41.
Internal Revenue as of the effectivity hereof as a result of
information furnished under Section 316 of the National Internal The same ruling also applies to the deficiency branch profit
Revenue Code, as amended;chanrob1es virtua1 1aw 1ibrary remittance tax assessment. A branch profit remittance tax is
defined and imposed in Section 24 (b) (2) (ii), Title II, Chapter III
f) Those with pending cases involving unexplained or unlawfully of the National Internal Revenue Code. 6 In the tax code, this tax
acquired wealth before the Sandiganbayan; falls under Title II on Income Tax. It is a tax on income.
Respondent therefore did not fall under the exception in Section 4
g) Those liable under Title Seven, Chapter Three (Frauds, Illegal (b) when it filed for amnesty of its deficiency branch profit
Exactions and Transactions) and Chapter Four (Malversation of remittance tax assessment.
Public Funds and Property) of the Revised Penal Code, as
amended."cralaw virtua1aw library The difficulty herein is with respect to the contractor’s tax
assessment and respondent’s availment of the amnesty under E.O.
Petitioner argues that at the time respondent filed for income tax No. 64. E.O. No. 64 expanded the coverage of E.O. No. 41 by
amnesty on October 30, 1986, CTA Case No. 4109 had already including estate and donor’s taxes and tax on business. Estate and
been filed and was pending; before the Court of Tax Appeals. donor’s taxes fall under Title III of the Tax Code while business
Respondent therefore fell under the exception in Section 4 (b) of taxes fall under Chapter II, Title V of the same. The contractor’s
E.O. No. 41. tax is provided in Section 205, Chapter II, Title V of the Tax Code;
it is defined and imposed under the title on business taxes, and is
Petitioner’s claim cannot be sustained. Section 4 (b) of E.O. No. 41 therefore a tax on business. 7
is very clear and unambiguous. It excepts from income tax
amnesty those taxpayers "with income tax cases already filed in When E.O. No. 64 took effect on November 17, 1986, it did not
court as of the effectivity hereof." The point of reference is the date provide for exceptions to the coverage of the amnesty for business,
of effectivity of E.O. No. 41. The filing of income tax cases in estate and donor’s taxes. Instead, Section 8 of E.O. No. 64
court must have been made before and as of the date of effectivity provided that:jgc:chanrobles.com.ph
of E.O. No. 41. Thus, for a taxpayer not to be disqualified under
Section 4 (b) there must have been no income tax cases filed in "Section 8. The provisions of Executive Orders Nos. 41 and 54
court against him when E.O. No. 41 took effect. This is regardless which are not contrary to or inconsistent with this amendatory
of when the taxpayer filed for income tax amnesty, provided of Executive Order shall remain in full force and effect."cralaw
course he files it on or before the deadline for filing. virtua1aw library
E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109 By virtue of Section 8 as afore-quoted, the provisions of E.O. No.
questioning the 1985 deficiency income, branch profit remittance 41 not contrary to or inconsistent with the amendatory act were
and contractor’s tax assessments was filed by respondent with the reenacted in E.O. No. 64. Thus, Section 4 of E.O. No. 41 on the
Court of Tax Appeals on September 26, 1986. When E.O. No. 41 exceptions to amnesty coverage also applied to E.O. No. 64. With
became effective on August 22, 1986, CTA Case No. 4109 had not respect to Section 4 (b) in particular, this provision excepts from
yet been filed in court. Respondent corporation did not fall under tax amnesty coverage a taxpayer who has "income tax cases
the said exception in Section 4 (b), hence, respondent was not already filed in court as of the effectivity hereof." As to what
disqualified from availing of the amnesty for income tax under Executive Order the exception refers to, respondent argues that
because of the words "income" and "hereof," they refer to the clearest grant of organic or state law. It cannot be allowed to
Executive Order No. 41. 8 exist upon a vague implication. If a doubt arises as to the intent of
the legislature, that doubt must be resolved in favor of the state. 19
In view of the amendment introduced by E.O. No. 64, Section 4 (b)
cannot be construed to refer to E.O. No. 41 and its date of In the instant case, the vagueness in Section 4 (b) brought about by
effectivity. The general rule is that an amendatory act operates E.O. No. 64 should therefore be construed strictly against the
prospectively. 9 While an amendment is generally construed as taxpayer. The term "income tax cases" should be read as to refer to
becoming a part of the original act as if it had always been estate and donor’s taxes and taxes on business while the word
contained therein, 10 it may not be given a retroactive effect unless "hereof," to E.O. No. 64. Since Executive Order No. 64 took effect
it is so provided expressly or by necessary implication and no on November 17, 1986, consequently, insofar as the taxes in E.O.
vested right or obligations of contract are thereby impaired. 11 No. 64 are concerned, the date of effectivity referred to in Section
4 (b) of E.O. No. 41 should be November 17, 1986.chanrob1es
There is nothing in E.O. No. 64 that provides that it should retroact virtua1 1aw 1ibrary
to the date of effectivity of E.O. No. 41, the original issuance.
Neither is it necessarily implied from E.O. No. 64 that it or any of Respondent filed CTA Case No. 4109 on September 26, 1986.
its provisions should apply retroactively. Executive Order No. 64 When E.O. No. 64 took effect on November 17, 1986, CTA Case
is a substantive amendment of E.O. No. 41. It does not merely No. 4109 was already filed and pending in court. By the time
change provisions in E.O. No. 41. It supplements the original act respondent filed its supplementary tax amnesty return on
by adding other taxes not covered in the first. 12 It has been held December 15, 1986, respondent already fell under the exception in
that where a statute amending a tax law is silent as to whether it Section 4 (b) of E.O. Nos. 41 and 64 and was disqualified from
operates retroactively, the amendment will not be given a availing of the business tax amnesty granted therein.
retroactive effect so as to subject to tax past transactions not
subject to tax under the original act.13 In an amendatory act, every It is respondent’s other argument that assuming it did not validly
case of doubt must be resolved against its retroactive effect. 14 avail of the amnesty under the two Executive Orders, it is still not
liable for the deficiency contractor’s tax because the income from
Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances. A tax the projects came from the "Offshore Portion" of the contracts. The
amnesty is a general pardon or intentional overlooking by the State two contracts were divided into two parts, i.e., the Onshore Portion
of its authority to impose penalties on persons otherwise guilty of and the Offshore Portion. All materials and equipment in the
evasion or violation of a revenue or tax law. 15 It partakes of an contract under the "Offshore Portion" were manufactured and
absolute forgiveness or waiver by the government of its right to completed in Japan, not in the Philippines, and are therefore not
collect what is due it and to give tax evaders who wish to relent a subject to Philippine taxes.
chance to start with a clean slate. 16 A tax amnesty, much like a
tax exemption, is never favored nor presumed in law. 17 If granted, Before going into respondent’s arguments, it is necessary to
the terms of the amnesty, like that of a tax exemption, must be discuss the background of the two contracts, examine their
construed strictly against the taxpayer and liberally in favor of the pertinent provisions and implementation.
taxing authority. 18 For the right of taxation is inherent in
government. The State cannot strip itself of the most essential The NDC and Philphos are two government corporations. In 1980,
power of taxation by doubtful words. He who claims an exemption the NDC, as the corporate investment arm of the Philippine
(or an amnesty) from the common burden must justify his claim by Government, established the Philphos to engage in the large-scale
manufacture of phosphatic fertilizer for the local and foreign construction of other facilities around the site. The scope of works
markets. 20 The Philphos plant complex which was envisioned to shall also include any activity, work and supply necessary for,
be the largest phosphatic fertilizer operation in Asia, and among incidental to or appropriate under present international industrial
the largest in the world, covered an area of 180 hectares within the port practice, for the timely and successful implementation of the
435-hectare Leyte Industrial Development Estate in the object of this Contract, whether or not expressly referred to in the
municipality of Isabel, province of Leyte. abovementioned Annex I."25cralaw:red
In 1982, the NDC opened for public bidding a project to construct The contract price for the wharf/port complex was
and install a modern, reliable, efficient and integrated wharf/port ¥12,790,389,000.00 and P44,327,940.00. In the contract, the price
complex at the Leyte Industrial Development Estate. The in Japanese currency was broken down into two portions: (1) the
wharf/port complex was intended to be one of the major facilities Japanese Yen Portion I; (2) the Japanese Yen Portion II, while the
for the industrial plants at the Leyte Industrial Development Estate. price in Philippine currency was referred to as the Philippine Pesos
It was to be specifically adapted to the site for the handling of Portion. The Japanese Yen Portions I and II were financed in two
phosphate rock, bagged or bulk fertilizer products, liquid materials (2) ways: (a) by yen credit loan provided by the Overseas
and other products of Philphos, the Philippine Associated Smelting Economic Cooperation Fund (OECF); and (b) by supplier’s credit
and Refining Corporation (Pasar), 21 and other industrial plants in favor of Marubeni from the Export-Import Bank of Japan. The
within the Estate. The bidding was participated in by Marubeni OECF is a Fund under the Ministry of Finance of Japan extended
Head Office in Japan. by the Japanese government as assistance to foreign governments
to promote economic development. 26 The OECF extended to the
Marubeni, Japan pre-qualified and on March 22, 1982, the NDC Philippine Government a loan of ¥7,560,000,000.00 for the Leyte
and respondent entered into an agreement entitled "Turn-Key Industrial Estate Port Development Project and authorized the
Contract for Leyte Industrial Estate Port Development Project NDC to implement the same. 27 The other type of financing is an
Between National Development Company and Marubeni indirect type where the supplier, i.e., Marubeni, obtained a loan
Corporation." 22 The Port Development Project would consist of a from the Export-Import Bank of Japan to advance payment to its
wharf, berths, causeways, mechanical and liquids unloading and sub-contractors. 28
loading systems, fuel oil depot, utilities systems, storage and
service buildings, offsite facilities, harbor service vessels, Under the financing schemes, the Japanese Yen Portions I and II
navigational aid system, fire-fighting system, area lighting, mobile and the Philippine Pesos Portion were further broken down and
equipment, spare parts and other related facilities. 23 The scope of subdivided according to the materials, equipment and services
the works under the contract covered turn-key supply, which rendered on the project. The price breakdown and the
included grants of licenses and the transfer of technology and corresponding materials, equipment and services were contained in
know-how, 24 and:jgc:chanrobles.com.ph a list attached as Annex III to the contract. 29
". . . the design and engineering, supply and delivery, construction, A few months after execution of the NDC contract, Philphos
erection and installation, supervision, direction and control of opened for public bidding a project to construct and install two
testing and commissioning of the Wharf-Port Complex as set forth ammonia storage tanks in Isabel. Like the NDC contract, it was
in Annex I of this Contract, as well as the coordination of tie-ins at Marubeni Head Office in Japan that participated in and won the
boundaries and schedule of the use of a part or the whole of the bidding. Thus, on May 2, 1982, Philphos and respondent
Wharf/Port Complex through the Owner, with the design and corporation entered into an agreement entitled "Turn-Key Contract
for Ammonia Storage Complex Between Philippine Phosphate breakdown in the Philphos contract is contained in a list attached
Fertilizer Corporation and Marubeni Corporation." 30 The object to the latter as Annex III. 36
of the contract was to establish and place in operating condition a
modern, reliable, efficient and integrated ammonia storage The division of the price into Japanese Yen Portions I and II and
complex adapted to the site for the receipt and storage of liquid the Philippine Pesos Portion under the two contracts corresponds
anhydrous ammonia 31 and for the delivery of ammonia to an to the two parts into which the contracts were classified — the
integrated fertilizer plant adjacent to the storage complex and to Foreign Offshore Portion and the Philippine Onshore Portion. In
vessels at the dock. 32 The storage complex was to consist of both contracts, the Japanese Yen Portion I corresponds to the
ammonia storage tanks, refrigeration system, ship unloading Foreign Offshore Portion. 37 Japanese Yen Portion II and the
system, transfer pumps, ammonia heating system, fire-fighting Philippine Pesos Portion correspond to the Philippine Onshore
system, area lighting, spare parts, and other related facilities. 33 Portion. 38
The scope of the works required for the completion of the
ammonia storage complex covered the supply, including grants of Under the Philippine Onshore Portion, respondent does not deny
licenses and transfer of technology and know-how, 34 its liability for the contractor’s tax on the income from the two
and:chanrob1es virtua1 1aw 1ibrary projects. In fact respondent claims, which petitioner has not
denied, that the income it derived from the Onshore Portion of the
". . . the design and engineering, supply and delivery, construction, two projects had been declared for tax purposes and the taxes
erection and installation, supervision, direction and control of thereon already paid to the Philippine government. 39 It is with
testing and commissioning of the Ammonia Storage Complex as regard to the gross receipts from the Foreign Offshore Portion of
set forth in Annex I of this Contract, as well as the coordination of the two contracts that the liabilities involved in the assessments
tie-ins at boundaries and schedule of the use of a part or the whole subject of this case arose. Petitioner argues that since the two
of the Ammonia Storage Complex through the Owner with the agreements are turn-key, 40 they call for the supply of both
design and construction of other facilities at and around the Site. materials and services to the client, they are contracts for a piece of
The scope of works shall also include any activity, work and work and are indivisible. The situs of the two projects is in the
supply necessary for, incidental to or appropriate under present Philippines, and the materials provided and services rendered were
international industrial practice, for the timely and successful all done and completed within the territorial jurisdiction of the
implementation of the object of this Contract, whether or not Philippines. 41 Accordingly, respondent’s entire receipts from the
expressly referred to in the abovementioned Annex I." 35 contracts, including its receipts from the Offshore Portion,
constitute income from Philippine sources. The total gross receipts
The contract price for the project was ¥3,255,751,000.00 and covering both labor and materials should be subjected to
P17,406,000.00. Like the NDC contract, the price was divided into contractor’s tax in accordance with the ruling in Commissioner of
three portions. The price in Japanese currency was broken down Internal Revenue v. Engineering Equipment & Supply Co. 42
into the Japanese Yen Portion I and Japanese Yen Portion II while
the price in Philippine currency was classified as the Philippine A contractor’s tax is imposed in the National Internal Revenue
Pesos Portion. Both Japanese Yen Portions I and II were financed Code (NIRC) as follows:jgc:chanrobles.com.ph
by supplier’s credit from the Export-Import Bank of Japan. The
price stated in the three portions were further broken down into the "Sec. 205. Contractors, proprietors or operators of dockyards, and
corresponding materials, equipment and services required for the others. —A contractor’s tax of four percent of the gross receipts is
project and their individual prices. Like the NDC contract, the hereby imposed on proprietors or operators of the following
business establishments and/or persons engaged in the business of on products; 46 and is directly collectible from the person
selling or rendering the following services for a fee or exercising the privilege. 47 Being an excise tax, it can be levied by
compensation:chanrob1es virtual 1aw library the taxing authority only when the acts, privileges or business are
done or performed within the jurisdiction of said authority. 48 Like
(a) General engineering, general building and specialty contractors, property taxes, it cannot be imposed on an occupation or privilege
as defined in Republic Act No. 4566; outside the taxing district. 49
x x x In the case at bar, it is undisputed that respondent was an
independent contractor under the terms of the two subject
contracts. Respondent, however, argues that the work therein were
(q) Other independent contractors. The term "independent not all performed in the Philippines because some of them were
contractors" includes persons (juridical or natural) not enumerated completed in Japan in accordance with the provisions of the
above (but not including individuals subject to the occupation tax contracts.
under the Local Tax Code) whose activity consists essentially of
the sale of all kinds of services for a fee regardless of whether or An examination of Annex III to the two contracts reveals that the
not the performance of the service calls for the exercise or use of materials and equipment to be made and the works and services to
the physical or mental faculties of such contractors or their be performed by respondent are indeed classified into two. The
employees. It does not include regional or area headquarters first part, entitled "Breakdown of Japanese Yen Portion I"
established in the Philippines by multinational corporations, provides:chanrob1es virtua1 1aw 1ibrary
including their alien executives, and which headquarters do not
earn or derive income from the Philippines and which act as "Japanese Yen Portion I of the Contract Price has been subdivided
supervisory, communications and coordinating centers for their according to discrete portions of materials and equipment which
affiliates, subsidiaries or branches in the Asia-Pacific Region. will be shipped to Leyte as units and lots. This subdivision of price
is to be used by owner to verify invoice for Progress Payments
x x x 43 under Article 19.2.1 of the Contract. The agreed subdivision of
Japanese Yen Portion I is as follows:chanrob1es virtual 1aw
Under the afore-quoted provision, an independent contractor is a library
person whose activity consists essentially of the sale of all kinds of
services for a fee, regardless of whether or not the performance of x x x 50
the service calls for the exercise or use of the physical or mental
faculties of such contractors or their employees. The word The subdivision of Japanese Yen Portion I covers materials and
"contractor" refers to a person who, in the pursuit of independent equipment while Japanese Yen Portion II and the Philippine Pesos
business, undertakes to do a specific job or piece of work for other Portion enumerate other materials and equipment and the
persons, using his own means and methods without submitting construction and installation work on the project. In other words,
himself to control as to the petty details. 44 the supplies for the project are listed under Portion I while labor
and other supplies are listed under Portion II and the Philippine
A contractor’s tax is a tax imposed upon the privilege of engaging Pesos Portion. Mr. Takeshi Hojo, then General Manager of the
in business. 45 It is generally in the nature of an excise tax on the Industrial Plant Section II of the Industrial Plant Department of
exercise of a privilege of selling services or labor rather than a sale Marubeni Corporation in Japan who supervised the
implementation of the two projects, testified that all the machines were loaded on to a shipping vessel and unloaded at the Isabel
and equipment listed under Japanese Yen Portion I in Annex III Port. These pieces of equipment were all on wheels and self-
were manufactured in Japan. 51 The machines and equipment were propelled. Once unloaded at the port, they were ready to be driven
designed, engineered and fabricated by Japanese firms sub- and perform what they were designed to do. 62
contracted by Marubeni from the list of sub-contractors in the
technical appendices to each contract. 52 Marubeni sub-contracted In addition to the foregoing, there are other items listed in Japanese
a majority of the equipment and supplies to Kawasaki Steel Yen Portion I in Annex III to the NDC contract. These other items
Corporation which did the design, fabrication, engineering and consist of supplies and materials for five (5) berths, two (2) roads,
manufacture thereof; 53 Yashima & Co. Ltd. which manufactured a causeway, a warehouse, a transit shed, an administration building
the mobile equipment; Bridgestone which provided the rubber and a security building. Most of the materials consist of steel
fenders of the mobile equipment; 54 and B.S. Japan for the supply sheets, steel pipes, channels and beams and other steel structures,
of radio equipment. 55 The engineering and design works made by navigational and communication as well as electrical equipment.
Kawasaki Steel Corporation included the lay-out of the plant 63
facility and calculation of the design in accordance with the
specifications given by Respondent. 56 All sub-contractors and In connection with the Philphos contract, the major pieces of
manufacturers are Japanese corporations and are based in Japan equipment supplied by respondent were the ammonia storage tanks
and all engineering and design works were performed in that and refrigeration units. 64 The steel plates for the tank were
country. 57 manufactured and cut in Japan according to drawings and
specifications and then shipped to Isabel. Once there, respondent’s
The materials and equipment under Portion I of the NDC Port employees put the steel plates together to form the storage tank. As
Project is primarily composed of two (2) sets of ship unloader and to the refrigeration units, they were completed and assembled in
loader; several boats and mobile equipment. 58 The ship unloader Japan and thereafter shipped to Isabel. The units were simply
unloads bags or bulk products from the ship to the port while the installed there. 65 Annex III to the Philphos contract lists down
ship loader loads products from the port to the ship. The unloader under the Japanese Yen Portion I the materials for the ammonia
and loader are big steel structures on top of each is a large crane storage tank, incidental equipment, piping facilities, electrical and
and a compartment for operation of the crane. Two sets of these instrumental apparatus, foundation material and spare parts.
equipment were completely manufactured in Japan according to
the specifications of the project. After manufacture, they were All the materials and equipment transported to the Philippines
rolled on to a barge and transported to Isabel, Leyte. 59 Upon were inspected and tested in Japan prior to shipment in accordance
reaching Isabel, the unloader and loader were rolled off the barge with the terms of the contracts. 66 The inspection was made by
and pulled to the pier to the spot where they were installed. 60 representatives of respondent corporation, of NDC and Philphos.
