Gerard Micael R.

Oro
Taxation Law 1–A
Judge Gil Bollozos

CASES
1. Requirement of due process of law

a) Due Process Clause

- Chamber of Real Estate and Builders Associations, Inc. vs. The Hon. Executive

Secretary Alberto Romulo, G.R. No. 160756, March 9, 2010

CREBA assailed the levying of the minimum corporate income tax or MCIT, citing it to be

unconstitutional as it is violative of the due process clause “because it levies income tax even if

there is no realized gain.” The Court held that the MCIT was not violative of due process. In fact,

the MCIT “only considers the cost of goods sold and other direct expenses; other major

expenditures, such as administrative and interest expenses which are equally necessary to

produce gross income, were not taken into account.” The power to tax is plenary and unlimited,

and may only be invoked to invalidate, in appropriate cases, a revenue measure that is

confiscatory of property. There must be factual foundation to the allegation of due process

violation, and not based on the mere allegation of the taxpayer. The petition is dismissed.

1. Requirement of equal protection of the laws

a) Equal Protection Clause

- Sison, Jr. vs. Ancheta, G.R. No. L-59431, July 25,1984

Will imposing higher tax rates on the income of professionals discriminatory and

violative against the equal protection and due process clauses of the Constitution? The

Supreme Court ruled that there was insufficient proof to conclude that the allegations

were violative of the allegations cited by petitioner, and the presumption of the validity of

the tax law must prevail. The taxing power has the authority to make reasonable and
 natural classifications for purposes of taxation, and that taxpayers may be classified into

varying categories, such as recipients of compensation income as against professionals.

2. Requirement of uniformity and equity in taxation

a) Progressive System of Taxation

- British American Tobacco vs. Camacho, 585 SCRA 36

The petitioner, in a motion for reconsideration, argued that classification freeze provision in the

assailed law was a regressive and inequitable tax, as it does not take into consideration the

person’s ability to pay, and should be held unconstitutional because of its regressive character.

But the Court held that the Constitution does not prohibit the imposition of indirect taxes but

merely provides that Congress shall evolve a progressive system of taxation. According to the

Court, the Constitutional provision on a “progressive system of taxation” implored by the

petitioners did not provide a judicially enforceable right but was rather a moral incentive to

legislation directing Congress to give priority in addressing the social, economic, and political

inequalities when exercising its power. Seeing no merit in the arguments presented, the Court

denied the motion for reconsideration.

3. Prohibition against imprisonment for non-payment of poll tax

a) Non-Imprisonment for Non-Payment of Poll Tax

- Republic vs. Patanao, G.R. No. L-22356, July 21, 1967

Defendant Pedro Panatao failed to file income tax returns for a couple of years, and although he

filed income tax returns for a number of years, the same were false and fraudulent. He was

acquitted from criminal cases, and sought to have the action against him for the payment of

taxes be dismissed. He submits that the action against him is barred by prior judgment due to

his acquittal. The Court ruled that the acquittal of Panatao from the criminal case