Their installation simply consisted of bolting them onto the pier. NDC, in fact, contracted the services of a private consultancy firm
61 to verify the correctness of the tests on the machines and
equipment 67 while Philphos sent a representative to Japan to
Like the ship unloader and loader, the three tugboats and a line inspect the storage equipment. 68
boat were completely manufactured in Japan. The boats sailed to
Isabel on their own power. The mobile equipment, consisting of The sub-contractors of the materials and equipment under Japanese
three to four sets of tractors, cranes and dozers, trailers and Yen Portion I were all paid by respondent in Japan. In his
forklifts, were also manufactured and completed in Japan. They deposition upon oral examination, Kenjiro Yamakawa, formerly
the Assistant General Manager and Manager of the Steel Plant Portion I were made and completed in Japan. These services were
Marketing Department, Engineering & Construction Division, rendered outside the taxing jurisdiction of the Philippines and are
Kawasaki Steel Corporation, testified that the equipment and therefore not subject to contractor’s tax.chanrob1es virtua1 1aw
supplies for the two projects provided by Kawasaki under Japanese 1ibrary
Yen Portion I were paid by Marubeni in Japan. Receipts for such
payments were duly issued by Kawasaki in Japanese and English. Contrary to petitioner’s claim, the case of Commissioner of
69 Yashima & Co. Ltd. and B.S. Japan were likewise paid by Internal Revenue v. Engineering Equipment & Supply Co 73 is not
Marubeni in Japan. 70 in point. In that case, the Court found that Engineering Equipment,
although an independent contractor, was not engaged in the
Between Marubeni and the two Philippine corporations, payments manufacture of air conditioning units in the Philippines.
for all materials and equipment under Japanese Yen Portion I were Engineering Equipment designed, supplied and installed
made to Marubeni by NDC and Philphos also in Japan. The NDC, centralized air-conditioning systems for clients who contracted its
through the Philippine National Bank, established letters of credit services. Engineering, however, did not manufacture all the
in favor of respondent through the Bank of Tokyo. The letters of materials for the air-conditioning system. It imported some items
credit were financed by letters of commitment issued by the OECF for the system it designed and installed. 74 The issues in that case
with the Bank of Tokyo. The Bank of Tokyo, upon respondent’s dealt with services performed within the local taxing jurisdiction.
submission of pertinent documents, released the amount in the There was no foreign element involved in the supply of materials
letters of credit in favor of respondent and credited the amount and services.
therein to respondent’s account within the same bank. 71
With the foregoing discussion, it is unnecessary to discuss the
Clearly, the service of "design and engineering, supply and other issues raised by the parties.
delivery, construction, erection and installation, supervision,
direction and control of testing and commissioning, IN VIEW WHEREOF, the petition is denied. The decision in CA-
coordination. . ." 72 of the two projects involved two taxing G.R. SP No. 42518 is affirmed.chanrob1es virtua1 1aw 1ibrary
jurisdictions. These acts occurred in two countries — Japan and
the Philippines. While the construction and installation work were SO ORDERED.
completed within the Philippines, the evidence is clear that some
pieces of equipment and supplies were completely designed and Davide, Jr., C.J., Kapunan, Pardo, and Ynares-Santiago, JJ.,
engineered in Japan. The two sets of ship unloader and loader, the concur.
boats and mobile equipment for the NDC project and the ammonia
storage tanks and refrigeration units were made and completed in
Japan. They were already finished products when shipped to the
Philippines. The other construction supplies listed under the
Offshore Portion such as the steel sheets, pipes and structures,
electrical and instrumental apparatus, these were not finished
products when shipped to the Philippines. They, however, were
likewise fabricated and manufactured by the sub-contractors in
Japan. All services for the design, fabrication, engineering and
manufacture of the materials and equipment under Japanese Yen
G.R. No. L-15270 September 30, 1961 property taxes was granted effective the years 1953, 1954
(ABANDONED) and 1955.
JOSE V. HERRERA and ESTER OCHANGCO Subsequently, however, in a letter dated August 10, 1955
HERRERA, petitioners, (Exhibit "E", p. 65, CTA rec.) the Quezon City Assessor
vs. notified the petitioners that the aforesaid properties were re-
THE QUEZON CITY BOARD OF ASSESSMENT classified from exempt to "taxable" and thus assessed for
APPEALS, respondent. real property taxes effective 1956, enclosing therewith
copies of Tax Declarations Nos. 19321 to 19322 covering
Angel A. Sison for petitioners. the said properties. The petitioners appealed the assessment
Jaime Agloro for respondent. to the Quezon City Board of Assessment Appeals, which,
in a decision dated March 31, 1956 and received by the
former on May 17, 1956, affirmed the decision of the City
Assessor. A motion for reconsideration thereof was denied
on March 8, 1957. From this decision, the petitioners
CONCEPCION, J.: instituted the instant appeal.1awphîl.nèt
Appeal, by petitioners Jose V. Herrera and Ester Ochangco The building involved in this case is principally used as a
Herrera, from a decision of the Court of Tax Appeals affirming hospital. It is mainly a surgical and orthopedic hospital with
that of the Board of Assessment Appeals of Quezon City, which emphasis on obstetrical cases, the latter constituting 90% of
held that certain properties of said petitioners are subject to the total number of cases registered therein. The hospital
assessment for purposes of real estate tax. has thirty-two (32) beds, of which twenty (20) are for
charity-patients and twelve (12) for pay-patients. From the
The facts and the issue are set forth in the aforementioned decision evidence presented by petitioners, it is made to appear that
of the Court of Tax Appeals, from which we quote: there are two kinds of charity patients — (a) those who
come for consultation only ("out-charity patients"); and (b)
On July 24, 1952, the Director of the Bureau of Hospitals those who remain in the hospital for treatment ("lying-in-
authorized the petitioners to establish and operate the "St. patients"). The out-charity patients are given free
Catherine's Hospital", located at 58 D. Tuazon, Sta. Mesa consultation and prescription, although sometimes they are
Heights, Quezon City (Exhibit "F-1", p. 7, BIR rec.). On or furnished with free medicines which are not costly like
about January 3, 1953, the petitioners sent a letter to the aspirin, sulfatiazole, etc. The charity lying-in-patients are
Quezon City Assessor requesting exemption from payment given free medical service and medicine although the food
of real estate tax on the lot, building and other served to the pay-patients is very much better than that
improvements comprising the hospital stating that the same given to the former. Although no condition is imposed by
was established for charitable and humanitarian purposes the hospital on the admission of charity lying-in-patients,
and not for commercial gain (Exhibit "F-2", pp. 8-9, BIR they however, usually give donations to the hospital. On
rec.). After an inspection of the premises in question and the other hand, the pay-patients are required to pay for
after a careful study of the case, the exemption from real hospital services ranging from the minimum charge of
P5.00 to the maximum of P40.00 for each day of stay in the (Exhibits "A", "A-1" and "A-2")
hospital. The income realized from pay-patients is spent for
the improvement of the charity wards. The hospital
personnel is composed of three nurses, two graduate 1955
midwives, a resident physician receiving a salary of Income Expenses Deficit
P170.00 a month and the petitioner, Dr. Ester Ochangco
Herrera, as directress. As such directress, the latter does not P 6,859.32
receive any salary. Charity Ward 14,038.92
P17,433.30 P3,464.94
Pay Ward
Petitioners also operate within the premises of the hospital P20,898.24
the "St. Catherine's School of Midwifery" which was (Exhibits "B", "B-1" and "B-2")
granted government recognition by the Secretary of
Education on February 1, 1955 (Exhibit "F-3", p. 10, BIR
rec.) This school has an enrollment of about two hundred 1956
students. The students are charged a matriculation fee of
Income Expenses Deficit
P300.00 for 1-½ years, plus P50.00 a month for board and
lodging, which includes transportation to the St. Mary's P 5,559.89 P 341.53
Hospital. The students practice in the St. Catherine's Charity Ward 16,249.04
P21,467.40
Hospital, as well as in the St. Mary's Hospital, which is also Pay Ward
owned by the petitioners. A separate set of accounting P21,809.93
books is maintained by the school for midwifery distinct
(Exhibits "C", "C-1" and "C-2")
from that kept by the hospital. The petitioners alleged that
the accounts of the school are not included in Exhibits "A",
"A-1", "A-2", "B", "B-1", "B-2", "C", "C-1" and "C-2" Aside from the St. Catherine and St. Mary hospitals, the petitioners
which relate to the hospital only. However, the petitioners declared that they also own lands and coconut plantations in
have refused to submit a separate statement of accounts of Quezon Province, and other real estate in the City of Manila
the school. A brief tabulation indicating the amount of consisting of apartments for rent. The petitioner, Jose V. Herrera,
income of the hospital for the years 1954, 1955 and 1956, is an architect, actively engaged in the practice of his profession,
and its operational expenses, is as follows: with office at Tuason Building, Escolta, Manila. He was formerly
Chairman, Board of Examiners for Architects and Chairman,
Board of Architects connected with the United Nations. He was
also connected with the Allied Technologists which constructed
1954
the Veterans Hospital in Quezon City.
Income Expenses Deficit
The only issue raised, is whether or not the lot, building and other
P 5,280.04 P1,303.80
improvements occupied by the St. Catherine Hospital are exempt
Charity Ward P10,803.26
P14,779.50 from the real property tax. The resolution of this question boils
Pay Ward
down to the corollary issue as to whether or not the said properties
P16,083.30
are used exclusively for charitable or educational purposes. to pay are devoted to the benevolent purposes of the institution, the
(Petitioners' brief, pp. 24-29). mere fact that a profit has been made will not deprive the hospital
of its benevolent character" (Prairie Du Chien Sanitarium Co. vs.
The Court of Tax Appeals decided the issue in the negative, upon City of Prairie Du Chien, 242 Wis. 262, 7 NW [2d] 832, 144
the ground that the St. Catherine's Hospital "has a pay ward for ... A.L.R. 1480).
pay-patients, who are charged for the use of the private rooms,
operating room, laboratory room, delivery room, etc., like other Thus, we have held that the U.S.T. Hospital was not established for
hospitals operated for profit" and that "petitioners and their family profit-making purposes, although it had 140 paying beds
occupy a portion of the building for their residence." With respect maintained only to partly finance the expenses of the free wards,
to petitioners' claim for exemption based upon the operation of the containing 203 beds for charity patients (U.S.T. Hospital
school of midwifery, the Court conceded that "the proposition Employees Association vs. Sto. Tomas University Hospital, L-
might be proper if the property used for the school of midwifery 6988, May 24, 1954), that St. Paul's Hospital of Iloilo, a
were separate and distinct from the hospital." It added, however, corporation organized for "charitable educational and religious
that, "in the instant case, the portions of the building used for purposes" can not be considered as engaged in business merely
classrooms of the school of midwifery have not been shown to be because its pharmacy department charges paying patients the cost
exclusively for school purposes"; that said portions "rather ... have of their medicine, plus 10% thereof, to partly offset the cost of
a dual use, i.e., for classroom and for hospital use, the latter not medicines supplied free of charge to charity patients (Collector of
being a purpose that renders the property tax exempt;" that part of Internal Revenue vs. St. Paul's Hospital of Iloilo, L-12127, May
the building and lot in question "is used as a hospital, part as 25, 1959), and that the amendment of the original articles of
residence of the petitioners, part as garage, part as dormitory and incorporation of the University of Visayas to convert it from a non-
part as school"; and that "the portion dedicated to educational and stock to a stock corporation and the increase of its assets from
charitable purposes can not be identified from those destined to P9,000 to P50,000, distributed among the members of the original
other uses; and the building is itself an indivisible unit of non-stock corporation in terms of shares of stock, as well as the
property." subsequent move of its board of trustees to double the stock
dividends of the corporation, in view of a gain of P200,000.00 in
It should be noted, however, that, according to the very statement property, besides good-will, which was not carried out, does not
of facts made in the decision appealed from, of the thirty-two (32) justify the inference that the corporation has become one for
beds in the hospital, twenty (20) are for charity-patients; that "the business and profit, none of its profits having inured to the benefit
income realized from pay-patients is spent for improvement of the of any stockholder or individual (Collector of Internal Revenue vs.
charity wards;" and that "petitioners, Dr. Ester Ochangco Herrera, University of Visayas, L-13554, February 28, 1961).
as directress" of said hospital, "does not receive any salary,"
although its resident physician gets a monthly salary of P170.00. It Moreover, the exemption in favor of property used exclusively for
is well settled, in this connection, that the admission of pay- charitable or educational purposes is "not limited to property
patients does not detract from the charitable character of a hospital, actually indispensable" therefor (Cooley on Taxation, Vol. 2, p.
if all its funds are devoted "exclusively to the maintenance of the 1430), but extends to facilities which are "incidental to and
institution" as a "public charity" (84 C.J.S., 617; see, also, 51 Am. reasonably necessary for" the accomplishment of said purposes,
Jur. 607; Cooley on Taxation, Vol. 2, p. 1562; 144 A.L.R., 1489- such as, in the case of hospitals, "a school for training nurses, a
1492). "In other words, where rendering charity is its primary nurses' home, property use to provide housing facilities for interns,
object, and the funds derived from payments made by patients able resident doctors, superintendents, and other members of the
hospital staff, and recreational facilities for student nurses, interns St. Catherine's Hospital, but, also, in St. Mary's Hospital, and were
and residents" (84 C.J.S., 621), such as "athletic fields," including entitled to transportation thereto — for Mrs. Herrera received no
"a farm used for the inmates of the institution" (Cooley on compensation as directress of St. Catherine's Hospital — were
Taxation, Vol. 2, p. 1430). incidental to the operation of the latter and of said school, and,
accordingly, did not affect the charitable character of said hospital
Within the purview of the Constitutional exemption from taxation, and the educational nature of said school.
the St. Catherine's Hospital is, therefore, a charitable institution,
and the fact that it admits pay-patients does not bar it from WHEREFORE, the decision of the Court of Tax Appeals, as well
claiming that it is devoted exclusively to benevolent purposes, it as that of the Assessment Board of Appeals of Quezon City, are
being admitted that the income derived from pay-patients is hereby reversed and set aside, and another one entered declaring
devoted to the improvement of the charity wards, which represent that the lot, building and improvements constituting the St.
almost two-thirds (2/3) of the bed capacity of the hospital, aside Catherine's Hospital are exempt from taxation under the provisions
from "out-charity patients" who come only for consultation. of the Constitution, without special pronouncement as to costs. It is
so ordered.
Again, the existence of "St. Catherine's School of Midwifery", with
an enrollment of about 200 students, who practice partly in St. Bengzon, C.J., Padilla, Labrador, Reyes, J.B.L., Paredes and De
Catherine's Hospital and partly in St. Mary's Hospital, which, Leon, JJ., concur.
likewise, belongs to petitioners herein, does not, and cannot, affect
the exemption to which St. Catherine's Hospital is entitled under
our fundamental law. On the contrary, it furnishes another ground
for exemption. Seemingly, the Court of Tax Appeals was
impressed by the fact that the size of said enrollment and the
matriculation fee charged from the students of midwifery, aside
from the amount they paid for board and lodging, including
transportation to St. Mary's Hospital, warrants the belief that
petitioners derive a substantial profit from the operation of the
school aforementioned. Such factor is, however, immaterial to the
issue in the case at bar, for "all lands, building and improvements
used exclusively for religious, charitable or educational purposes
shall be exempt from taxation," pursuant to the Constitution,
regardless of whether or not material profits are derived from the
operation of the institutions in question. In other words, Congress
may, if it deems fit to do so, impose taxes upon such "profits", but
said "lands, buildings and improvements" are beyond its taxing
power.
Whereas, to achieve this purpose, the Government intends 4. To facilitate the dissemination of ideas and public
to provide material and financial support towards the acceptance of information on lung consciousness or
establishment and maintenance of a Lung Center for the awareness, and the development of fact-finding,
welfare and benefit of the Filipino people.15 information and reporting facilities for and in aid of
the general purposes or objects aforesaid, especially
The purposes for which the petitioner was created are spelled out in human lung requirements, general health and
in its Articles of Incorporation, thus: physical fitness, and other relevant or related fields;
SECOND: That the purposes for which such corporation is 5. To encourage the training of physicians, nurses,
formed are as follows: health officers, social workers and medical and
technical personnel in the practical and scientific
1. To construct, establish, equip, maintain, implementation of services to lung patients;
administer and conduct an integrated medical
institution which shall specialize in the treatment, 6. To assist universities and research institutions in
care, rehabilitation and/or relief of lung and allied their studies about lung diseases, to encourage
diseases in line with the concern of the government advanced training in matters of the lung and related
to assist and provide material and financial support fields and to support educational programs of value
in the establishment and maintenance of a lung to general health;
center primarily to benefit the people of the
Philippines and in pursuance of the policy of the 7. To encourage the formation of other
State to secure the well-being of the people by organizations on the national, provincial and/or city
providing them specialized health and medical and local levels; and to coordinate their various
services and by minimizing the incidence of lung efforts and activities for the purpose of achieving a
diseases in the country and elsewhere. more effective programmatic approach on the
common problems relative to the objectives
2. To promote the noble undertaking of scientific enumerated herein;
research related to the prevention of lung or
pulmonary ailments and the care of lung patients, 8. To seek and obtain assistance in any form from
including the holding of a series of relevant both international and local foundations and
congresses, conventions, seminars and conferences; organizations; and to administer grants and funds
that may be given to the organization;
3. To stimulate and, whenever possible, underwrite
scientific researches on the biological, 9. To extend, whenever possible and expedient,
demographic, social, economic, eugenic and medical services to the public and, in general, to
physiological aspects of lung or pulmonary diseases promote and protect the health of the masses of our
people, which has long been recognized as an person, the rich as well as the poor, may fall sick or be injured or
economic asset and a social blessing; wounded and become a subject of charity.17
10. To help prevent, relieve and alleviate the lung or As a general principle, a charitable institution does not lose its
pulmonary afflictions and maladies of the people in character as such and its exemption from taxes simply because it
any and all walks of life, including those who are derives income from paying patients, whether out-patient, or
poor and needy, all without regard to or confined in the hospital, or receives subsidies from the
discrimination, because of race, creed, color or government, so long as the money received is devoted or used
political belief of the persons helped; and to enable altogether to the charitable object which it is intended to achieve;
them to obtain treatment when such disorders occur; and no money inures to the private benefit of the persons managing
or operating the institution.18 In Congregational Sunday School,
11. To participate, as circumstances may warrant, in etc. v. Board of Review,19 the State Supreme Court of Illinois held,
any activity designed and carried on to promote the thus:
general health of the community;
… [A]n institution does not lose its charitable character,
12. To acquire and/or borrow funds and to own all and consequent exemption from taxation, by reason of the
funds or equipment, educational materials and fact that those recipients of its benefits who are able to pay
supplies by purchase, donation, or otherwise and to are required to do so, where no profit is made by the
dispose of and distribute the same in such manner, institution and the amounts so received are applied in
and, on such basis as the Center shall, from time to furthering its charitable purposes, and those benefits are
time, deem proper and best, under the particular refused to none on account of inability to pay therefor. The
circumstances, to serve its general and non-profit fundamental ground upon which all exemptions in favor of
purposes and objectives;lavvphil.net charitable institutions are based is the benefit conferred
upon the public by them, and a consequent relief, to some
13. To buy, purchase, acquire, own, lease, hold, sell, extent, of the burden upon the state to care for and advance
exchange, transfer and dispose of properties, the interests of its citizens.20
whether real or personal, for purposes herein
mentioned; and As aptly stated by the State Supreme Court of South Dakota
in Lutheran Hospital Association of South Dakota v. Baker:21
14. To do everything necessary, proper, advisable or
convenient for the accomplishment of any of the … [T]he fact that paying patients are taken, the profits
powers herein set forth and to do every other act derived from attendance upon these patients being
and thing incidental thereto or connected exclusively devoted to the maintenance of the charity,
therewith.16 seems rather to enhance the usefulness of the institution to
the poor; for it is a matter of common observation amongst
Hence, the medical services of the petitioner are to be rendered to those who have gone about at all amongst the suffering
the public in general in any and all walks of life including those classes, that the deserving poor can with difficulty be
who are poor and the needy without discrimination. After all, any persuaded to enter an asylum of any kind confined to the
reception of objects of charity; and that their honest pride is
much less wounded by being placed in an institution in In this case, the petitioner adduced substantial evidence that it
which paying patients are also received. The fact of spent its income, including the subsidies from the government for
receiving money from some of the patients does not, we 1991 and 1992 for its patients and for the operation of the hospital.
think, at all impair the character of the charity, so long as It even incurred a net loss in 1991 and 1992 from its operations.
the money thus received is devoted altogether to the
charitable object which the institution is intended to Even as we find that the petitioner is a charitable institution, we
further.22 hold, anent the second issue, that those portions of its real property
that are leased to private entities are not exempt from real property
The money received by the petitioner becomes a part of the trust taxes as these are not actually, directly and exclusively used for
fund and must be devoted to public trust purposes and cannot be charitable purposes.
diverted to private profit or benefit.23
The settled rule in this jurisdiction is that laws granting exemption
Under P.D. No. 1823, the petitioner is entitled to receive from tax are construed strictissimi juris against the taxpayer and
donations. The petitioner does not lose its character as a charitable liberally in favor of the taxing power. Taxation is the rule and
institution simply because the gift or donation is in the form of exemption is the exception. The effect of an exemption is
subsidies granted by the government. As held by the State equivalent to an appropriation. Hence, a claim for exemption from
Supreme Court of Utah in Yorgason v. County Board of tax payments must be clearly shown and based on language in the
Equalization of Salt Lake County:24 law too plain to be mistaken.26 As held in Salvation Army v.
Hoehn:27
Second, the … government subsidy payments are provided
to the project. Thus, those payments are like a gift or An intention on the part of the legislature to grant an
donation of any other kind except they come from the exemption from the taxing power of the state will never be
government. In both Intermountain Health Care and the implied from language which will admit of any other
present case, the crux is the presence or absence of material reasonable construction. Such an intention must be
reciprocity. It is entirely irrelevant to this analysis that the expressed in clear and unmistakable terms, or must appear
government, rather than a private benefactor, chose to make by necessary implication from the language used, for it is a
up the deficit resulting from the exchange between St. well settled principle that, when a special privilege or
Mark’s Tower and the tenants by making a contribution to exemption is claimed under a statute, charter or act of
the landlord, just as it would have been irrelevant incorporation, it is to be construed strictly against the
in Intermountain Health Care if the patients’ income property owner and in favor of the public. This principle
supplements had come from private individuals rather than applies with peculiar force to a claim of exemption from
the government. taxation . …28
Therefore, the fact that subsidization of part of the cost of Section 2 of Presidential Decree No. 1823, relied upon by the
furnishing such housing is by the government rather than petitioner, specifically provides that the petitioner shall enjoy the
private charitable contributions does not dictate the denial tax exemptions and privileges:
of a charitable exemption if the facts otherwise support
such an exemption, as they do here.25 SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a
non-profit, non-stock corporation organized primarily to
help combat the high incidence of lung and pulmonary The rule of expressio unius est exclusio alterius and its
diseases in the Philippines, all donations, contributions, variations are canons of restrictive interpretation. They are
endowments and equipment and supplies to be imported by based on the rules of logic and the natural workings of the
authorized entities or persons and by the Board of Trustees human mind. They are predicated upon one’s own
of the Lung Center of the Philippines, Inc., for the actual voluntary act and not upon that of others. They proceed
use and benefit of the Lung Center, shall be exempt from from the premise that the legislature would not have made
income and gift taxes, the same further deductible in full specified enumeration in a statute had the intention been
for the purpose of determining the maximum deductible not to restrict its meaning and confine its terms to those
amount under Section 30, paragraph (h), of the National expressly mentioned.30
Internal Revenue Code, as amended.
The exemption must not be so enlarged by construction since the
The Lung Center of the Philippines shall be exempt from reasonable presumption is that the State has granted in express
the payment of taxes, charges and fees imposed by the terms all it intended to grant at all, and that unless the privilege is
Government or any political subdivision or instrumentality limited to the very terms of the statute the favor would be intended
thereof with respect to equipment purchases made by, or beyond what was meant.31
for the Lung Center.29
Section 28(3), Article VI of the 1987 Philippine Constitution
It is plain as day that under the decree, the petitioner does not provides, thus:
enjoy any property tax exemption privileges for its real properties
as well as the building constructed thereon. If the intentions were (3) Charitable institutions, churches and parsonages or
otherwise, the same should have been among the enumeration of convents appurtenant thereto, mosques, non-profit
tax exempt privileges under Section 2: cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for
It is a settled rule of statutory construction that the express religious, charitable or educational purposes shall be
mention of one person, thing, or consequence implies the exempt from taxation.32
exclusion of all others. The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius. The tax exemption under this constitutional provision
covers property taxes only.33 As Chief Justice Hilario G. Davide,
The rule of expressio unius est exclusio alterius is Jr., then a member of the 1986 Constitutional Commission,
formulated in a number of ways. One variation of the rule explained: ". . . what is exempted is not the institution itself . . .;
is the principle that what is expressed puts an end to that those exempted from real estate taxes are lands, buildings and
which is implied. Expressium facit cessare tacitum. Thus, improvements actually, directly and exclusively used for religious,
where a statute, by its terms, is expressly limited to certain charitable or educational purposes."34
matters, it may not, by interpretation or construction, be
extended to other matters. Consequently, the constitutional provision is implemented by
Section 234(b) of Republic Act No. 7160 (otherwise known as the
... Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. – The duly taken into consideration. Reliance on past decisions
following are exempted from payment of the real property would have sufficed were the words "actually" as well as
tax: "directly" not added. There must be proof therefore of
the actual and direct use of the lands, buildings, and
... improvements for religious or charitable purposes to be
exempt from taxation. …
(b) Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, non-profit Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in
or religious cemeteries and all lands, buildings, and order to be entitled to the exemption, the petitioner is burdened to
improvements actually, directly, prove, by clear and unequivocal proof, that (a) it is a charitable
and exclusively used for religious, charitable or institution; and (b) its real properties
educational purposes.35 are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes. "Exclusive" is defined as possessed and
We note that under the 1935 Constitution, "... all lands, buildings, enjoyed to the exclusion of others; debarred from participation or
and improvements used ‘exclusively’ for … charitable … purposes enjoyment; and "exclusively" is defined, "in a manner to exclude;
shall be exempt from taxation."36 However, under the 1973 and the as enjoying a privilege exclusively."40 If real property is used for
present Constitutions, for "lands, buildings, and improvements" of one or more commercial purposes, it is not exclusively used for the
the charitable institution to be considered exempt, the same should exempted purposes but is subject to taxation.41 The words
not only be "exclusively" used for charitable purposes; it is "dominant use" or "principal use" cannot be substituted for the
required that such property be used "actually" and "directly" for words "used exclusively" without doing violence to the
such purposes.37 Constitutions and the law.42 Solely is synonymous with
exclusively.43
In light of the foregoing substantial changes in the Constitution,
the petitioner cannot rely on our ruling in Herrera v. Quezon City What is meant by actual, direct and exclusive use of the property
Board of Assessment Appeals which was promulgated on for charitable purposes is the direct and immediate and actual
September 30, 1961 before the 1973 and 1987 Constitutions took application of the property itself to the purposes for which the
effect.38 As this Court held in Province of Abra v. Hernando:39 charitable institution is organized. It is not the use of the income
from the real property that is determinative of whether the property
… Under the 1935 Constitution: "Cemeteries, churches, is used for tax-exempt purposes.44
and parsonages or convents appurtenant thereto, and all
lands, buildings, and improvements used exclusively for The petitioner failed to discharge its burden to prove that the
religious, charitable, or educational purposes shall be entirety of its real property is actually, directly and exclusively
exempt from taxation." The present Constitution added used for charitable purposes. While portions of the hospital are
"charitable institutions, mosques, and non-profit used for the treatment of patients and the dispensation of medical
cemeteries" and required that for the exemption of "lands, services to them, whether paying or non-paying, other portions
buildings, and improvements," they should not only be thereof are being leased to private individuals for their clinics and
"exclusively" but also "actually" and "directly" used for a canteen. Further, a portion of the land is being leased to a private
religious or charitable purposes. The Constitution is worded individual for her business enterprise under the business name
differently. The change should not be ignored. It must be "Elliptical Orchids and Garden Center." Indeed, the petitioner’s
evidence shows that it collected ₱1,136,483.45 as rentals in 1991
and ₱1,679,999.28 for 1992 from the said lessees.
SO ORDERED.
G.R. No. L-39086 June 15, 1988 That the amount deposited by the plaintaff him the
sum of P60,000.00 before the trial, be confiscated to
ABRA VALLEY COLLEGE, INC., represented by PEDRO V. apply for the payment of the back taxes and for the
BORGONIA, petitioner, redemption of the property in question, if the
vs. amount is less than P6,000.00, the remainder must
HON. JUAN P. AQUINO, Judge, Court of First Instance, be returned to the Director of Pedro Borgonia, who
Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; represents the plaintiff herein;
GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra;
HEIRS OF PATERNO MILLARE, respondents. That the deposit of the Municipal Treasurer in the
amount of P6,000.00 also before the trial must be
returned to said Municipal Treasurer of Bangued,
Abra;
PARAS, J.:
And finally the case is hereby ordered dismissed
This is a petition for review on certiorari of the decision * of the with costs against the plaintiff.
defunct Court of First Instance of Abra, Branch I, dated June 14,
1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior SO ORDERED. (Rollo, pp. 22-23)
College, Inc., represented by Pedro V. Borgonia, plaintiff vs.
Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Petitioner, an educational corporation and institution of higher
Bosque as Municipal Treasurer of Bangued, Abra and Paterno learning duly incorporated with the Securities and Exchange
Millare, defendants," the decretal portion of which reads: Commission in 1948, filed a complaint (Annex "1" of Answer by
the respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July
IN VIEW OF ALL THE FOREGOING, the Court 10, 1972 in the court a quo to annul and declare void the "Notice
hereby declares: of Seizure' and the "Notice of Sale" of its lot and building located
at Bangued, Abra, for non-payment of real estate taxes and
That the distraint seizure and sale by the Municipal penalties amounting to P5,140.31. Said "Notice of Seizure" of the
Treasurer of Bangued, Abra, the Provincial college lot and building covered by Original Certificate of Title
Treasurer of said province against the lot and No. Q-83 duly registered in the name of petitioner, plaintiff below,
building of the Abra Valley Junior College, Inc., on July 6, 1972, by respondents Municipal Treasurer and
represented by Director Pedro Borgonia located at Provincial Treasurer, defendants below, was issued for the
Bangued, Abra, is valid; satisfaction of the said taxes thereon. The "Notice of Sale" was
caused to be served upon the petitioner by the respondent
That since the school is not exempt from paying treasurers on July 8, 1972 for the sale at public auction of said
taxes, it should therefore pay all back taxes in the college lot and building, which sale was held on the same date. Dr.
amount of P5,140.31 and back taxes and penalties Paterno Millare, then Municipal Mayor of Bangued, Abra, offered
from the promulgation of this decision; the highest bid of P6,000.00 which was duly accepted. The
certificate of sale was correspondingly issued to him.
On August 10, 1972, the respondent Paterno Millare (now 2. That the plaintiff Abra Valley Junior College,
deceased) filed through counstel a motion to dismiss the complaint. Inc. is the owner of the lot and buildings thereon
located in Bangued, Abra under Original Certificate
On August 23, 1972, the respondent Provincial Treasurer and of Title No. 0-83;
Municipal Treasurer, through then Provincial Fiscal Loreto C.
Roldan, filed their answer (Annex "2" of Answer by the 3. That the defendant Gaspar V. Bosque, as
respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the Municipal treasurer of Bangued, Abra caused to be
complaint. This was followed by an amended answer (Annex served upon the Abra Valley Junior College, Inc. a
"3," ibid, Rollo, pp. 101-103) on August 31, 1972. Notice of Seizure on the property of said school
under Original Certificate of Title No. 0-83 for the
On September 1, 1972 the respondent Paterno Millare filed his satisfaction of real property taxes thereon,
answer (Annex "5," ibid; Rollo, pp. 106-108). amounting to P5,140.31; the Notice of Seizure
being the one attached to the complaint as Exhibit
On October 12, 1972, with the aforesaid sale of the school A;
premises at public auction, the respondent Judge, Hon. Juan P.
Aquino of the Court of First Instance of Abra, Branch I, ordered 4. That on June 8, 1972 the above properties of the
(Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial Abra Valley Junior College, Inc. was sold at public
and municipal treasurers to deliver to the Clerk of Court the auction for the satisfaction of the unpaid real
proceeds of the auction sale. Hence, on December 14, 1972, property taxes thereon and the same was sold to
petitioner, through Director Borgonia, deposited with the trial court defendant Paterno Millare who offered the highest
the sum of P6,000.00 evidenced by PNB Check No. 904369. bid of P6,000.00 and a Certificate of Sale in his
favor was issued by the defendant Municipal
On April 12, 1973, the parties entered into a stipulation of facts Treasurer.
adopted and embodied by the trial court in its questioned decision.
Said Stipulations reads: 5. That all other matters not particularly and
specially covered by this stipulation of facts will be
STIPULATION OF FACTS the subject of evidence by the parties.
COME NOW the parties, assisted by counsels, and WHEREFORE, it is respectfully prayed of the
to this Honorable Court respectfully enter into the Honorable Court to consider and admit this
following agreed stipulation of facts: stipulation of facts on the point agreed upon by the
parties.
1. That the personal circumstances of the parties as
stated in paragraph 1 of the complaint is admitted; Bangued, Abra, April 12, 1973.
but the particular person of Mr. Armin M. Cariaga
is to be substituted, however, by anyone who is Aside from the Stipulation of Facts, the trial court
actually holding the position of Provincial Treasurer among others, found the following: (a) that the
of the Province of Abra; school is recognized by the government and is
offering Primary, High School and College Courses,
and has a school population of more than one In the resolution dated August 16, 1974, this Court resolved to give
thousand students all in all; (b) that it is located DUE COURSE to the petition (Rollo, p. 58). Respondents were
right in the heart of the town of Bangued, a few required to answer said petition (Rollo, p. 74).
meters from the plaza and about 120 meters from
the Court of First Instance building; (c) that the Petitioner raised the following assignments of error:
elementary pupils are housed in a two-storey
building across the street; (d) that the high school I
and college students are housed in the main
building; (e) that the Director with his family is in THE COURT A QUO ERRED IN SUSTAINING AS VALID
the second floor of the main building; and (f) that THE SEIZURE AND SALE OF THE COLLEGE LOT AND
the annual gross income of the school reaches more BUILDING USED FOR EDUCATIONAL PURPOSES OF THE
than one hundred thousand pesos. PETITIONER.
From all the foregoing, the only issue left for the Court to II
determine and as agreed by the parties, is whether or not the lot
and building in question are used exclusively for educational THE COURT A QUO ERRED IN DECLARING THAT THE
purposes. (Rollo, p. 20) COLLEGE LOT AND BUILDING OF THE PETITIONER ARE
NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his MERELY BECAUSE THE COLLEGE PRESIDENT RESIDES
Assistant, Hon. Eustaquio Z. Montero, filed a Memorandum for IN ONE ROOM OF THE COLLEGE BUILDING.
the Government on March 25, 1974, and a Supplemental
Memorandum on May 7, 1974, wherein they opined "that based on III
the evidence, the laws applicable, court decisions and
jurisprudence, the school building and school lot used for THE COURT A QUO ERRED IN DECLARING THAT THE
educational purposes of the Abra Valley College, Inc., are COLLEGE LOT AND BUILDING OF THE PETITIONER ARE
exempted from the payment of taxes." (Annexes "B," "B-1" of NOT EXEMPT FROM PROPERTY TAXES AND IN
Petition; Rollo, pp. 24-49; 44 and 49). ORDERING PETITIONER TO PAY P5,140.31 AS REALTY
TAXES.
Nonetheless, the trial court disagreed because of the use of the
second floor by the Director of petitioner school for residential IV
purposes. He thus ruled for the government and rendered the
assailed decision. THE COURT A QUO ERRED IN ORDERING THE
CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE
After having been granted by the trial court ten (10) days from COURT BY PETITIONER AS PAYMENT OF THE P5,140.31
August 6, 1974 within which to perfect its appeal (Per Order dated REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)
August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner
instead availed of the instant petition for review on certiorari with The main issue in this case is the proper interpretation of the
prayer for preliminary injunction before this Court, which petition phrase "used exclusively for educational purposes."
was filed on August 17, 1974 (Rollo, p.2).
Petitioner contends that the primary use of the lot and building for improvements used exclusively for religious,
educational purposes, and not the incidental use thereof, charitable, scientific or educational purposes.
determines and exemption from property taxes under Section 22
(3), Article VI of the 1935 Constitution. Hence, the seizure and xxx xxx xxx
sale of subject college lot and building, which are contrary thereto
as well as to the provision of Commonwealth Act No. 470, In this regard petitioner argues that the primary use of the school
otherwise known as the Assessment Law, are without legal basis lot and building is the basic and controlling guide, norm and
and therefore void. standard to determine tax exemption, and not the mere incidental
use thereof.
On the other hand, private respondents maintain that the college lot
and building in question which were subjected to seizure and sale As early as 1916 in YMCA of Manila vs. Collector of lnternal
to answer for the unpaid tax are used: (1) for the educational Revenue, 33 Phil. 217 [1916], this Court ruled that while it may be
purposes of the college; (2) as the permanent residence of the true that the YMCA keeps a lodging and a boarding house and
President and Director thereof, Mr. Pedro V. Borgonia, and his maintains a restaurant for its members, still these do not constitute
family including the in-laws and grandchildren; and (3) for business in the ordinary acceptance of the word, but an institution
commercial purposes because the ground floor of the college used exclusively for religious, charitable and educational purposes,
building is being used and rented by a commercial establishment, and as such, it is entitled to be exempted from taxation.
the Northern Marketing Corporation (See photograph attached as
Annex "8" (Comment; Rollo, p. 90]). In the case of Bishop of Nueva Segovia v. Provincial Board of
Ilocos Norte, 51 Phil. 352 [1972], this Court included in the
Due to its time frame, the constitutional provision which finds exemption a vegetable garden in an adjacent lot and another lot
application in the case at bar is Section 22, paragraph 3, Article VI, formerly used as a cemetery. It was clarified that the term "used
of the then 1935 Philippine Constitution, which expressly grants exclusively" considers incidental use also. Thus, the exemption
exemption from realty taxes for "Cemeteries, churches and from payment of land tax in favor of the convent includes, not only
parsonages or convents appurtenant thereto, and all lands, the land actually occupied by the building but also the adjacent
buildings, and improvements used exclusively for religious, garden devoted to the incidental use of the parish priest. The lot
charitable or educational purposes ... which is not used for commercial purposes but serves solely as a
sort of lodging place, also qualifies for exemption because this
Relative thereto, Section 54, paragraph c, Commonwealth Act No. constitutes incidental use in religious functions.
470 as amended by Republic Act No. 409, otherwise known as the
Assessment Law, provides: The phrase "exclusively used for educational purposes" was further
clarified by this Court in the cases of Herrera vs. Quezon City
The following are exempted from real property tax Board of assessment Appeals, 3 SCRA 186 [1961]
under the Assessment Law: and Commissioner of Internal Revenue vs. Bishop of the
Missionary District, 14 SCRA 991 [1965], thus —
xxx xxx xxx
Moreover, the exemption in favor of property used
(c) churches and parsonages or convents exclusively for charitable or educational purposes is
appurtenant thereto, and all lands, buildings, and 'not limited to property actually indispensable'
therefor (Cooley on Taxation, Vol. 2, p. 1430), but trial judge, both embodied in the decision nor as one of the issues
extends to facilities which are incidental to and to resolve in order to determine whether or not said properly may
reasonably necessary for the accomplishment of be exempted from payment of real estate taxes (Rollo, pp. 17-23).
said purposes, such as in the case of hospitals, "a On the other hand, it is noteworthy that such fact was not disputed
school for training nurses, a nurses' home, property even after it was raised in this Court.
use to provide housing facilities for interns, resident
doctors, superintendents, and other members of the Indeed, it is axiomatic that facts not raised in the lower court
hospital staff, and recreational facilities for student cannot be taken up for the first time on appeal. Nonetheless, as an
nurses, interns, and residents' (84 CJS 6621), such exception to the rule, this Court has held that although a factual
as "Athletic fields" including "a firm used for the issue is not squarely raised below, still in the interest of substantial
inmates of the institution. (Cooley on Taxation, Vol. justice, this Court is not prevented from considering a pivotal
2, p. 1430). factual matter. "The Supreme Court is clothed with ample
authority to review palpable errors not assigned as such if it finds
The test of exemption from taxation is the use of the property for that their consideration is necessary in arriving at a just decision."
purposes mentioned in the Constitution (Apostolic Prefect v. City (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).
Treasurer of Baguio, 71 Phil, 547 [1941]).
Under the 1935 Constitution, the trial court correctly arrived at the
It must be stressed however, that while this Court allows a more conclusion that the school building as well as the lot where it is
liberal and non-restrictive interpretation of the phrase "exclusively built, should be taxed, not because the second floor of the same is
used for educational purposes" as provided for in Article VI, being used by the Director and his family for residential purposes,
Section 22, paragraph 3 of the 1935 Philippine Constitution, but because the first floor thereof is being used for commercial
reasonable emphasis has always been made that exemption extends purposes. However, since only a portion is used for purposes of
to facilities which are incidental to and reasonably necessary for commerce, it is only fair that half of the assessed tax be returned to
the accomplishment of the main purposes. Otherwise stated, the the school involved.
use of the school building or lot for commercial purposes is neither
contemplated by law, nor by jurisprudence. Thus, while the use of PREMISES CONSIDERED, the decision of the Court of First
the second floor of the main building in the case at bar for Instance of Abra, Branch I, is hereby AFFIRMED subject to the
residential purposes of the Director and his family, may find modification that half of the assessed tax be returned to the
justification under the concept of incidental use, which is petitioner.
complimentary to the main or primary purpose—educational, the
lease of the first floor thereof to the Northern Marketing SO ORDERED.
Corporation cannot by any stretch of the imagination be considered
incidental to the purpose of education.
The writ of preliminary injunction issued on 03 February 2014 is WHETHER THE TRIAL COURT CORRECTLY CONCLUDED
hereby made permanent. THAT RMO NO. 20-2013 ADDS TO THE REQUIREMENT
UNDER DEPARTMENT OF FINANCE ORDER NO. 137-87.15
SO ORDERED.11
The Ruline of the Court
12
On 18 September 2014, the CIR issued RMO No. 34-2014, which
clarified certain provisions of RMO No. 20-2013, as amended by We deny the petition on the ground of mootness.
RMO No. 28-2013.13
We take judicial notice that on 25 July 2016, the present CIR
In a Joint Resolution dated 29 October 2014, the RTC denied the Caesar R. Dulay issued RMO No. 44-2016, which provides that:
CIR's motion for reconsideration, to wit:
SUBJECT: Amending Revenue Memorandum Order No. 20-
WHEREFORE, viewed in the light of the foregoing premises, the 2013, as amended (Prescribing the Policies and Guidelines in the
Motion for Reconsideration filed by the respondent is hereby Issuance of Tax Exemption Rulings to Qualified Non-Stock, Non-
DENIED for lack of merit. Profit Corporations and Associations under Section 30 of the
National Internal Revenue Code of 1997, as Amended)
Meanwhile, this Court clarifies that the phrase "Revenue
Memorandum Order" referred to in the second sentence of its In line with the Bureau's commitment to put in proper context the
decision dated July 25, 2014 refers to "issuance/s" of the nature and tax status of non-profit, non-stock educational
respondent which tends to implement RMO 20-2013 for if it is institutions, this Order is being issued to exclude non-stock, non-
otherwise, said decision would be useless and would be rendered profit educational institutions from the coverage of Revenue
nugatory. Memorandum Order No. 20-2013, as amended.
"Sec. 30. Exempt from Tax on Corporations. - The following b. Certified true copy of the Certificate of Good Standing
organizations shall not be taxed under this Title in respect to issued by the Securities and Exchange Commission;
income received by them as such:
c. Original copy of the Certification under Oath of the
x x x x x x x x x Treasurer as to the amount of the income, compensation,
salaries or any emoluments paid to its trustees, officers and
(H) A non-stock and non-profit educational institution; x x x." other executive officers;
It is clear and unmistakable from the aforequoted constitutional d. Certified true copy of the Financial Statements of the
provision that non-stock, non-profit educational institutions are corporation for the last three (3) years;
constitutionally exempt from tax on all revenues derived in
pursuance of its purpose as an educational institution and used e. Certified true copy of government
actually, directly and exclusively for educational purposes. This recognition/permit/accreditation to operate as an
constitutional exemption gives the non-stock, non-profit educational institution issued by the Commission on Higher
educational institutions a distinct character. And for the Education (CHED), Department of Education (DepEd), or
constitutional exemption to be enjoyed, jurisprudence and tax Technical Education and Skills Development Authority
rulings affirm the doctrinal rule that there are only two requisites: (TESDA); Provided, that if the government
(1) The school must be non-stock and non-profit; and (2) The recognition/permit/accreditation to operate as an
income is actually, directly and exclusively used for educational educational institution was issued five (5) years prior to the
purposes. There are no other conditions and limitations. application for tax exemption, an original copy of a current
Certificate of Operation/Good Standing, or other equivalent
In this light, the constitutional conferral of tax exemption upon document issued by the appropriate government agency
non-stock and non-profit educational institutions should not be (i.e., CHED, DepEd, or TESDA) shall be submitted as
implemented or interpreted in such a manner that will defeat or proof that the non-stock and non-profit education is
diminish the intent and language of the Constitution. currently operating as such; and
SECTION 2. Application for Tax Exemption. --- Non-stock, f. Original copy of the Certificate of utilization of annual
nonprofit educational institutions shall file their respective revenues and assets by the Treasurer or his equivalent of
Applications for Tax Exemption with the Office of the Assistant the non-stock and nonprofit educational institution.
Commissioner, Legal Service, Attention: Law Division.
SECTION 4. Request for Additional Documents. --- In the course
SECTION 3. Documentary Requirements. --- The non-stock, of review of the application for tax exemption, the Bureau may
nonprofit educational institution shall submit the following require additional information or documents as the circumstances
documents: may warrant.
SECTION 5. Validity of the Tax Exemption Ruling. --- Tax stands, and there is no longer any practical value in resolving the
Exemption Rulings or Certificates of Tax Exemption of non-stock, issues raised in this petition.
nonprofit educational institutions shall remain valid and effective,
unless recalled for valid grounds. They are not required to renew or WHEREFORE, we DENY the petition on the ground of
revalidate the Tax exemption rulings previously issued to them. mootness. We SET ASIDE the Decision dated 25 July 2014 and
Joint Resolution dated 29 October 2014 of the Regional Trial
The Tax Exemption Ruling shall be subject to revocation if there Court, Branch 143, Makati City, declaring Revenue Memorandum
are material changes in the character, purpose or method of Order No. 20-2013 unconstitutional. The writ of preliminary
operation of the corporation which are inconsistent with the basis injunction is superseded by this Resolution.
for its income tax exemption.
SO ORDERED.
SECTION 6. Transitory Provisions. --- To update the records of
the Bureau and for purposes of a better system of monitoring, non-
stock, nonprofit educational institutions with Tax Exemption
Rulings or Certificates of Exemption issued prior to June 30, 2012
are required to apply for new Tax Exemption Rulings.
Both the Commissioner and DLSU moved for the reconsideration Consequently, the Commissioner supplemented its petition with
of the January 5, 2010 decision.10 On April 6, 2010, the CTA the CTA En Banc and argued that the CTA Division erred in
Division denied the Commissioner's motion for reconsideration admitting DLSU's additional evidence.16
while it held in abeyance the resolution on DLSU's motion for
reconsideration.11
The CTA En Banc held that the Ateneo case is not a valid The Commissioner argues that the CTA En Banc misread and
precedent because it involved different parties, factual settings, misapplied the case of Commissioner of Internal Revenue v.
bases of assessments, sets of evidence, and defenses.33 YMCA38 to support its conclusion that revenues however generated
are covered by the constitutional exemption, provided that, the
On the CTA Division's appreciation of the evidence revenues will be used for educational purposes or will be held in
reserve for such purposes.39
The CTA En Banc affirmed the CTA Division's appreciation of
DLSU' s evidence. It held that while DLSU successfully proved On the contrary, the Commissioner posits that a tax-exempt
that a portion of its rental income was transmitted and used to pay organization like DLSU is exempt only from property tax but not
the loan obtained to fund the construction of the Sports Complex, from income tax on the rentals earned from property.40 Thus,
the rental income from other sources were not shown to have been DLSU's income from the leases of its real properties is not exempt
actually, directly and exclusively used for educational purposes.34 from taxation even if the income would be used for educational
purposes.41
Not pleased with the CTA En Banc's ruling, both DLSU (G.R. No.
198841) and the Commissioner (G.R. No. 198941) came to this Second, the Commissioner insists that DLSU did not prove the fact
Court for relief. of DST payment42 and that it is not qualified to use the On-Line
Electronic DST Imprinting Machine, which is available only to
The Consolidated Petitions certain classes of taxpayers under RR No. 9-2000.43
First, RMO No. 43-90 prohibits the practice of issuing a LOA First, DLSU questions the defective verification attached to the
with any indication of unverified prior years. A LOA issued petition.52
contrary to RMO No. 43-90 is void, thus, an assessment issued
based on such defective LOA must also be void.46 Second, DLSU stresses that Article XIV, Section 4 (3) of the
Constitution is clear that all assets and revenues of non-stock,
DLSU points out that the LOA issued to it covered the Fiscal Year non-profit educational institutions used actually, directly and
Ending 2003 and Unverified Prior Years. On the basis of this exclusively for educational purposes are exempt from taxes and
defective LOA, the Commissioner assessed DLSU for deficiency duties.53
income tax, VAT and DST for taxable years 2001, 2002 and
2003.47 DLSU objects to the CTA En Banc's conclusion that the On this point, DLSU explains that: (1) the tax exemption of non-
LOA is valid for taxable year 2003. According to DLSU, when stock, non-profit educational institutions is novel to the 1987
RMO No. 43-90 provides that: Constitution and that Section 30 (H) of the 1997 Tax
Code cannot amend the 1987 Constitution;54 (2) Section 30 of the
The practice of issuing [LOAs] covering audit of 'unverified prior 1997 Tax Code is almost an exact replica of Section 26 of the 1977
years' is hereby prohibited. Tax Code -with the addition of non-stock, non-profit educational
institutions to the list of tax-exempt entities; and (3) that the 1977
it refers to the LOA which has the format "Base Year + Unverified Tax Code was promulgated when the 1973 Constitution was still
Prior Years." Since the LOA issued to DLSU follows this format, in place.
then any assessment arising from it must be entirely voided.48
DLSU elaborates that the tax exemption granted to a private
Second, DLSU invokes the principle of uniformity in educational institution under the 1973 Constitution was only
taxation, which mandates that for similarly situated parties, for real property tax. Back then, the special tax treatment
the same set of evidence should be appreciated and weighed in the on income of private educational institutions only emanates from
same manner.49 The CTA En Banc erred when it did not similarly statute, i.e., the 1977 Tax Code. Only under the 1987 Constitution
appreciate DLSU' s evidence as it did to the pieces of evidence that exemption from tax of all the assets and revenues of non-
submitted by Ateneo, also a non-stock, non-profit educational stock, non-profit educational institutions used actually, directly and
institution.50 exclusively for educational purposes, was expressly and
categorically enshrined.55
G.R. No. 198941
DLSU thus invokes the doctrine of constitutional supremacy,
The issues and arguments raised by the Commissioner in G.R. No. which renders any subsequent law that is contrary to the
198941 petition are exactly the same as those she raised in her: (1) Constitution void and without any force and effect.56 Section 30
petition docketed as G.R. No. 196596 and (2) comment on DLSU's (H) of the 1997 Tax Code insofar as it subjects to tax the income of
petition docketed as G.R. No. 198841.51 whatever kind and character of a non-stock and non-profit
educational institution from any of its properties, real or personal,
or from any of its activities conducted for profit regardless of the The Commissioner submits that DLSU is estopped from
disposition made of such income, should be declared without force questioning the LOA's validity because it failed to raise this issue
and effect in view of the constitutionally granted tax exemption on in both the administrative and judicial proceedings.64 That it was
"all revenues and assets of non-stock, non-profit educational asked on cross-examination during the trial does not make it an
institutions used actually, directly, and exclusively for educational issue that the CTA could resolve.65 The Commissioner also
purposes."57 maintains that DLSU's rental income is not tax-exempt because an
educational institution is only exempt from property tax but not
DLSU further submits that it complies with the requirements from tax on the income earned from the property.66
enunciated in the YMCA case, that for an exemption to be granted
under Article XIV, Section 4 (3) of the Constitution, the taxpayer DLSU's Comment on G.R. No. 198941
must prove that: (1) it falls under the classification non-stock, non-
profit educational institution; and (2) the income it seeks to be DLSU puts forward the same counter-arguments discussed
exempted from taxation is used actually, directly and exclusively above.67 In addition, DLSU prays that the Court award attorney's
for educational purposes.58 Unlike YMCA, which is not an fees in its favor because it was constrained to unnecessarily retain
educational institution, DLSU is undisputedly a non-stock, non- the services of counsel in this separate petition.68
profit educational institution. It had also submitted evidence to
prove that it actually, directly and exclusively used its income for Issues
educational purposes.59
Although the parties raised a number of issues, the Court shall
DLSU also cites the deliberations of the 1986 Constitutional decide only the pivotal issues, which we summarize as follows:
Commission where they recognized that the tax exemption was
granted "to incentivize private educational institutions to share I. Whether DLSU' s income and revenues proved to have
with the State the responsibility of educating the youth."60 been used actually, directly and exclusively for educational
purposes are exempt from duties and taxes;
Third, DLSU highlights that both the CTA En Banc and Division
found that the bank that handled DLSU' s loan and mortgage II. Whether the entire assessment should be voided because
transactions had remitted to the BIR the DST through an of the defective LOA;
imprinting machine, a method allowed under RR No. 15-2001.61 In
any case, DLSU argues that it cannot be held liable for DST owing III. Whether the CTA correctly admitted DLSU's
to the exemption granted under the Constitution.62 supplemental pieces of evidence; and
Finally, DLSU underscores that the Commissioner, despite notice, IV. Whether the CTA's appreciation of the sufficiency of
did not oppose the formal offer of supplemental evidence. Because DLSU's evidence may be disturbed by the Court.
of the Commissioner's failure to timely object, she became bound
by the results of the submission of such supplemental evidence.63 Our Ruling
The CIR's Comment on G.R. No. 198841 As we explain in full below, we rule that:
I. The income, revenues and assets of non-stock, non-profit educational purposes shall
educational institutions proved to have been used actually, be exempt from taxes and duties. Upon the dissolution or
directly and exclusively for educational purposes are cessation of the corporate existence of such institutions, their assets
exempt from duties and taxes. shall be disposed of in the manner provided by law.
II. The LOA issued to DLSU is not entirely void. The Proprietary educational institutions, including those
assessment for taxable year 2003 is valid. cooperatively owned, may likewise be entitled to such
exemptions subject to the limitations provided by law including
III. The CTA correctly admitted DLSU's formal offer of restrictions on dividends and provisions for reinvestment.
supplemental evidence; and [underscoring and emphasis supplied]
IV. The CTA's appreciation of evidence is conclusive Before fully discussing the merits of the case, we observe that:
unless the CTA is shown to have manifestly overlooked
certain relevant facts not disputed by the parties and which, First, the constitutional provision refers to two kinds of
if properly considered, would justify a different conclusion. educational institutions: (1) non-stock, non-profit educational
institutions and (2) proprietary educational institutions.69
The parties failed to convince the Court that the CTA overlooked
or failed to consider relevant facts. We thus sustain the CTA En Second, DLSU falls under the first category. Even the
Banc's findings that: Commissioner admits the status of DLSU as a non-stock, non-
profit educational institution.70
a. DLSU proved that a portion of its rental income was
used actually, directly and exclusively for educational Third, while DLSU's claim for tax exemption arises from and is
purposes; and based on the Constitution, the Constitution, in the same provision,
also imposes certain conditions to avail of the exemption. We
b. DLSU proved the payment of the DST through its bank's discuss below the import of the constitutional text vis-a-vis the
on-line imprinting machine. Commissioner's counter-arguments.
I. The revenues and assets of non-stock, Fourth, there is a marked distinction between the treatment of non-
non-profit educational institutions stock, non-profit educational institutions and proprietary
proved to have been used actually, educational institutions. The tax exemption granted to non-stock,
directly, and exclusively for educational non-profit educational institutions is conditioned only on the
purposes are exempt from duties and actual, direct and exclusive use of their revenues and assets for
taxes. educational purposes. While tax exemptions may also be granted to
proprietary educational institutions, these exemptions may be
DLSU rests it case on Article XIV, Section 4 (3) of the 1987 subject to limitations imposed by Congress.
Constitution, which reads:
By the Tax Code's clear terms, a proprietary educational institution A LOA is the authority given to the appropriate revenue officer to
is entitled only to the reduced rate of 10% corporate income tax. examine the books of account and other accounting records of the
The reduced rate is applicable only if: (1) the proprietary taxpayer in order to determine the taxpayer's correct internal
educational institution is nonprofit and (2) its gross income from revenue liabilities95 and for the purpose of collecting the correct
unrelated trade, business or activity does not exceed 50% of its amount of tax,96 in accordance with Section 5 of the Tax Code,
total gross income. which gives the CIR the power to obtain information, to
summon/examine, and take testimony of persons. The LOA
Consistent with Article XIV, Section 4 (3) of the Constitution, commences the audit process97 and informs the taxpayer that it is
these limitations do not apply to non-stock, non-profit educational under audit for possible deficiency tax assessment.
institutions.
Given the purposes of a LOA, is there basis to completely nullify
Thus, we declare the last paragraph of Section 30 of the Tax Code the LOA issued to DLSU, and consequently, disregard the BIR and
without force and effect for being contrary to the Constitution the CTA's findings of tax deficiency for taxable year 2003?
insofar as it subjects to tax the income and revenues of non-stock,
non-profit educational institutions used actually, directly and We answer in the negative.
exclusively for educational purpose. We make this declaration in
The relevant provision is Section C of RMO No. 43-90, the Lastly, the Commissioner's claim that DLSU failed to raise the
pertinent portion of which reads: issue of the LOA' s validity at the CTA Division, and thus, should
not have been entertained on appeal, is not accurate.
3. A Letter of Authority [LOA] should cover a taxable period not
exceeding one taxable year. The practice of issuing [LO As] On the contrary, the CTA En Banc found that the issue of the
covering audit of unverified prior years is hereby prohibited. If the LOA's validity came up during the trial.100 DLSU then raised the
audit of a taxpayer shall include more than one taxable period, the issue in its memorandum and motion for partial
other periods or years shall be specifically indicated in the reconsideration with the CTA Division. DLSU raised it again on
[LOA].98 appeal to the CTA En Banc. Thus, the CTA En Banc could, as it
did, pass upon the validity of the LOA.101 Besides, the
What this provision clearly prohibits is the practice of issuing Commissioner had the opportunity to argue for the validity of the
LOAs covering audit of unverified prior years. RMO 43-90 does LOA at the CTA En Banc but she chose not to file her comment
not say that a LOA which contains unverified prior years is void. It and memorandum despite notice.102
merely prescribes that if the audit includes more than one taxable
period, the other periods or years must be specified. The provision III.The CTA correctly admitted
read as a whole requires that if a taxpayer is audited for more than the supplemental evidence
one taxable year, the BIR must specify each taxable year or taxable formally offered by DLSU.
period on separate LOAs.
The Commissioner objects to the CTA Division's admission of
Read in this light, the requirement to specify the taxable period DLSU's supplemental pieces of documentary evidence.
covered by the LOA is simply to inform the taxpayer of the extent
of the audit and the scope of the revenue officer's authority. To recall, DLSU formally offered its supplemental evidence upon
Without this rule, a revenue officer can unduly burden the taxpayer filing its motion for reconsideration with the CTA Division. 103 The
by demanding random accounting records from random unverified CTA Division admitted the supplemental evidence, which proved
years, which may include documents from as far back as ten years that a portion of DLSU's rental income was used actually, directly
in cases of fraud audit.99 and exclusively for educational purposes. Consequently, the CTA
Division reduced DLSU's tax liabilities.
In the present case, the LOA issued to DLSU is for Fiscal Year
Ending 2003 and Unverified Prior Years. The LOA does not We uphold the CTA Division's admission of the supplemental
strictly comply with RMO 43-90 because it includes unverified evidence on distinct but mutually reinforcing grounds, to wit:
prior years. This does not mean, however, that the entire LOA is (1) the Commissioner failed to timely object to the formal offer of
void. supplemental evidence; and (2) the CTA is not governed strictly by
the technical rules of evidence.
As the CTA correctly held, the assessment for taxable year 2003 is
valid because this taxable period is specified in the LOA. DLSU First, the failure to object to the offered evidence renders it
was fully apprised that it was being audited for taxable year 2003. admissible, and the court cannot, on its own, disregard such
Corollarily, the assessments for taxable years 2001 and 2002 are evidence.104
void for having been unspecified on separate LOAs as required
under RMO No. 43-90.
The Court has held that if a party desires the court to reject the We held that while it is true that strict procedural rules generally
evidence offered, it must so state in the form of a timely objection frown upon the submission of documents after the trial, the law
and it cannot raise the objection to the evidence for the first time creating the CTA specifically provides that proceedings before it
on appeal.105 Because of a party's failure to timely object, the shall not be governed strictly by the technical rules of
evidence offered becomes part of the evidence in the case. As a evidence111 and that the paramount consideration remains the
consequence, all the parties are considered bound by any outcome ascertainment of truth. We ruled that procedural rules should not
arising from the offer of evidence properly presented.106 bar courts from considering undisputed facts to arrive at a just
determination of a controversy.112
As disclosed by DLSU, the Commissioner did not oppose the
supplemental formal offer of evidence despite notice.107 The We applied the same reasoning in the subsequent cases of Filinvest
Commissioner objected to the admission of the supplemental Development Corporation v. Commissioner of Internal
evidence only when the case was on appeal to the CTA En Revenue113 and Commissioner of Internal Revenue v. PERF Realty
Banc. By the time the Commissioner raised her objection, it was Corporation,114 where the taxpayers also submitted the
too late; the formal offer, admission and evaluation of the supplemental supporting document only upon filing their motions
supplemental evidence were all fait accompli. for reconsideration.
We clarify that while the Commissioner's failure to promptly Although the cited cases involved claims for tax refunds, we also
object had no bearing on the materiality or sufficiency of the dispense with the strict application of the technical rules of
supplemental evidence admitted, she was bound by the outcome of evidence in the present tax assessment case. If anything, the liberal
the CTA Division's assessment of the evidence.108 application of the rules assumes greater force and significance in
the case of a taxpayer who claims a constitutionally granted tax
Second, the CTA is not governed strictly by the technical rules of exemption. While the taxpayers in the cited cases
evidence. The CTA Division's admission of the formal offer of claimed refund of excess tax payments based on the Tax
supplemental evidence, without prompt objection from the Code,115 DLSU is claiming tax exemption based on the
Commissioner, was thus justified. Constitution. If liberality is afforded to taxpayers who paid more
than they should have under a statute, then with more reason that
Notably, this Court had in the past admitted and considered we should allow a taxpayer to prove its exemption from tax based
evidence attached to the taxpayers' motion for on the Constitution.
reconsideration.1âwphi1
Hence, we sustain the CTA's admission of DLSU's supplemental
In the case of BPI-Family Savings Bank v. Court of Appeals,109 the offer of evidence not only because the Commissioner failed to
tax refund claimant attached to its motion for reconsideration with promptly object, but more so because the strict application of the
the CT A its Final Adjustment Return. The Commissioner, as in technical rules of evidence may defeat the intent of the
the present case, did not oppose the taxpayer's motion for Constitution.
reconsideration and the admission of the Final Adjustment
Return.110 We thus admitted and gave weight to the Final IV. The CTA's appreciation of
Adjustment Return although it was only submitted upon motion for evidence is generally binding on
reconsideration. the Court unless compelling
reasons justify otherwise.
It is doctrinal that the Court will not lightly set aside the that the degree of preponderance of evidence was sufficiently met
conclusions reached by the CTA which, by the very nature of its to prove actual, direct and exclusive use for educational purposes.
function of being dedicated exclusively to the resolution of tax
problems, has developed an expertise on the subject, unless there The CTA also found that DLSU's rental income
has been an abuse or improvident exercise of authority.116 We thus from other concessionaires, which were allegedly deposited to
accord the findings of fact by the CTA with the highest respect. a fund (CF-CPA Account),120 intended for the university's capital
These findings of facts can only be disturbed on appeal if they are projects, was not proved to have been used actually, directly and
not supported by substantial evidence or there is a showing of exclusively for educational purposes. The CTA observed that
gross error or abuse on the part of the CTA. In the absence of any "[DLSU] ... failed to fully account for and substantiate all the
clear and convincing proof to the contrary, this Court must disbursements from the [fund]." Thus, the CTA "cannot ascertain
presume that the CTA rendered a decision which is valid in every whether rental income from the [other] concessionaires was indeed
respect.117 used for educational purposes."121
We sustain the factual findings of the CTA. To stress, the CTA's factual findings were based on and supported
by the report of the Independent CPA who reviewed, audited and
The parties failed to raise credible basis for us to disturb the CTA's examined the voluminous documents submitted by DLSU.
findings that DLSU had used actually, directly and exclusively for
educational purposes a portion of its assessed income and that it Under the CTA Revised Rules, an Independent CPA's functions
had remitted the DST payments though an online imprinting include: (a) examination and verification of receipts, invoices,
machine. vouchers and other long accounts; (b) reproduction of, and
comparison of such reproduction with, and certification that the
a. DLSU used actually, directly, and exclusively for educational same are faithful copies of original documents, and pre-marking of
purposes a portion of its assessed income. documentary exhibits consisting of voluminous documents; (c)
preparation of schedules or summaries containing a chronological
To see how the CTA arrived at its factual findings, we review the listing of the numbers, dates and amounts covered by receipts or
process undertaken, from which it deduced that DLSU successfully invoices or other relevant documents and the amount(s) of taxes
proved that it used actually, directly and exclusively for paid; (d) making findings as to compliance with substantiation
educational purposes a portion of its rental income. requirements under pertinent tax laws, regulations and
jurisprudence; (e) submission of a formal report with certification
The CTA reduced DLSU' s deficiency income tax and VAT of authenticity and veracity of findings and conclusions in the
liabilities in view of the submission of the supplemental evidence, performance of the audit; (f) testifying on such formal report; and
which consisted of statement of receipts, statement of (g) performing such other functions as the CTA may direct.122
disbursement and fund balance and statement of fund changes.118
Based on the Independent CPA's report and on its own
These documents showed that DLSU borrowed ₱93.86 appreciation of the evidence, the CTA held that only the portion of
Million,119 which was used to build the university's Sports the rental income pertaining to the substantiated disbursements
Complex. Based on these pieces of evidence, the CTA found that (i.e., proved by receipts, vouchers, etc.) from the CF-CPA Account
DLSU' s rental income from its concessionaires were indeed was considered as used actually, directly and exclusively for
transmitted and used for the payment of this loan. The CTA held educational purposes. Consequently, the unaccounted and
unsubstantiated disbursements must be subjected to income tax and Contradicting the findings of the Independent CPA, the CTA
VAT.123 concluded that out of the ₱l0,610,379.00 rental
income, ₱4,841,066.65 was unsubstantiated, and thus, subject to
The CTA then further reduced DLSU's tax liabilities by cancelling income tax and VAT.129
the assessments for taxable years 2001 and 2002 due to the
defective LOA.124 The CTA then concluded that the ratio of substantiated
disbursements to the total disbursements from the CF-CPA
The Court finds that the above fact-finding process undertaken by Account for taxable year 2003 is only 26.68%.130 The CTA held as
the CTA shows that it based its ruling on the evidence on record, follows:
which we reiterate, were examined and verified by the Independent
CPA. Thus, we see no persuasive reason to deviate from these However, as regards petitioner's rental income from Alarey, Inc.,
factual findings. Zaide Food Corp., Capri International and MTO Bookstore, which
were transmitted to the CF-CPA Account, petitioner again failed to
However, while we generally respect the factual findings of the fully account for and substantiate all the disbursements from the
CTA, it does not mean that we are bound by its conclusions. In the CF-CPA Account; thus failing to prove that the rental income
present case, we do not agree with the method used by the CTA to derived therein were actually, directly and exclusively used for
arrive at DLSU' s unsubstantiated rental income (i.e., income not educational purposes. Likewise, the findings of the Court-
proved to have been actually, directly and exclusively used for Commissioned Independent CPA show that the disbursements
educational purposes). from the CF-CPA Account for fiscal year 2003 amounts to
₱6,259,078.30 only. Hence, this portion of the rental income, being
To recall, the CTA found that DLSU earned a rental the substantiated disbursements of the CF-CPA Account, was
income of ₱l0,610,379.00 in taxable year 2003.125 DLSU earned considered by the Special First Division as used actually, directly
this income from leasing a portion of its premises to: 1) MTG- and exclusively for educational purposes. Since for fiscal year
Sports Complex, 2) La Casita, 3) Alarey, Inc., 4) Zaide Food 2003, the total disbursements per voucher is ₱6,259,078.3 (Exhibit
Corp., 5) Capri International, and 6) MTO Bookstore.126 "LL-25-C"), and the total disbursements per subsidiary ledger
amounts to ₱23,463,543.02 (Exhibit "LL-29-C"), the ratio of
To prove that its rental income was used for educational purposes, substantiated disbursements for fiscal year 2003 is 26.68%
DLSU identified the transactions where the rental income was (₱6,259,078.30/₱23,463,543.02). Thus, the substantiated portion of
expended, viz.: 1) ₱4,007,724.00127 used to pay the loan obtained CF-CPA Disbursements for fiscal year 2003, arrived at by
by DLSU to build the Sports Complex; and multiplying the ratio of 26.68% with the total rent income added to
2) ₱6,602,655.00 transferred to the CF-CPA Account.128 and used in the CF-CPA Account in the amount of ₱6,602,655.00
is ₱1,761,588.35.131 (emphasis supplied)
DLSU also submitted documents to the Independent CPA to prove
that the ₱6,602,655.00 transferred to the CF-CPA Account was For better understanding, we summarize the CTA's computation as
used actually, directly and exclusively for educational purposes. follows:
According to the Independent CPA' findings, DLSU was able to
substantiate disbursements from the CF-CPA Account amounting 1. The CTA subtracted the rent income used in the construction of
to ₱6,259,078.30. the Sports Complex (₱4,007,724.00) from the rental income
(₱10,610,379.00) earned from the abovementioned
concessionaries. The difference (₱6,602,655.00) was the portion tax-exempt so that it is required to prove that all these
claimed to have been deposited to the CF-CPA Account. disbursements had been made for educational purposes?
For year 2003, the total disbursement from the CF-CPA account That this fund had been first deposited into a separate fund (the CF
amounted to ₱23 .46 million.137 These figures, read in light of the -CPA established to fund capital projects) lends peculiarity to the
constitutional exemption, raises the question: does DLSU claim facts of this case, but does not detract from the fact that the
that the whole total CF-CPA disbursement of ₱23.46 million is deposited funds were DLSU revenue funds that had been
confirmed and proven to have been actually and directly used for
educational purposes via the CF-CPA. That the CF-CPA might
have had other sources of funding is irrelevant because the Less: Substantiated portion of CF- 1,761,588.35 6,259,078.30
assessment in the present case pertains only to the rental income CPA disbursements
which DLSU indisputably earned as revenue in 2003. That the
proven CF-CPA funds used for educational purposes should not be
prorated as part of its total CF-CPA disbursements for purposes of Tax base for deficiency income
crediting to DLSU is also logical because no claim whatsoever had 4,841,066.65 343.576.70
tax and VAT
been made that the totality of the CF-CPA disbursements had been
for educational purposes. No prorating is necessary; to state the
obvious, exemption is based on actual and direct use and this On DLSU' s argument that the CTA should have appreciated its
DLSU has indisputably proven. evidence in the same way as it did with the evidence submitted by
Ateneo in another separate case, the CTA explained that the issue
Based on these considerations, DLSU should therefore be liable in the Ateneo case was not the same as the issue in the present
only for the difference between what it claimed and what it has case.
proven. In more concrete terms, DLSU only had to prove that its
rental income for taxable year 2003 (₱10,610,379.00) was used for The issue in the Ateneo case was whether or not Ateneo could be
educational purposes. Hence, while the total disbursements from held liable to pay income taxes and VAT under certain BIR and
the CF-CPA Account amounted to ₱23,463,543.02, DLSU only Department of Finance issuances139 that required the educational
had to substantiate its Pl0.6 million rental income, part of which institution to own and operate the canteens, or other commercial
was the ₱6,602,655.00 transferred to the CF-CPA account. Of this enterprises within its campus, as condition for tax exemption. The
latter amount, ₱6.259 million was substantiated to have been used CTA held that the Constitution does not require the educational
for educational purposes. institution to own or operate these commercial establishments to
avail of the exemption.140
To summarize, we thus revise the tax base for deficiency income
tax and VAT for taxable year 2003 as follows: Given the lack of complete identity of the issues involved, the
CTA held that it had to evaluate the separate sets of evidence
differently. The CTA likewise stressed that DLSU and Ateneo
CTA gave distinct defenses and that its wisdom "cannot be equated on
Decision138 Revised its decision on two different cases with two different issues."141
Rental income 10,610,379.00 10,610,379.00
DLSU disagrees with the CTA and argues that the entire
Less: Rent income used in 4,007,724.00 4,007,724.00 assessment must be cancelled because it submitted similar, if not
construction of the Sports Complex stronger sets of evidence, as Ateneo. We reject DLSU's argument
for being non sequitur. Its reliance on the concept of uniformity of
taxation is also incorrect.
Rental income deposited to the CF-
6,602,655.00 6,602,655.00 First, even granting that Ateneo and DLSU submitted similar
CPA Account
evidence, the sufficiency and materiality of the evidence
supporting their respective claims for tax exemption would Further, DLSU's invocation of Section 5, Rule 130 of the Revised
necessarily differ because their attendant issues and facts differ.
Rules on Evidence, that the contents of the missing supporting
To state the obvious, the amount of income received by DLSU and documents were proven by its recital in some other authentic
by Ateneo during the taxable years they were assessed varied. The documents on record,146 can no longer be entertained at this late
amount of tax assessment also varied. The amount of income stage of the proceeding. The CTA did not rule on this particular
proven to have been used for educational purposes claim. The CTA also made no finding on DLSU' s assertion of lack
also varied because the amount substantiated varied.142 Thus, the of bad faith. Besides, it is not our duty to go over these documents
amount of tax assessment cancelled by the CTA varied. to test the truthfulness of their contents, this Court not being a trier
of facts.
On the one hand, the BIR assessed DLSU a total tax deficiency
of ₱17,303,001.12 for taxable years 2001, 2002 and 2003. On the Second, DLSU misunderstands the concept of uniformity of
other hand, the BIR assessed Ateneo a total deficiency tax taxation.
of ₱8,864,042.35 for the same period. Notably, DLSU was
assessed deficiency DST, while Ateneo was not.143 Equality and uniformity of taxation means that all taxable articles
or kinds of property of the same class shall be taxed at the same
Thus, although both Ateneo and DLSU claimed that they used rate.147 A tax is uniform when it operates with the same force and
their rental income actually, directly and exclusively for effect in every place where the subject of it is found.148 The
educational purposes by submitting similar evidence, e.g., the concept requires that all subjects of taxation similarly situated
testimony of their employees on the use of university revenues, the should be treated alike and placed in equal footing.149
report of the Independent CPA, their income summaries, financial
statements, vouchers, etc., the fact remains that DLSU failed to In our view, the CTA placed Ateneo and DLSU in equal footing.
prove that a portion of its income and revenues had indeed been The CTA treated them alike because their income proved to have
used for educational purposes. been used actually, directly and exclusively for educational
purposes were exempted from taxes. The CTA equally applied the
The CTA significantly found that some documents that could have requirements in the YMCA case to test if they indeed used their
fully supported DLSU's claim were not produced in court. Indeed, revenues for educational purposes.
the Independent CPA testified that some disbursements had not
been proven to have been used actually, directly and exclusively DLSU can only assert that the CTA violated the rule on uniformity
for educational purposes.144 if it can show that, despite proving that it used actually, directly
and exclusively for educational purposes its income and revenues,
The final nail on the question of evidence is DLSU's the CTA still affirmed the imposition of taxes. That the DLSU
own admission that the original of these documents had not in fact secured a different result happened because it failed to fully prove
been produced before the CTA although it claimed that there was that it used actually, directly and exclusively for educational
no bad faith on its part.145 To our mind, this admission is a good purposes its revenues and income.
indicator of how the Ateneo and the DLSU cases varied, resulting
in DLSU's failure to substantiate a portion of its claimed On this point, we remind DLSU that the rule on uniformity of
exemption. taxation does not mean that subjects of taxation similarly situated
are treated in literally the same way in all and every occasion. The
fact that the Ateneo and DLSU are both non-stock, non-profit Finally, it is true that educational institutions are not included in
educational institutions, does not mean that the CTA or this Court the class of taxpayers who can pay and remit DST through the On-
would similarly decide every case for (or against) both universities. Line Electronic DST Imprinting Machine under RR No. 9-2000.
Success in tax litigation, like in any other litigation, depends to a As correctly held by the CTA, this is irrelevant because it was not
large extent on the sufficiency of evidence. DLSU's evidence was DLSU who used the On-Line Electronic DST Imprinting
wanting, thus, the CTA was correct in not fully cancelling its tax Machine but the bank that handled its mortgage and loan
liabilities. transactions. RR No. 9-2000 expressly includes banks in the class
of taxpayers that can use the On-Line Electronic DST Imprinting
b. DLSU proved its payment of the DST Machine.
The CTA affirmed DLSU's claim that the DST due on its mortgage Thus, the Court sustains the finding of the CTA that DLSU proved
and loan transactions were paid and remitted through its the
bank's On-Line Electronic DST Imprinting Machine. The
Commissioner argues that DLSU is not allowed to use this method payment of the assessed DST deficiency, except for the unpaid
of payment because an educational institution is excluded from the balance of
class of taxpayers who can use the On-Line Electronic DST
Imprinting Machine. ₱13,265.48.152
We sustain the findings of the CTA. The Commissioner's argument WHEREFORE, premises considered, we DENY the petition of
lacks basis in both the Tax Code and the relevant revenue the Commissioner of Internal Revenue in G.R. No. 196596
regulations. and AFFIRM the December 10, 2010 decision and March 29,
2011 resolution of the Court of Tax Appeals En Banc in CTA En
DST on documents, loan agreements, and papers shall be levied, Banc Case No. 622, except for the total amount of deficiency tax
collected and paid for by the person making, signing, issuing, liabilities of De La Salle University, Inc., which had been reduced.
accepting, or transferring the same.150 The Tax Code provides that
whenever one party to the document enjoys exemption from DST, We also DENY both the petition of De La Salle University, Inc. in
the other party not exempt from DST shall be directly liable for the G.R. No. 198841 and the petition of the Commissioner of Internal
tax. Thus, it is clear that DST shall be payable by any party to the Revenue in G.R. No. 198941 and thus AFFIRM the June 8, 2011
document, such that the payment and compliance by one shall decision and October 4, 2011 resolution of the Court of Tax
mean the full settlement of the DST due on the document. Appeals En Banc in CTA En Banc Case No. 671, with
the MODIFICATION that the base for the deficiency income tax
In the present case, DLSU entered into mortgage and loan and VAT for taxable year 2003 is ₱343,576.70.
agreements with banks. These agreements are subject to
DST.151 For the purpose of showing that the DST on the loan SO ORDERED.
agreement has been paid, DLSU presented its agreements bearing
the imprint showing that DST on the document has been paid by
the bank, its counterparty. The imprint should be sufficient proof
that DST has been paid. Thus, DLSU cannot be further assessed
for deficiency DST on the said documents.
[G.R. No. 73705. August 27, 1987.] petitioner’s failure to appeal to the Office of the President on time
stems entirely from its own negligence and not from a purported
VICTORIAS MILLING CO., INC., Petitioner, v. OFFICE OF ignorance of the proper procedural steps to take. Petitioner had
THE PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS been aware of the rules governing PPA procedures. In fact, as
and PHILIPPINE PORTS AUTHORITY, Respondents. embodied in the December 16, 1985 Order of the Office of the
President, petitioner even assailed the PPA’s rule making powers
at the hearing before the Court of Tax Appeals. It is axiomatic that
SYLLABUS the right to appeal is merely a statutory privilege and may be
exercised only in the manner and in accordance with the provision
of law (United CMC Textile Workers Union v. Clave, 137 SCRA
1. ADMINISTRATIVE LAW; PHILIPPINE PORTS 346, citing the cases of Bello v. Fernando, 4 SCRA 138; Aguila v.
AUTHORITY; EMPOWERED TO PROMULGATE RULES AS Navarro, 55 Phil. 898; and Santiago v. Valenzuela, 78 Phil. 397).
AID IN ACCOMPLISHING ITS PURPOSE. — While it is true
that neither Presidential Decree No. 505 nor Presidential Decree 4. TAXATION; NATIONAL INTERNAL REVENUE CODE;
No. 857 provides for the remedy of appeal to the Office of the BERTHING CHARGES; COLLECTED FOR THE PRIVILEGE
President, nevertheless, Presidential Decree No. 857 empowers the OF NAVIGATING IN PUBLIC HARBORS, STREAMS OR
PPA to promulgate such rules as would aid it in accomplishing its WATERS. — As correctly stated by the Solicitor General, the fees
purpose. Section 6 of the said Decree provides — "Sec. 6. and charges PPA collects are not for the use of the wharf that
Corporate Powers and Duties — "a. The corporate duties of the petitioner owns but for the privilege of navigating in public waters,
Authority shall be: ". . . . (III) To prescribe rules and regulations, of entering and leaving public harbors and berthing on public
procedures, and guidelines governing the establishment, streams or waters. (Rollo, pp. 056-057). In Compañia General de
construction, maintenance, and operation of all other ports, Tabacos de Filipinas v. Actg. Commissioner of Customs (23
including private ports in the country.." . . . Pursuant to the SCRA 600), this Court laid down the rule that berthing charges
aforequoted provision, PPA enacted Administrative Order No. 13- against a vessel are collectible regardless of the fact that mooring
77 precisely to govern, among others, appeals from PPA decisions. or berthing is made from a private pier or wharf. This is because
the government maintains bodies of water in navigable condition
2. ID.; ID.; ID.; ADMINISTRATIVE RULES AND and it is to support its operations in this regard that dues and
REGULATIONS HAVE THE FORCE AND EFFECT OF LAW. charges are imposed for the use of piers and wharves regardless of
— It is now finally settled that administrative rules and regulations their ownership.
issued in accordance with law, like PPA Administrative Order No.
13-77, have the force and effect of law (Valerio v. Secretary of 5. ID.; ID.; HANDLING CHARGES; 10% THEREOF TO BE
Agriculture and Natural Resources, 7 SCRA 719; Antique REMITTED TO THE NATIONAL GOVERNMENT, IN THE
Sawmills, Inc. v. Zayco, Et Al., 17 SCRA 316; and Macailing v. NATURE OF CONTRACTUAL COMPENSATION. — As to the
Andrada, 31 SCRA 126), and are binding on all persons dealing requirement to remit 10% of the handling charges, Section 6B-(ix)
with that body. of the Presidential Decree No. 857 authorized the PPA "To levy
dues, rates, or charges for the use of the premises, works,
3. REMEDIAL LAW; ACTIONS; RIGHT TO APPEAL, A appliances, facilities, or for services provided by or belonging to
STATUTORY PRIVILEGE. — It must be stated that as correctly the Authority, or any organization concerned with port operations."
observed by the Solicitor General, the facts of this case show that This 10% government share of earnings of arrastre and stevedoring
operators is in the nature of contractual compensation to which a
person desiring to operate arrastre service must agree as a In reply, on November 3, 1981, PPA Iloilo sent petitioner a
condition to the grant of the permit to operate. memorandum of PPA’s Executive Officer, Maximo Dumlao,
which justified the PPA’s demands. Further request for
reconsideration was denied on January 14, 1982.
DECISION On March 29, 1982, petitioner served notice to PPA that it is
appealing the case to the Court of Tax Appeals; and accordingly,
on March 31, 1982, petitioner filed a Petition for Review with the
PARAS, J.: said Court, entitled "Victorias Milling Co., Inc. v. Philippine Ports
Authority," and docketed therein as CTA Case No. 3466.
This is a petition for review on certiorari of the July 27, 1984 On January 10, 1984, the Court of Tax Appeals dismissed
Decision of the Office of the Presidential Assistant For Legal petitioner’s action on the ground that it has no jurisdiction. It
Affairs dismissing the appeal from the adverse ruling of the recommended that the appeal be addressed to the Office of the
Philippine Ports Authority on the sole ground that the same was President.
filed beyond the reglementary period.
On January 23, 1984, petitioner filed a Petition for Review with
On April 28, 1981, the Iloilo Port Manager of respondent this Court, docketed as G.R. No. 66381, but the same was denied
Philippine Ports Authority (PPA for short) wrote petitioner in a Resolution dated February 29, 1984.
Victorias Milling Co., requiring it to have its tugboats and barges
undergo harbor formalities and pay entrance/clearance fees as well On April 2, 1984, petitioner filed an appeal with the Office of the
as berthing fees effective May 1, 1981. PPA, likewise, requiring President, but in a Decision dated July 27, 1984 (Record, p. 22),
petitioner to secure a permit for cargo handling operations at its the same was denied on the sole ground that it was filed beyond
Da-an Banua wharf and remit 10% of its gross income for said the reglementary period. A motion for Reconsideration was filed,
operations as the government’s share. but in an Order dated December 16, 1985, the same was denied
(ibid., pp. 3-21): Hence, the instant petition.
To these demands, petitioner sent two (2) letters, both dated June
2, 1981, wherein it maintained that it is exempt from paying PPA The Second Division of this Court, in a Resolution dated June 2,
any fee or charge because: (1) the wharf and all its facilities were 1986, resolved to require the respondents to comment (ibid., p. 45);
built and installed in its land; (2) repair and maintenance thereof and in compliance therewith, the Solicitor General filed his
were and solely paid by it; (3) even the dredging and maintenance Comment on June 4, 1986 (Ibid., pp. 50-59).
of the Malijao River Channel from Guimaras Strait up to said
private wharf are being done by petitioner’s equipment and In a Resolution of July 2, 1986, petitioner was required to file a
personnel; and (4) at no time has the government ever spent a reply (Ibid., p. 61) but before receipt of said resolution, the latter
single centavo for such activities. Petitioner further added that the filed a motion on July 1, 1986 praying that it be granted leave to
wharf was being used mainly to handle sugar purchased from file a reply to respondents’ Comment, and an extension of time up
district planters pursuant to existing milling agreements.chanrobles to June 30, 1986 within which to file the same. (Ibid., p. 62).
law library
On July 18, 1986, petitioner filed its reply to respondents’ nor in Presidential Decree No. 857, revising its charter (said
Comment (Ibid., pp. 68-76). decrees, among others, merely transferred to the PPA the powers
of the Bureau of Customs to impose and collect customs duties,
The Second Division of this Court, in a Resolution dated August fees and other money charges concerning the use of ports and
25, 1986, resolved to give due course to the petition and to require facilities thereat) is there any provision governing appeals from
the parties to file their respective simultaneous memoranda (Ibid., decisions of the PPA on such matters, so that it is but reasonable to
p. 78). seek recourse with the Court of Tax Appeals. Petitioner, likewise,
contends that an analysis of Presidential Decree No. 857, shows
On October 8, 1986, the Solicitor General filed a Manifestation that the PPA is vested merely with corporate powers and duties
and Rejoinder, stating, among others, that respondents are adopting (Sec. 6), which do not and can not include the power to legislate on
en toto their Comment of June 3, 1986 as their memorandum; with procedural matters, much less to effectively take away from the
the clarification that the assailed PPA Administrative Order No. Court of Tax Appeals the latter’s appellate jurisdiction.
13-77 was duly published in full in the nationwide circulated
newspaper, "The Times Journal", on November 9, 1977 (ibid., pp. These contentions are untenable for while it is true that neither
79-81).chanrobles virtual lawlibrary Presidential Decree No. 505 nor Presidential Decree No. 857
provides for the remedy of appeal to the Office of the President,
The sole legal issue raised by the petitioner is — nevertheless, Presidential Decree No. 857 empowers the PPA to
promulgate such rules as would aid it in accomplishing its purpose.
WHETHER OR NOT THE 30-DAY PERIOD FOR APPEAL Section 6 of the said Decree provides —
UNDER SECTION 131 OF PPA ADMINISTRATIVE ORDER
NO. 13-77 WAS TOLLED BY THE PENDENCY OF THE "Sec. 6. Corporate Powers and Duties —
PETITIONS FILED FIRST WITH THE COURT OF TAX
APPEALS, AND THEN WITH THIS HONORABLE "a. The corporate duties of the Authority shall
TRIBUNAL. be:jgc:chanrobles.com.ph
Petitioner, in holding that the recourse first to the Court of Tax (III) To prescribe rules and regulations, procedures, and guidelines
Appeals and then to this Court tolled the period to appeal, submits governing the establishment, construction, maintenance, and
that it was guided, in good faith, by considerations which lead to operation of all other ports, including private ports in the country.
the assumption that procedural rules of appeal then enforced still
hold true. It contends that when Republic Act No. 1125 (creating "x x x."
the Court of Tax Appeals) was passed in 1955, PPA was not yet in
existence; and under the said law, the Court of Tax Appeals had Pursuant to the aforequoted provision, PPA enacted Administrative
exclusive appellate jurisdiction over appeals from decisions of the Order No. 13-77 precisely to govern, among others, appeals from
Commissioner of Customs regarding, among others, customs PPA decisions. It is now finally settled that administrative rules
duties, fees and other money charges imposed by the Bureau under and regulations issued in accordance with law, like PPA
the Tariff and Customs Code. On the other hand, neither in Administrative Order No. 13-77, have the force and effect of law
Presidential Decree No. 505, creating the PPA on July 11, 1974 (Valerio v. Secretary of Agriculture and Natural Resources, 7
SCRA 719; Antique Sawmills, Inc. v. Zayco, Et Al., 17 SCRA entirely from its own negligence and not from a purported
316; and Macailing v. Andrada, 31 SCRA 126), and are binding on ignorance of the proper procedural steps to take. Petitioner had
all persons dealing with that body.chanrobles.com.ph : virtual law been aware of the rules governing PPA procedures. In fact, as
library embodied in the December 16, 1985 Order of the Office of the
President, petitioner even assailed the PPA’s rule making powers
As to petitioner’s contention that Administrative Order No. 13-77, at the hearing before the Court of Tax Appeals.
specifically its Section 131, only provides for appeal when the
decision is adverse to the government, worth mentioning is the It is axiomatic that the right to appeal is merely a statutory
observation of the Solicitor General that petitioner misleads the privilege and may be exercised only in the manner and in
Court. Said Section 131 provides — accordance with the provision of law (United CMC Textile
Workers Union v. Clave, 137 SCRA 346, citing the cases of Bello
"Sec. 131. Supervisory Authority of General Manager and PPA v. Fernando, 4 SCRA 138; Aguila v. Navarro, 55 Phil. 898; and
Board. — If in any case involving assessment of port charges, the Santiago v. Valenzuela, 78 Phil. 397).chanrobles.com.ph : virtual
Port Manager/OIC renders a decision adverse to the government, law library
such decision shall automatically be elevated to, and reviewed by,
the General Manager of the authority; and if the Port Manager’s Furthermore, even if petitioner’s appeal were to be given due
decision would be affirmed by the General Manager, such decision course, the result would still be the same as it does not present a
shall be subject to further affirmation by the PPA Board before it substantially meritorious case against the PPA.
shall become effective; Provided, however, that if within thirty
(30) days from receipt of the record of the case by the General Petitioner maintains and submits that there is no basis for the PPA
Manager, no decision is rendered, the decision under review shall to assess and impose the dues and charges it is collecting, since the
become final and executory; Provided further, that any party wharf is private, constructed and maintained at no expense to the
aggrieved by the decision of the General Manager as affirmed by government, and that it exists primarily so that its tugboats and
the PPA Board may appeal said decision to the Office of the barges may ferry the sugarcane of its Panay planters.
President within thirty (30) days from receipt of a copy thereof."
(Emphasis supplied). As correctly stated by the Solicitor General, the fees and charges
PPA collects are not for the use of the wharf that petitioner owns
From a cursory reading of the aforequoted provision, it is evident but for the privilege of navigating in public waters, of entering and
that the above contention has no basis. leaving public harbors and berthing on public streams or waters.
(Rollo, pp. 056-057).
As to petitioner’s allegation that to its recollection there had been
no prior publication of said PPA Administrative Order No. 13-77, In Compañia General de Tabacos de Filipinas v. Actg.
the Solicitor General correctly pointed out that said Administrative Commissioner of Customs (23 SCRA 600), this Court laid down
Order was duly published in full in the nationwide newspaper, the rule that berthing charges against a vessel are collectible
"The Times Journal", on November 9, 1977. regardless of the fact that mooring or berthing is made from a
private pier or wharf. This is because the government maintains
Moreover, it must be stated that as correctly observed by the bodies of water in navigable condition and it is to support its
Solicitor General, the facts of this case show that petitioner’s operations in this regard that dues and charges are imposed for the
failure to appeal to the Office of the President on time stems use of piers and wharves regardless of their ownership.
As to the requirement to remit 10% of the handling charges,
Section 6B-(ix) of the Presidential Decree No. 857 authorized the
PPA "To levy dues, rates, or charges for the use of the premises,
works, appliances, facilities, or for services provided by or
belonging to the Authority, or any organization concerned with
port operations." This 10% government share of earnings of
arrastre and stevedoring operators is in the nature of contractual
compensation to which a person desiring to operate arrastre service
must agree as a condition to the grant of the permit to operate.
SO ORDERED.
marine risks, for which the corresponding insurance policies
were issued. From January, 1952 to 1956, documentary
[G.R. No. L-30644. March 9, 1987.] stamps were bought and affixed to the monthly statements
of policies issued; and from 1957 to 1958 documentary
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. stamps were bought and affixed to the corresponding pages
FIREMAN’S FUND INSURANCE COMPANY and the of the policy register, instead of on the insurance policies
COURT OF TAX APPEALS, Respondents. issued. On July 3, 1959, respondent company discovered
that its monthly statements of business and policy register
B.V . Abela, M.C. Gutierrez & F.J . Malate, Jr., were lost. The loss was reported to the Building
for Respondents. Administration of Ayala Building and the National Bureau of
Investigation on July 6, 1959. Herein petitioner was also
informed of such loss by respondent company, through the
latter’s auditors, Sycip, Gorres and Velayo, in a letter dated
DECISION July, 14, 1959. After conducting an investigation of said loss,
petitioner’s examiner’s examiner ascertained that
respondent company failed to affix the required
PARAS, J.: documentary stamps to the insurance policies issued by it
and failed to preserve its accounting records within the time
prescribed by Section 337 of the Revenue Code by using
This is an appeal from the decision of the respondent Court loose leaf forms as registers of documentary stamps without
of Tax Appeals dated May 24, 1969, in C.T.A. Case No. written authority from the Commissioner of Internal
1629, entitled "FIREMAN’S FUND INSURANCE COMPANY v. Revenue as required by Section 4 of Revenue Regulations
COMMISSIONER OF INTERNAL REVENUE," which reversed No. V-1. As a consequence of these findings, Petitioner, in a
the decision of petitioner Commissioner of Internal Revenue letter dated December 7, 1962, assessed and demanded
holding private respondent Fireman’s Fund Insurance from petitioner the payment of documentary stamp taxes for
Company liable for the payment of the amount of the years 1952 to 1958 in the total amount of P79,806.87
P81,406.87 as documentary stamp taxes and compromise and plus compromise penalties, a total of P81,406.87.
penalties for the years 1952 to 1958. chanroblesvirtualawlibrary
1954 10,908.89
From January, 1952 to December, 1958, herein private
respondent Fireman’s Fund Insurance Company entered into 1955 14,204.52
various insurance contracts involving casualty, fire and
1956 12,108.26
In a letter dated January 14, 1963, respondent company
1957 7,880.68 contested the assessment. After petitioner denied the
protest in a decision dated March 17, 1965, respondent
1958 16,257.60 company appealed to the respondent Court of Tax Appeals
on May 8, 1965. After hearing respondent court rendered its
Total stamp taxes due on decision dated May 24, 1969 (Rollo, pp. 16-21) reversing
the decision of the Commissioner of Internal Revenue. The
policies issued from 1952 to 1958 77,837.67 assailed decision reads in part: jgc:chanrobles.com.ph
Add: Stamp taxes on monthly "The affixture of documentary stamps to papers other than
those authorized by law is not tantamount to failure to pay
statements during: chanrob1es virtual 1aw library the same. It is true that the mode of affixing the stamps as
prescribed by law was not followed, but the fact remains
1957 1,218.35 that the documentary stamps corresponding to the various
insurance policies were purchased and paid by petitioner.
1958 3,264.39 There is no legal justification for respondent to require
petitioner to pay again the documentary stamp tax which it
———— had already paid. To sustain respondent’s stand would
require petitioner to pay the same tax twice. If at all,
Total P82,320.41 petitioner should be proceeded against for failure to comply
with the requirement of affixing the documentary stamps to
Less: Stamp taxes paid per voucher shown: chanrob1es virtual 1aw library the taxable insurance policies and not for failure to pay the
tax. (See Sec. 239 and 332, Rev. Code).
1957 P 416.82
"It should be observed that the law allows the affixture of
1958 2,096.72 2,513.54 documentary stamps `to such other paper as may be
indicated by law or regulations as the proper recipient of the
——— stamp.’ It appears from this provision that respondent has
authority to allow documentary stamps to be affixed to
AMOUNT DUE & COLLECTIBLE P79,906.87 papers other than the documents or instruments taxed.
Although the practice adopted by petitioner in affixing the
======= documentary stamps to the business statements and policy
register was without specific permission from respondent but
(CTA Decision, Rollo, pp. 16-17). only on the strength of his ruling given to Wise & Company
(see Petitioner’s Memorandum, p. 176, CTA rec.; p. 24,
The compromise penalties consisted of the sum of P1,000.00 t.s.n.), one of the general agents of petitioner, however,
as penalty for the alleged failure to affix documentary considering that petitioner actually purchased the
stamps and the further sum of P600.00 as penalty for an documentary stamps, affixed them to the business
alleged violation of Revenue Regulations No. V-1 otherwise statements and policy register and cancelled the stamps by
known as the Bookkeeping Regulations (Brief for perforating them, we hold that petitioner cannot be held
Respondents, p. 4). liable to pay again the same tax.
persons in other countries are not subject to documentary
"With respect to the ‘compromise penalties’ in the total sum stamp tax. (Rev. Regs. No. 26).
of P1,600.00, suffice it to say that penalties cannot be
imposed in the absence of a showing that petitioner "Medical certificate attached to an insurance policy is not a
consented thereto. A compromise implies agreement. If the part of the said policy. Insurance policy is subject to Section
offer is rejected by the taxpayer, as in this case, respondent 232 of the Tax Code while medical certificate is taxable
cannot enforce it except through a criminal action. (See under Section 237 of the same Code.
Comm. of Int. Rev. v. Abad, L-19627, June 27, 1968.)" (CTA
Decision, Rollo, pp. 20-21). "Insurance policies are issued in the place where delivered
to the person insured." (As amended.)
Hence, this petition filed on June 26, 1969 (Rollo, pp. 1-8).
"SEC. 221. Stamp tax on policies of insurance upon
The petition is devoid of merit. property. — On all policies of insurance or other instruments
by whatever name the same may be called, by which
The principal issue in this case is whether or not respondent insurance shall be made or renewed upon property of any
company may be required to pay again the documentary description, including rents or profits, against peril by sea or
stamps it has actually purchased, affixed and cancelled. on inland waters, or by fire or lightning, there shall be
collected a documentary stamp tax of six centavos on each
The relevant provisions of the National Internal Revenue four persons, or fractional part thereof, of the amount of
Code provide: jgc:chanrobles.com.ph premium charged." (Now Sec. 250.).
"SEC. 210. Stamp taxes upon documents, instruments, and "SEC. 237. Payment of documentary stamp tax. —
papers. — Upon documents, instruments, and papers, and Documentary stamp taxes shall be paid by the purchase and
upon acceptances, assignments, sales, and transfers of the affixture of documentary stamps to the document or
obligation, right, or property incident thereto, there shall be instrument taxed or to such other paper as may be indicated
levied, collected and paid, for and in respect of the by law or regulations as the proper recepient of the stamp,
transaction so had or accomplished, the corresponding and by the subsequent cancellation of same, such
documentary stamp taxes prescribed in the following cancellation to be accomplished by writing, stamping, or
sections of this Title, by the person making, signing, issuing, perforating the date of the cancellation across the face of
accepting, or transferring the same, and at the same time each stamp in such manner that part of the writing,
such act is done or transaction had." (Now. Sec. 222). impression, or perforation shall be on the stamp itself and
part on the paper to which it is attached; Provided, That if
"SEC. 232. Stamp tax on life insurance policies. — On all the cancellation is accomplished by writing or stamping the
policies of insurance or other instruments by whatever name date of cancellation, a hole sufficiently large to be visible to
the same may be called, whereby any insurance shall be the naked eye shall be punched, cut or perforated on both
made or renewed upon any life or lives, there shall be the stamp and the document either by the use of a hand
collected a documentary stamp tax of thirty-five centavos on punch, knife, perforating machine, scissors, or any other
each two hundred pesos or fractional part thereof, of the cutting instrument but if the cancellation is accomplished by
amount issued by any such policy. (220) (As amended by PD perforating the date of cancellation, no other hole need be
1457). made on the stamp." (Now Sec. 249.).
"Insurance policies issued by a Philippine company to SEC. 239. Failure to affix or cancel documentary stamps. —
Any person who fails to affix the correct amount of buys its stamps by allowing the Manager to issue a
documentary stamps to any taxable document, instrument, Manager’s check drawn against the National City Bank of
or paper, or to cancel in the manner prescribed by section New York and payable to the City Treasurer of Manila. It was
237 any documentary stamp affixed to any document, also found out that during this period (1952 to 1958), the
instrument, or paper, shall be subject to a fine of not less total purchases of documentary stamps amounted to
than twenty pesos or more than three hundred pesos. P77,837.67, while the value of the used stamps lost
(Emphasis supplied.) (Now Sec. 250.) amounted to P65.901.11. Verification with the files revealed
that most of the monthly statements of business and
As correctly pointed out by respondent Court of Tax Appeals, registers of documentary stamps corresponding to insurance
under the above-quoted provisions of law, documentary tax policies issued were missing while some where the punched
is deemed paid by: (a) the purchase of documentary documentary stamps affixed were small in amount are still
stamps; (b) affixture of documentary stamps to the intact.
document or instrument taxed or to such other paper as
may be indicated by law or regulations; and (c) cancellation "The taxpayer was found to be negligent in the preservation
of the stamps as required by law (Rollo, p. 18). and keeping of its records. Although the loss was found by
the company’s private investigator (see attached true copies
It will be observed however, that the over-riding purpose of of his reports) was not an `Inside Job,’ still the company
these provisions of law is the collection of taxes. The three should be held liable for its negligence, it appearing that the
steps above-mentioned are but the means to that end. Thus, said records were placed in a bodega, where almost all
the purchase of the stamps is the form of payment made; patrons of the coffee shop nearby could see them. The
the affixture thereof on the document or instrument taxed is company also violated the provision of Section 221 of the
to insure that the corresponding tax has been paid for such National Internal Revenue Code which provides that the
document while the cancellation of the stamps is to obviate documentary stamps should be affixed and cancelled on the
the possibility that said stamps will be reused for similar duplicates of bonds and policies issued. In this case, the said
documents for similar purposes. stamps were affixed on the register of documentary stamps.
(pp. 35-36, BIR rec.; Emphasis supplied.)" (CTA Decision,
In the case at bar, there appears to be no dispute on the Rollo, pp. 18-19.)
fact that the documentary stamps corresponding to the
various policies were purchased and paid for by the Such findings were confirmed by the Memorandum of Acting
respondent Company. Neither is there any argument that Commissioner of Internal Revenue Jose B. Lingad, dated
the same were cancelled as required by law. In fact such November 7, 1962 to the Chief, Business Tax Division, which
were the findings of petitioner’s examiner Amando B. Melgar states:jgc:chanrobles.com.ph
REVENUE, Petitioner-Appellant, v. P. J. KIENER
COMPANY, LTD., INTERNATIONAL CONSTRUCTION
CORPORATION, GAVINO T. UNCHUAN AND THE COURT SYLLABUS
OF TAX APPEALS, Respondents-Appellees.
Solicitor General Antonio P. Barredo, Assistant 1. TAXATION EXEMPTION, PROVISION THEREFOR IN THE
Solicitor General Felicisimo R. Rosete, and Special MUTUAL DEFENSE AGREEMENT BETWEEN THE UNITED
Attorney Antonio H . Garces for Petitioner-Appellant. STATES OF AMERICA AND THE REPUBLIC OF THE
PHILIPPINES, CONSTRUED. — The phrases "for exclusive
Andres T . Velarde for Respondents-Appellees. use in the construction," "acquired in connection with the
construction," "acquired with the project" used in the tax
SYNOPSIS exemption provisions of the Military Bases Agreement, the
Aide Memoire" and the stipulations in the contract for the
Private respondents entered into a contract with the construction of a military air base could only mean,
government for the construction of the Mactan Airfield in collectively, "construction" materials or supplies which must
Cebu. The "General Conditions" of the contract, adopting the necessarily be incorporated in the construction of the
tax exemption clause of the Mutual Defense Agreement airfield. For the terms "materials’ and "supplies" refers to
between the United States and the Philippines, provided that something "going into or consumed" in the performance of
"no tax of any kind or description will be levied on any the work such as mortar, cement, sand, bricks, lumber or
material, equipment or supplies which may be purchased or nails, glass, hardware, and a thousand other things that
otherwise acquired in connection with the project under might be meant, which are necessary to the completed
contract, which material equipment or supplies are required erection of a building or structure.
solely for such project." Thereafter, private respondents
sought from petitioner a refund of the amount of P21,478.31 2. ID.; ID.; ID.; PETROLEUM PRODUCTS WHICH DO NOT GO
paid by Caltex as taxes for the petroleum products sold to it INTO THE CONSTRUCTION OF THE BASES, NOT TAX
which amount had been included in the purchase price. EXEMPT; REASON. — The petroleum products purchased by
Since no answer was forthcoming private respondents contractors "to run their machineries and equipment" used
instituted a petition for review before the Court of Tax in the construction of an air base cannot be categorized as
Appeals. Petitioner thereafter, denied the claim for return, such "materials" or "supplies" as are subject to tax
but the Tax Court came up with a decision allowing tax exemption under the Military Bases Agreement, since they
credit in the amount of P18,272.21 deducting from the do not go into or are consumed in the construction, but in
amount claimed taxes for petroleum products used in the the machineries and equipment. Moreover, the stipulation in
demolition of the Opon Church in Mactan and taxes which the contract between the government and the contractor
can no longer be claimed because of prescription. providing that" (o)nly equipment which will be incorporated
in the construction can be imported tax on certification of
Hence, this petition for review. the Engineer," deals centrally on the importation of
equipment, for which the government had conceded the
The Supreme Court held that the petroleum products privilege of exemption because the same may not be
acquired by private respondent are not exempt for they did "economically procurable in terms of price and quality in the
Philippines." To assure however that the privilege is not that matter a party claiming under it, like a taxpayer,
abused and to restrain against possible detour of the especially when it is considered that for the Philippine
revenue and customs laws, the government has stipulated Government "the exception contained in tax statutes must
that the equipment must be incorporated in the be strictly construed against the one claiming exemption and
construction. that he who would seek to be thus privileged must justify it
by words too plain to be mistaken and too categorical to be
3. ID.; ID.; ID.; ID.; CASE OF COMMISSIONER OF CUSTOM misinterpreted."cralaw virtua1aw library
4. ID.; ID.; ID.; RULING OF THE SECRETARY OF FINANCE IN This is a case that draws Us to the tax exemption provision
A SIMILAR CASE ENTITLED TO GREAT WEIGHT IN THE written in the Military Bases Agreement 1 celebrated by the
DETERMINATION OF THE PRESENT ISSUE. — The ruling of Republic of the Philippines and the United States of America
the Secretary of Finance — that oils used by contractors in on March 14, 1947, and pursued in the "Aide Memoire" 2
the operation of their machines or other equipment are not between the two Governments on April 27, 1955.
materials to be used solely for military projects but
petroleum products to be used in the operation of the A quo a decision was rendered by respondent Court of Tax
contractor’s machine, and therefore not exempt — Appeals ordering the Commissioner of Internal Revenue "to
commands respect and weight, since it proceeds from the give tax credit to [private respondents] the amount of
official of the government called upon to execute or P18,272.21, without pronouncement as to costs." The Tax
implement administrative laws it lays down a sound rule on Court modified the ruling of the Commissioner of Internal
the matter. Revenue denying the request of the private respondents for
tax credit amounting to P21,478.31, the total of specific
5. ID.; ID.; INTERPRETATION OF STIPULATIONS. — If two taxes supposedly paid by them. Petitioner seeks a review of
meanings of a stipulation are admissible, that which is least said judgment.
to the advantage of the party for whose benefit the
stipulation was inserted in the treaty should be preferred. Respondent P. J. Kiener Company, Ltd. is a domestic limited
Thus, an ambiguity in the tax exemption provision in the co-partnership, doing business in the Philippines, while
Military Bases Agreement and in the "Aide Memoire" in a respondent International Construction Corporation is a
accordance with which a contract was entered into, cannot domestic corporation duly organized and existing under and
be interpreted in favor of the American Government or for by virtue of the laws of the Philippines, likewise engaged in
business in the Philippines. 3 On or about December 14, request with a formal claim for tax credit on January 12,
1957, respondent companies entered into a joint venture 1961. Since no answer was forthcoming, private
with respondent Gavino T. Unchuan, a licensed Filipino civil respondents instituted on January 31, 1962, a petition for
engineer, to bid for the construction of the Mactan Airfield in review with the respondent Court of Tax Appeals. They
Mactan Island, Municipality of Opon (now Lapu-lapu City), prayed that they be credited the amounts of P21,478.31 and
Cebu. Respondents won the bid. And so, on February 19, P151.65, specific and sales taxes, respectively, plus interest
1958, the Republic of the Philippines, represented by Lt. at the legal rate from that date until the grant of the tax
Gen. Alfonso Arellano, then Chief of Staff, Armed Forces of credit. 7 However, before the trial of the case, the sales tax
the Philippines, entered into a contract with private of P151.65 was credited in favor of Caltex (Phil.) Inc. 8
respondents, Article I of which provides, inter alia,." . . That
the . . . general conditions . . . are hereby made integral Subsequently, or on 7 January 1963, petitioner formally
parts of this contract by incorporation and reference denied the request of Caltex (Phil.) Inc. stating that as per
respectively." Of these "General Conditions", Section 3-19 the ruling of the Department of Finance in its answer to the
provides:jgc:chanrobles.com.ph query of the Philippine Electrical Supply, dated July 18,
1962: jgc:chanrobles.com.ph
This is the root of the controversy. After trial, the Tax Court rendered the judgment appealed
from. It deducted from the P21,478.31 claimed for the
Towards the middle of 1958, private respondents specific tax of P908.40 (petroleum products used in the
commenced construction of the Mactan Airfield and started demolition of the Opon Church in Mactan) and the specific
purchasing "petroleum products to run and maintain their tax of P2,297.74 paid on January 15, and 25, 1960 for being
machineries and equipment" from Caltex (Phil.) Inc. 4 barred by prescription (claim for refund was filed only on
During the period of February 1, 1960 through April 11, January 31, 1962. 9
1960, they likewise purchased motor gasoline, kerosene,
lubricating and/or motor oil, and diesel fuel from Caltex Petitioner delimits its issue or question to the dispositive
(Phil.) Inc. For these petroleum products, Caltex (Phil.) Inc. portion of the Tax Court decision ordering petitioner "to give
paid the Bureau of Internal Revenue P21,478.31 of specific tax credit to [private respondents in the amount of
taxes. This amount was, in turn, included in the prices of the P18,272.21 . . ." 10 and assigns that the Tax Court erred.
petroleum products paid by private respondents to Caltex
(Phil.) Inc. 5 I
Nor could the ambiguity that thus sprang from the tax-
exemption provision in the Military Bases Agreement and in
G.R. No. L-30232 July 29, 1988 This Court, in a Resolution dated March 13, 1969, gave due course
to the petition (Ibid., p. 40). Petitioner-appellant raised three (3)
LUZON STEVEDORING CORPORATION, petitioner-appellant, assignments of error, to wit:
vs.
COURT OF TAX APPEALS and the HONORABLE I
COMMISSIONER OF INTERNAL REVENUE, respondents-
appellees. The lower court erred in holding that the petitioner-
appellant is engaged in business as stevedore, the
H. San Luis & V.L. Simbulan for petitioner-appellant. work of unloading and loading of a vessel in port,
contrary to the evidence on record.
II
PARAS, J.:
The lower court erred in not holding that the business
This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in in which petitioner-appellant is engaged, is part and
CTA Case No. 1484, "Luzon Stevedoring Corporation v. Hon. Ramon Oben, Commissioner,
Bureau of Internal Revenue", denying the various claims for tax refund; and the February 20,
parcel of the shipping industry.
1969 Resolution of the same court denying the motion for reconsideration.
III
Herein petitioner-appellant, in 1961 and 1962, for the repair and
maintenance of its tugboats, imported various engine parts and other The lower court erred in not allowing the refund
equipment for which it paid, under protest, the assessed sought by petitioner-appellant.
compensating tax. Unable to secure a tax refund from the
Commissioner of Internal Revenue, on January 2, 1964, it filed a The instant petition is without merit.
Petition for Review (Rollo, pp. 14-18) with the Court of Tax Appeals,
docketed therein as CTA Case No. 1484, praying among others, that
The pivotal issue in this case is whether or not petitioner's tugboats"
it be granted the refund of the amount of P33,442.13. The Court of
can be interpreted to be included in the term "cargo vessels" for
Tax Appeals, however, in a Decision dated October 21, 1969 (Ibid.,
purposes of the tax exemption provided for in Section 190 of the
pp. 22-27), denied the various claims for tax refund. The decretal
National Internal Revenue Code, as amended by Republic Act No.
portion of the said decision reads:
3176.
WHEREFORE, finding petitioner's various claims for
Said law provides:
refund amounting to P33,442.13 without sufficient
legal justification, the said claims have to be, as they
are hereby, denied. With costs against petitioner. Sec. 190. Compensating tax. — ... And Provided
further, That the tax imposed in this section shall not
apply to articles to be used by the importer himself in
On January 24, 1969, petitioner-appellant filed a Motion for
the manufacture or preparation of articles subject to
Reconsideration (Ibid., pp. 28-34), but the same was denied in a
specific tax or those for consignment abroad and are
Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant
to form part thereof or to articles to be used by the
petition.
importer himself as passenger and/or cargo vessel,
whether coastwise or oceangoing, including engines
and spare parts of said vessel. ....
Petitioner contends that tugboats are embraced and included in the compensating tax to imported items to be used by the importer
term cargo vessel under the tax exemption provisions of Section 190 himself as operator of passenger and/or cargo vessel (Ibid., p. 25).
of the Revenue Code, as amended by Republic Act. No. 3176. He
argues that in legal contemplation, the tugboat and a barge loaded As quoted in the decision of the Court of Tax Appeals, a tugboat is
with cargoes with the former towing the latter for loading and defined as follows:
unloading of a vessel in part, constitute a single vessel. Accordingly,
it concludes that the engines, spare parts and equipment imported by A tugboat is a strongly built, powerful steam or power
it and used in the repair and maintenance of its tugboats are exempt vessel, used for towing and, now, also used for
from compensating tax (Rollo, p. 23). attendance on vessel. (Webster New International
Dictionary, 2nd Ed.)
On the other hand, respondents-appellees counter that petitioner-
appellant's "tugboats" are not "Cargo vessel" because they are A tugboat is a diesel or steam power vessel designed
neither designed nor used for carrying and/or transporting persons or primarily for moving large ships to and from piers for
goods by themselves but are mainly employed for towing and pulling towing barges and lighters in harbors, rivers and
purposes. As such, it cannot be claimed that the tugboats in question canals. (Encyclopedia International Grolier, Vol. 18, p.
are used in carrying and transporting passengers or cargoes as a 256).
common carrier by water, either coastwise or oceangoing and,
therefore, not within the purview of Section 190 of the Tax Code, as
A tug is a steam vessel built for towing, synonymous
amended by Republic Act No. 3176 (Brief for Respondents-
with tugboat. (Bouvier's Law Dictionary.) (Rollo, p.
Appellees, pp. 45).
24).
This Court has laid down the rule that "as the power of taxation is a
Under the foregoing definitions, petitioner's tugboats clearly do not
high prerogative of sovereignty, the relinquishment is never
fall under the categories of passenger and/or cargo vessels. Thus, it
presumed and any reduction or dimunition thereof with respect to its
is a cardinal principle of statutory construction that where a provision
mode or its rate, must be strictly construed, and the same must be
of law speaks categorically, the need for interpretation is obviated, no
coached in clear and unmistakable terms in order that it may be
plausible pretense being entertained to justify non-compliance. All
applied." (84 C.J.S. pp. 659-800), More specifically stated, the
that has to be done is to apply it in every case that falls within its
general rule is that any claim for exemption from the tax statute
terms (Allied Brokerage Corp. v. Commissioner of Customs, L-27641,
should be strictly construed against the taxpayer (Acting
40 SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270
Commissioner of Customs v. Manila Electric Co. et al., 69 SCRA 469
[1970]).
[1977] and Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd.,
et al., 65 SCRA 142 [1975]).
And, even if construction and interpretation of the law is insisted
upon, following another fundamental rule that statutes are to be
As correctly analyzed by the Court of Tax Appeals, in order that the
construed in the light of purposes to be achieved and the evils sought
importations in question may be declared exempt from the
to be remedied (People v. Purisima etc., et al., L-42050-66, 86 SCRA
compensating tax, it is indispensable that the requirements of the
544 [1978], it will be noted that the legislature in amending Section
amendatory law be complied with, namely: (1) the engines and spare
190 of the Tax Code by Republic Act 3176, as appearing in the
parts must be used by the importer himself as a passenger and/or
records, intended to provide incentives and inducements to bolster
cargo, vessel; and (2) the said passenger and/or cargo vessel must
the shipping industry and not the business of stevedoring, as
be used in coastwise or oceangoing navigation (Decision, CTA Case
manifested in the sponsorship speech of Senator Gil Puyat (Rollo, p.
No. 1484; Rollo, p. 24).
26).
As pointed out by the Court of Tax Appeals, the amendatory
provisions of Republic Act No. 3176 limit tax exemption from the
On analysis of petitioner-appellant's transactions, the Court of Tax
Appeals found that no evidence was adduced by petitioner-appellant
that tugboats are passenger and/or cargo vessels used in the
shipping industry as an independent business. On the contrary,
petitioner-appellant's own evidence supports the view that it is
engaged as a stevedore, that is, the work of unloading and loading of
a vessel in port; and towing of barges containing cargoes is a part of
petitioner's undertaking as a stevedore. In fact, even its trade name is
indicative that its sole and principal business is stevedoring and
lighterage, taxed under Section 191 of the National Internal Revenue
Code as a contractor, and not an entity which transports passengers
or freight for hire which is taxed under Section 192 of the same Code
as a common carrier by water (Decision, CTA Case No. 1484; Rollo,
p. 25).
As a matter of principle, this Court will not set aside the conclusion
reached by an agency such as the Court of Tax Appeals, which is, by
the very nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an
expertise on the subject unless there has been an abuse or
improvident exercise of authority (Reyes v. Commissioner of Internal
Revenue, 24 SCRA 199 [1981]), which is not present in the instant
case.
SO ORDERED.
G.R. Nos. L-22805 & L-27858 June 30, 1975 percentage taxes from 1957 to June 30, 1960, inclusive of the 25%
surcharge, plus costs", based on the common principal issue of
WONDER MECHANICAL ENGINEERING CORPORATION "whether or not the manufacture and sale of steel chairs, jeepney
represented by Mr. LUCIO QUIJANO, President & General parts and other articles which are not machines for making other
Manager, petitioner, products, and job orders done by petitioner come within the purview
vs. of the tax exemption granted it under Republic Act Nos. 35 and 901."
THE HON. COURT OF TAX APPEALS and THE BUREAU OF
INTERNAL REVENUE BEING REPRESENTED BY THE Petitioner is a corporation which was granted tax exemption privilege
COMMISSIONER OF INTERNAL REVENUE, respondents. under Republic Act 35 in respect to the "manufacture of machines for
making cigarette paper, pails, lead washers, rivets, nails, candies.
L-22805 chairs, etc.". The tax exemption expired on May 30, 1951. On
September 14, 1953, petitioner applied with the Secretary of Finance
Sarte and Espinosa for petitioner. for reinstatement of the exemption privilege under the provisions of
R.A. 901 approved July 7, 1954, the reinstatement to commence on
June 20, 1953, the date Republic Act 901 took effect.
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B.
Afurong and Special Attorney Augusto A. Lim for respondents.
In G.R. No. L-22805, respondent Commissioner of Internal Revenue,
sometime in 1955, caused the investigation of petitioner for the
L-27858
purpose of ascertaining whether or not it had any tax liability. The
findings of Revenue Examiner Alfonso B. Camillo on September 30,
Jose Sarte for petitioner. 1955, stated "that during the years 1953 and 1954 the petitioner was
engaged in the business of manufacturing various articles, namely,
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor auto spare parts, flourescent lamp shades, rice threshers, post clips,
General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang and Special radio screws, washers, electric irons, kerosene stoves and other
Attorney Elpidio C. Cid for respondents. articles; that it also engaged in business of electroplating and in
repair of machines; that although it was engaged in said business, it
did not provide itself with the proper privilege tax receipts as required
by Section 182 of the Tax Code and did not pay the sales tax on its
gross sales of articles manufactured by it and the percentage tax due
ESGUERRA, J.: on the gross receipts of its electroplating and repair business
pursuant to Sections 183, 185, 186 and 191 of the same Code".
Two petitions for review of the decisions of the respondent Court of
Tax Appeals in G.R. Nos. L-22805 and L-27858. The first decision (L- Based on the foregoing, respondent Commissioner of Internal
22805) dismissed the appeal of petitioner Wonder Mechanical Revenue assessed against petitioner on November 29, 1955, the
Engineering Corporation in C.T.A. Case No. 1036, "for lack of total amount of P69,699.56 as fixed taxes and sales and percentage
jurisdiction, the same having been filed beyond the 30 day period taxes, inclusive of the 25% surcharge, as follows:
prescribed in Section 11 of Republic Act No. 1125", and confirmed
the decision of respondent Commissioner of Internal Revenue which Sales and percentage taxes for
"assessed against petitioner the total amount of P69,699.56 as fixed 1953 and 1954 P55,719.65
taxes and sales and percentage taxes, inclusive of the 25%
surcharge for the years 1953-54". The second decision (L-27858)
25% surcharge 13,929.91
ordered the same petitioner to pay, respondent Commissioner of
Internal Revenue the amount of "P25,080.91 as deficiency sales and
C-14 fixed tax (1953-1954) 20.00 amounts. Hence We find no compelling reasons to alter the decision
of respondent Court of Tax Appeals in L-27858 that —
C-4 (27) fixed tax (1954) 10.00
With respect to the compromise penalty in the total
C-4 (37) fixed tax (1953-1954) 20.00 amount of P5,020.00 suggested by respondent to be
paid by petitioner, it is now a well settled doctrine that
TOTAL P69.699.56 compromise penalty cannot be imposed or collected
without the agreement or conformity of the tax
payer (Collector of Internal Revenue vs. University of
Respondent also suggested the payment of the amount of P3,300.00
Santo Tomas, et al., G.R. Nos. L-11274 & L-11280,
as penalties in extrajudicial settlement of petitioner's violations of
November 28, 1958; the Collector of Internal Revenue
Sections 182, 183, 185, 186 and 191 of the Tax Code and of the
v. Bautista, et al., G.R. Nos. L-12250 & 12259, May
Bookkeeping Regulations (p. 25, B.I.R. rec.).
27, 1959; the Philippines International Fair, Inc. v.
Collector of Internal Revenue, G.R. Nos. L-12928 & L-
In G.R. No. L-27858, respondent Commissioner of Internal Revenue 12932, March 31, 1962). (Emphasis for emphasis)
caused the investigation of petitioner for the purpose of ascertaining
its tax liability on August 10, 1960, as a result of which on December
Inasmuch as the figures appearing in the Bureau of Internal
7, 1960, Revenue Examiner Pedro Cabigao reported that "petitioner
Revenue's tax delinquency assessments in both cases (L-22805 and
had manufactured and sold steel chairs without paying the 30% sales
L-27858) are not in dispute, and the respondent Court of Tax Appeals
tax imposed by Section 185(c) of the Tax Code; accepted job orders
ruled in its decision in G.R. No. L-27858 on the lone issue presented
without paying the 3% tax in gross receipts imposed by Section 191
in both cases that the tax assessment of "P25,080.91 as deficiency
of the same Code; manufactured and sold other articles subject to
sales and percentage taxes from 1957 to June 30, 1960" must be
7% sales tax under Section 186 of the same Code but not covered by
paid by petitioner as the sale of other manufactured items did not
the tax exemption privilege; failed to register with the Bureau of
come within the purview, of the tax exemption granted petitioner. We
Internal Revenue books of accounts and sales invoices as required
find it no longer necessary to make a definite stand on the question
by the Bookkeeping Regulations; failed to indicate in the sales
raised in L-22805 as to the alleged error committed by respondent
invoices the Residence Certificate number of customers who
Court of Tax Appeals in dismissing the appeal in C.T.A. 1036 (subject
purchased articles worth P50.00 or over, in violation of the
matter of L-22805) for lack of jurisdiction, the same having been filed
Bookkeeping Regulation; and failed to produce its books of accounts
beyond the 30-day period prescribed in Section 11 of Republic Act
and business records for inspection and examination when required
1126. Suffice it to say on that issue that appellants must perfect their
to do so by the revenue examiner in violation of the Bookkeeping
appeal from the decision of the Commissioner of Internal Revenue to
Regulations (pp. 17-18 B.I.R. rec.)".
the Court of Tax Appeals within the statutory period of 30 days,
otherwise said Court acquires no jurisdiction.
Based on the foregoing, the respondent Commissioner of Internal
Revenue on October 6, 1961, assessed against the petitioner "the
We turn Our attention on the vital issue of tax exemption claimed by
payment of P25,080.91 as deficiency percentage taxes and 25%
petitioner as basis for questioning the tax assessments made by
surcharge for 1957 to 1960 and suggested the payment of P5,020.00
respondent Bureau of Internal Revenue in both cases (G.R. L-22805
as total compromise penalty in extrajudicial settlement of the various
and 27858). There is no doubt that petitioner was given a Certificate
violations of the Tax Code and Bookkeeping Regulation (pp. 28-29
of Tax Exemption By the Secretary of Finance on July 7,1954, as
B.I.R. rec.). "
follows:
1äwphï1.ñët
"Sirs:
I have the honor to advise you that His Excellency, the President, has
today, upon recommendation of the Honorable, the Secretary of
Finance, approved your application for exemption from the payment
of internal revenue taxes on your business of manufacturing
machines for making a number of products, such as cigarette paper,
pails, lead washers, rivets, nails, candies, chairs, etc., under the
provisions of Section 2 of Republic Act No. 35.
äwphï1.ñët
4. CIVIL LAW; CONTRACTS; CONTRACT OF SALE AND FOR A 5. REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS AND
PIECE OF WORK REQUIRE TRANSFER OF OWNERSHIP; NOT CONCLUSIONS OF THE COURT OF TAX APPEALS;
PRESENT IN CASE AT BAR. — The questioned transactions of GENERALLY CONCLUSIVE; CASE AT BAR. — We reiterate
Ateneo’s Institute of Philippine Culture cannot be deemed that the "Court of Tax Appeals is a highly specialized body
either as a contract of sale or a contract for a piece of work. specifically created for the purpose of reviewing tax cases.
"By the contract of sale, one of the contracting parties Through its expertise, it is undeniably competent to
obligates himself to transfer the ownership of and to deliver determine the issue of whether" Ateneo de Manila University
a determinate thing, and the other to pay therefor a price may be deemed a subject of the three percent contractor’s
certain in money or its equivalents." By its very nature, a tax "through the evidence presented before it."
contract of sale requires a transfer of ownership. Thus, Consequently, "as a matter of principle, this Court will not
Article 1458 of the Civil Code "expressly makes the set aside the conclusion reached by . . . the Court of Tax
obligation to transfer ownership as an essential element of Appeals which is, by the very nature of its function,
the contract of sale, following modern codes, such as the dedicated exclusively to the study and consideration of tax
German and the Swiss. Even in the absence of this express problems and has necessarily developed an expertise on the
requirement, however, most writers, including Sanchez subject unless there has been an abuse or improvident
Roman, Gayoso, Valverde, Ruggiero, Colin and Capitant, exercise of authority . . ." This point becomes more evident
have considered such transfer of ownership as the primary in the case before us where the findings and conclusions of
purpose of sale. Perez and Alguer follow the same view, both the Court of Tax Appeals and the Court of Appeals
stating that the delivery of the thing does not mean a mere appear untainted by any abuse of authority, much less grave
physical transfer, but is a means of transmitting ownership. abuse of discretion. Thus, we find the decision of the latter
Transfer of title or an agreement to transfer it for a price affirming that of the former free from any palpable error.
paid or promised to be paid is the essence of sale." In the
case of a contract for a piece of work, "the contractor binds
himself to execute a piece of work for the employer, in
consideration of a certain price or compensation. . . If the DECISION
contractor agrees to produce the work from materials
furnished by him, he shall deliver the thing produced to the
employer and transfer dominion over the thing. . ." (Articles PANGANIBAN, J.:
1713 and 1714 of the Civil Code of the Philippines).
Ineludably, whether the contract be one of sale or one for a
piece of work, a transfer of ownership is involved and a In conducting researches and studies of social organizations
party necessarily walks away with an object. In the case at and cultural values thru its Institute of Philippine Culture, is
bench, it is clear from the evidence on record that there was the Ateneo de Manila University performing the work of an
no sale either of objects or services because. as adverted to independent contractor and thus taxable within the purview
earlier, there was no transfer of ownership over the research of then Section 205 of the National Internal Revenue Code
data obtained or the results of research projects undertaken levying a three percent contractor’s tax? This question is
by the Institute of Philippine Culture. Furthermore, it is clear answered by the Court in the negative as it resolves this
that the research activity of the Institute of Philippine petition assailing the Decision 1 of the Respondent Court of
Appeals 2 in CA-G.R. SP No. 31790 promulgated on April 27, P46,516.41, exclusive of surcharge and interest.
1994 affirming that of the Court of Tax Appeals. 3
On July 12, 1993, the respondent court rendered the
The Antecedent Facts questioned decision which dispositively reads: chanrob1es virtual 1aw library
The antecedents as found by the Court of Appeals are ‘WHEREFORE, in view of the foregoing, respondent’s decision
reproduced hereinbelow, the same being largely undisputed is SET ASIDE. The deficiency contractor’s tax assessment in
by the parties. cdtech the amount of P46,516.41 exclusive of surcharge and
interest for the fiscal year ended March 31, 1978 is hereby
"Private respondent is a non-stock, non-profit educational CANCELED. No pronouncement as to cost.
institution with auxiliary units and branches all over the
Philippines. One such auxiliary unit is the Institute of SO ORDERED.’
Philippine Culture (IPC), which has no legal personality
separate and distinct from that of private Respondent. The Not in accord with said decision, petitioner has come to this
IPC is a Philippine unit engaged in social science studies of Court via the present petition for review raising the following
Philippine society and culture. Occasionally, it accepts issues: chanrob1es virtual 1aw library
x x x
Petitioner submits before us the following issues: jgc:chanrobles.com.ph
Petitioner contends that the respondent court erred in "1. Whether or not private respondent falls under the
holding that private respondent is not an "independent purview of independent contractor pursuant to Section 205
contractor" within the purview of Section 205 of the Tax of the Tax Code
Code. To petitioner, the term "independent contractor", as
defined by the Code, encompasses all kinds of services 2. Whether or not private respondent is subject to 3%
rendered for a fee and that the only exceptions are the contractor’s tax under Section 205 of the Tax Code." 5
following: chanrob1es virtual 1aw library
The Ateneo de Manila University Did Not Contract 2 Examiner’s Field Audit Report
for the Sale of the Services of its Institute of Philippine 3 Adjustments to Sales/Receipts
Culture
4 Letter-decision of BIR Commissioner
After reviewing the records of this case, we find no evidence
that Ateneo’s Institute of Philippine Culture ever sold its Bienvenido A. Tan Jr.
services for a fee to anyone or was ever engaged in a
business apart from and independently of the academic None of the foregoing evidence even comes close to purport
purposes of the university. to be contracts between private respondent and third
parties." 12
Stressing that "it is not the Ateneo de Manila University per
se which is being taxed," Petitioner Commissioner of Internal Moreover, the Court of Tax Appeals accurately and correctly
Revenue contends that "the tax is due on its activity of declared that the" funds received by the Ateneo de Manila
conducting researches for a fee. The tax is due on the gross University are technically not a fee. They may however fall
receipts made in favor of IPC pursuant to the contracts the as gifts or donations which are tax-exempt" as shown by
latter entered to conduct researches for the benefit primarily private respondent’s compliance with the requirement of
of its clients. The tax is imposed on the exercise of a taxable Section 123 of the National Internal Revenue Code providing
activity. . . . [T]he sale of services of private respondent is for the exemption of such gifts to an educational institution.
made under a contract and the various contracts entered 13
into between private respondent and its clients are almost of
the same terms, showing, among others, the compensation Respondent Court of Appeals elucidated on the ruling of the
and terms of payment." 11 (Emphasis supplied.) Court of Tax Appeals: jgc:chanrobles.com.ph
In theory, the Commissioner of Internal Revenue may be "To our mind, private respondent hardly fits into the
correct. However, the records do not show that Ateneo’s IPC definition of an ‘independent contractor’. chanrobles.com : virtual law library
(f) The institution must show evidence of adequate and The records show that the Institute of Philippine Culture
stable financial resources and support, a reasonable portion conducted its research activities at a huge deficit of
of which should be devoted to institutional development and P1,624,014.00 as shown in its statements of fund and
research. (Emphasis supplied) disbursements for the period 1972 to 1985. 23 In fact, it
was Ateneo de Manila University itself that had funded the
x x x’ research projects of the institute, and it was only when
Ateneo could no longer produce the needed funds that the
‘32. University status may be withdrawn, after due notice institute sought funding from outside. The testimony of
Ateneo’s Director for Accounting Services, Ms. Leonor
Wijangco, provides significant insight on the academic and
nonprofit nature of the institute’s research activities done in
furtherance of the university’s purposes, as follows: jgc:chanrobles.com.ph
A The University.
SO ORDERED.
[G.R. No. L-29485. November 21, 1980.] reported in a return such as for example, income tax or
sales tax. However, the surtax imposed by Section 25 of the
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. Tax Code is not one such tax. Accumulated surplus are
AYALA SECURITIES CORPORATION and THE never returned for tax purposes, as there is no law requiring
HONORABLE COURT OF TAX APPEALS, Respondents. that such surplus be reported in a return for purposes of the
25% surtax. In fact, taxpayers resort to all means and
devices to cover up the fact that they have unreasonably
accumulated surplus." cralaw virtua1aw library
DECISION
Petitioner, therefore, submits that
"Neither does Section 332 apply. Said Section provides: jgc:chanrobles.com.ph "It is well settled limitations upon the right of the
government to assess and collect taxes will not be presumed holding company of its shareholders through its mother
in the absence of clear legislation to the contrary. The company, a registered co-partnership then set up by the
existence of a time limit beyond which the government may individual shareholders belonging to the same family and
recover unpaid taxes is purely dependent upon some that the prima facie evidence and presumption set up by the
express statutory provision, (51 Am. Jur. 867; 10 Mertens Tax Code, therefore, applied without having been adequately
Law on Federal Income Taxation, par. 57. 02.). It follows rebutted by the respondent corporation. chanrobles.com : virtual law library
The Court is persuaded by the fundamental principle invoked "Q. Is that right, Mr. Cabral?
by petitioner that limitations upon the right of the
government to assess and collect taxes will not be presumed "Atty. Ong
in the absence of clear legislation to the contrary and that
where the government has not by express statutory Objection, Your Honor, on the materiality of the question.
provision provided a limitation upon its right to assess
unpaid taxes, such right is imprescriptible. "Judge Alvarez
The Court, therefore, reconsiders its ruling in its decision’ What is the materiality of the question?
under reconsideration that the right to assess and collect the
assessment in question had prescribed after five years, and "Atty. Garces
instead rules that there is no such time limit on the right of
the Commissioner of Internal Revenue to assess the 25% We want to prove to this Honorable Court that Ayala
tax on unreasonably accumulated surplus provided in section Securities Corporation is a holding or investment company,
25 of the Tax Code, since there is no express statutory the parent company being Ayala and Company.
provision limiting such right or providing for its prescription.
The underlying purpose of the additional tax in question on a "Judge Alvarez
corporation’s improperly accumulated profits or surplus is as
set forth in the text of section 25 of the Tax Code itself 1 to Witness may answer.
avoid the situation where a corporation unduly retains its
surplus earnings instead of declaring and paying dividends "A. I think so; yes.
to its shareholders or members who would then have to pay
the income tax due on such dividends received by them. The "Q. And Ayala and Company is owned almost wholly by the
record amply shows that respondent corporation is a mere Zobel Family and the Ayala Family?
Corporation are also the employees of the Ayala and
"Atty. Ong Company?
If Your Honor please, objection again on the materiality. "A. At the time, if I remember right, Ayala and Company
What would counsel for the respondent prove on this point? was the operating company and the employees were the
employees of the Ayala and Company; (t.s.n., pp. 32-37)
"Atty. Garces
Another witness, Mr. Salvador J. Lorayes, the Secretary and
Same purpose, Your Honor; to prove that Ayala Securities head of the Legal Department of the corporation, also
Corporation is a mere investment or holding company. testified that: chanrob1es virtual 1aw library
What is the materiality of the case if it is a mere investment "Q. May we know from you whether Ayala Securities
company. In fact, we are here in court to prove the Corporation is an affiliate of Ayala and Company?
reasonableness or unreasonableness of the accumulation of
profit. I think counsel for the respondent is trying to harp on "A. Yes, Your Honor.
presumption; but actually we will not be delving on
presumption but on actual facts proving the reasonableness "Q. Do we understand from you that Ayala and Company is
of the accumulation based on actual evidence. the mother corporation of this affiliate?
In order to determine the reasonableness or "Q. And that the policy of Ayala Securities Corporation is
unreasonableness, there must be a basis. Witness will have practically governed by the officers or partners of Ayala and
to answer the question. Company?
"A. Yes. "A. They have a strong influence over the policy of Ayala
Securities Corporation.
x x x
"Q. So that whatever is decided by the partners of Ayala and
Company for a certain investment or project would also be
"Q. As of September 30, 1955 when the Ayala Securities followed by Ayala Securities Corporation?
Corporation filed its income tax return, were the officers of
the Ayala Securities Corporation and the Ayala and Company "A. If the project is assigned to Ayala Securities Corporation,
housed in the same building? it will be followed by Ayala Securities Corporation; if to
another affiliate, no (t.s.n., pp. 149-150). . . ." chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
"When the request for bids for the construction of the World
"The Organization may import into the country materials and Health Organization office building was called for,
fixtures required for the construction free from all duties and contractors were informed that there would be no taxes or
taxes and agrees not to utilize any portion of the fees levied upon them for their work in connection with the
international reserves of the Government." cralaw virtua1aw library construction of the building as this will be considered an
indirect tax to the Organization caused by the increase of
Article VIII of the above-mentioned agreement referred to the contractor’s bid in order to cover these taxes. This was
the Host Agreement concluded on July 22, 1951 which upheld by the Bureau of Internal Revenue and it an be
granted the Organization exemption from all direct and stated that the contractors submitted their bids in good faith
indirect taxes. with the exemption in mind.
In inviting bids for the construction of the building, the WHO The undersigned, therefore, certifies that the bid of John
informed the bidders that the building to be constructed Gotamco & Sons, made under the condition stated above,
belonged to an international organization with diplomatic should be exempted from any taxes in connection with the
status and thus exempt from the payment of all fees, construction of the World Health Organization office
licenses, and taxes, and that therefore their bids "must take building."
cralaw virtua1aw library
this into account and should not include items for such
taxes, licenses and other payments to Government On January 17, 1961, the Commissioner of Internal Revenue
agencies."cralaw virtua1aw library sent a letter of demand to Gotamco demanding payment of
P16,970.40, representing the 3% contractor’s tax plus
The construction contract was awarded to respondent John surcharges on the gross receipts it received from the WHO in
Gotamco & Sons, Inc. (Gotamco for short) on February 10, the construction of the latter’s building. chanrobles virtual lawlibrary
(Pollock v. Farmers, L & T Co., 1957 US 429,15 S. Ct. 673,
Respondent Gotamco appealed the Commissioner’s decision 39 Law. Ed. 759.) The contractor’s tax is of course payable
to the Court of Tax Appeals, which after trial rendered a by the contractor but in the last analysis it is the owner of
decision, in favor of Gotamco and reversed the the building that shoulders the burden of the tax because
Commissioner’s decision. The Court of Tax Appeal’s decision the same is shifted by the contractor to the owner as a
is now before us for review on certiorari. matter of self-preservation. Thus, it is an indirect tax. And it
is an indirect tax on the WHO because, although it is payable
In his first assignment of error, petitioner questions the by the petitioner, the latter can shift its burden on the WHO.
entitlement of the WHO to tax exemption, contending that In the last analysis it is the WHO that will pay the tax
the Host Agreement is null and void, not having been ratified indirectly through the contractor and it certainly cannot be
by the Philippine Senate as required by the Constitution. We said that `this tax has no bearing upon the World Health
find no merit in this contention. While treaties are required Organization.’"
to be ratified by the Senate under the Constitution, less
formal types of international agreements may be entered Petitioner claims that under the authority of the Philippine
into by the Chief Executive and become binding without the Acetylene Company versus Commissioner of Internal
concurrence of the legislative body. 1 The Host Agreement Revenue, Et Al., 3 the 3% contractor’s tax falls directly on
comes within the latter category; it is a valid and binding Gotamco and cannot be shifted to the WHO. The Court of
international agreement even without the concurrence of the Tax Appeals, however, held that the said case is not
Philippine Senate. The privileges and immunities granted to controlling in this case, since the Host Agreement specifically
the WHO under the Host Agreement have been recognized exempts the WHO from "indirect taxes." We agree. The
by this Court as legally binding on Philippine authorities. 2 Philippine Acetylene case involved a tax on sales of goods
which under the law had to be paid by the manufacturer or
Petitioner maintains that even assuming that the Host producer; the fact that the manufacturer or producer might
Agreement granting tax exemption to the WHO is valid and have added the amount of the tax to the price of the goods
enforceable, the 3% contractor’s tax assessed on Gotamco is did not make the sales tax "a tax on the purchaser." The
not an "indirect tax" within its purview. Petitioner’s position Court held that the sales tax must be paid by the
is that the contractor’s tax "is in the nature of an excise tax manufacturer or producer even if the sale is made to tax-
which is a charge imposed upon the performance of an act, exempt entities like the National Power Corporation, an
the enjoyment of a privilege or the engaging in an agency of the Philippine Government, and to the Voice of
occupation . . . It is a tax due primarily and directly on the America, an agency of the United States Government.
contractor, not on the owner of the building. Since this tax
has no bearing upon the WHO, it cannot be deemed an The Host Agreement, in specifically exempting the WHO
indirect taxation upon it."
cralaw virtua1aw library from "indirect taxes," contemplates taxes which, although
not imposed upon or paid by the Organization directly, form
We agree with the Court of Tax Appeals in rejecting this part of the price paid or to be paid by it. This is made clear
contention of the petitioner. Said the respondent court:
chanrobles.com:chanrobles.com.ph
chanrobles virtualawlibrary in Section 12 of the Host Agreement which provides: jgc:chanrobles.com.ph
"In context, direct taxes are those that are demanded from "While the Organization will not, as a general rule, in the
the very person who, it is intended or desired, should pay case of minor purchases, claim exemption from excise
them; while indirect taxes are those that are demanded in duties, and from taxes on the sale of movable and
the first instance from one person in the expectation and immovable property which form part of the price to be paid,
intention that he can shift the burden to someone else. nevertheless, when the Organization is making important
purchases for official use of property on which such duties
and taxes have been charged or are chargeable the
Government of the Republic of the Philippines shall make
appropriate administrative arrangements for the remission
or return of the amount of duty or tax." (Emphasis
supplied).
SO ORDERED.
G.R. No. 125704 August 28, 1998 47,312,353.94 11,828,088.48
8,988,362.97 68,128,805.39
PHILEX MINING CORPORATION, petitioner,
vs. ————— ————— —————— ——————
COMMISSIONER OF INTERNAL REVENUE, COURT OF
APPEALS, and THE COURT OF TAX APPEALS, respondents. 1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82
30,887,982.25
P110,677,668.52 as excise tax liability for the period from the 2nd ————— ————— —————— ——————
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest
from August 6, 1994 until fully paid pursuant to Sections 248 and 249 90,325,895.64 22,581,473.91
of the Tax Code of 1977. 10,914,612.97 123,821,982.52 3
The facts show that on August 5, 1992, the BIR sent a letter to Philex ========= ========= =========
asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of =========
1991 as well as the 1st and 2nd quarter of 1992 in the total amount of
P123,821.982.52 computed as follows:
In a letter dated August 20, 1992, Philex protested the demand for
4
payment of the tax liabilities stating that it has pending claims for VAT
PERIOD COVERED BASIC TAX 25% SURCHARGE input credit/refund for the taxes it paid for the years 1989 to 1991 in
INTEREST TOTAL EXCISE the amount of P119,977,037.02 plus interest. Therefore these claims
for tax credit/refund should be applied against the tax liabilities, citing
TAX DUE our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc
Mines, Inc. 5
in Philex's position. Since these pending claims have not yet been
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 established or determined with certainty, it follows that no legal
21,721,845.60 compensation can take place. Hence, the BIR reiterated its demand
that Philex settle the amount plus interest within 30 days from the
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 receipt of the letter.
26,889,937.88
In view of the BIR's denial of the offsetting of Philex's claim for VAT
————— ————— —————— —————— input credit/refund against its excise tax obligation, Philex raised the
issue to the Court of Tax Appeals on November 6, 1992. In the 7
WHEREFORE, the appeal by way of petition for
course of the proceedings, the BIR issued Tax Credit Certificate SN review is hereby DISMISSED and the decision dated
001795 in the amount of P13,144,313.88 which, applied to the total March 16, 1995 is AFFIRMED.
tax liabilities of Philex of P123,821,982.52; effectively lowered the
latter's tax obligation to P110,677,688.52. Philex filed a motion for reconsideration which was, nevertheless,
denied in a Resolution dated July 11, 1996. 13
Despite the reduction of its tax liabilities, the CTA still ordered Philex
to pay the remaining balance of P110,677,688.52 plus interest, However, a few days after the denial of its motion for reconsideration,
elucidating its reason, to wit: Philex was able to obtain its VAT input credit/refund not only for the
taxable year 1989 to 1991 but also for 1992 and 1994, computed as
Thus, for legal compensation to take place, both follows:
14
Moreover, the Court of Tax Appeals ruled that "taxes cannot be 1989 007732 11 July 1996 P37,322,799.19
subject to set-off on compensation since claim for taxes is not a debt
or contract." The dispositive portion of the CTA decision provides:
9 10 1990-1991 007751 16 July 1996 P84,662,787.46
In all the foregoing, this Petition for Review is hereby 1992 (1st-3rd Quarter) 007755 23 July 1996
DENIED for lack of merit and Petitioner is hereby P36,501,147.95
ORDERED to PAY the Respondent the amount of
P110,677,668.52 representing excise tax liability for In view of the grant of its VAT input credit/refund, Philex now
the period from the 2nd quarter of 1991 to the 2nd contends that the same should, ipso jure, off-set its excise tax
quarter of 1992 plus 20% annual interest from August liabilities since both had already become "due and demandable, as
15
6, 1994 until fully paid pursuant to Section 248 and well as fully liquidated;" hence, legal compensation can properly
16
Aggrieved with the decision, Philex appealed the case before the We see no merit in this contention.
Court of Appeals docketed as CA-GR. CV No. 36975. Nonetheless,
11
on April 8, 1996, the Court of Appeals a Affirmed the Court of Tax In several instances prior to the instant case, we have already made
Appeals observation. The pertinent portion of which reads: 12
the pronouncement that taxes cannot be subject to compensation for
the simple reason that the government and the taxpayer are not
creditors and debtors of each other. There is a material distinction
17
Despite the foregoing rulings clearly adverse to Philex's position, it
between a tax and debt. Debts are due to the Government in its asserts that the imposition of surcharge and interest for the non-
corporate capacity, while taxes are due to the Government in its payment of the excise taxes within the time prescribed was
sovereign capacity. We find no cogent reason to deviate from the
18
unjustified. Philex posits the theory that it had no obligation to pay the
aforementioned distinction. excise tax liabilities within the prescribed period since, after all, it still
has pending claims for VAT input credit/refund with BIR. 23
setting of taxes against the claims that the taxpayer would render ineffective our tax collection system. Too simplistic, it
may have against the government. A person cannot finds no support in law or in jurisprudence.
refuse to pay a tax on the ground that the government
owes him an amount equal to or greater than the tax To be sure, we cannot allow Philex to refuse the payment of its tax
being collected. The collection of a tax cannot await liabilities on the ground that it has a pending tax claim for refund or
the results of a lawsuit against the government. credit against the government which has not yet been granted. It
must be noted that a distinguishing feature of a tax is that it is
The ruling in Francia has been applied to the subsequent case compulsory rather than a matter of bargain. Hence, a tax does not
25
that: the payment of taxes by raising the defense that it still has a pending
claim for refund or credit, this would adversely affect the government
. . . a taxpayer may not offset taxes due from the revenue system. A taxpayer cannot refuse to pay his taxes when they
claims that he may have against the government. fall due simply because he has a claim against the government or
Taxes cannot be the subject of compensation that the collection of the tax is contingent on the result of the lawsuit it
because the government and taxpayer are not filed against the government. Moreover, Philex's theory that would
27
mutually creditors and debtors of each other and a automatically apply its VAT input credit/refund against its tax liabilities
claim for taxes is not such a debt, demand, contract can easily give rise to confusion and abuse, depriving the
or judgment as is allowed to be set-off. government of authority over the manner by which taxpayers credit
and offset their tax liabilities.
Further, Philex's reliance on our holding in Commissioner of Internal
Revenue v. Itogon-Suyoc Mines Inc., wherein we ruled that a pending Corollarily, the fact that Philex has pending claims for VAT input
refund may be set off against an existing tax liability even though the claim/refund with the government is immaterial for the imposition of
refund has not yet been approved by the Commissioner, is no 21 charges and penalties prescribed under Section 248 and 249 of the
longer without any support in statutory law. Tax Code of 1977. The payment of the surcharge is mandatory and
the BIR is not vested with any authority to waive the collection
thereof. The same cannot be condoned for flimsy reasons, similar
28 29
omitted. Accordingly,
22
the doctrine enunciated in Itogon- National Internal Revenue Code of 1977, which requires the refund of
Suyoc cannot be invoked by Philex. input taxes within 60 days, when it took five years for the latter to
31
the taxpayer from the BIR in the latter's discharge of its function. As
(c) Wilfully neglecting to give receipts, as by law
aptly held in Roxas v. Court of Tax Appeals: 36
uniformly, lest the tax collector kill the "hen that lays
uncertain terms must we stress that every public employee or servant
the golden egg" And, in order to maintain the general
must strive to render service to the people with utmost diligence and
public's trust and confidence in the Government this
efficiency. Insolence and delay have no place in government service.
power must be used justly and not treacherously.
The BIR, being the government collecting arm, must and should do
no less. It simply cannot be apathetic and laggard in rendering
Despite our concern with the lethargic manner by which the BIR service to the taxpayer if it wishes to remain true to its mission of
handled Philex's tax claim, it is a settled rule that in the performance hastening the country's development. We take judicial notice of the
of governmental function, the State is not bound by the neglect of its taxpayer's generally negative perception towards the BIR; hence, it is
agents and officers. Nowhere is this more true than in the field of up to the latter to prove its detractors wrong.
taxation. Again, while we understand Philex's predicament, it must
37
be stressed that the same is not a valid reason for the non-payment
In sum, while we can never condone the BIR's apparent callousness
of its tax liabilities.
in performing its duties, still, the same cannot justify Philex's non-
payment of its tax liabilities. The adage "no one should take the law
To be sure, this is not to state that the taxpayer is devoid of remedy into his own hands" should have guided Philex's action.
against public servants or employees, especially BIR examiners who,
in investigating tax claims are seen to drag their feet needlessly. First,
WHEREFORE, in view of the foregoing, the instant petition is hereby
if the BIR takes time in acting upon the taxpayer's claim for refund,
DISMISSED. The assailed decision of the Court of Appeals dated
the latter can seek judicial remedy before the Court of Tax Appeals in
April 8, 1996 is hereby AFFIRMED.
the manner prescribed by law. Second, if the inaction can be
38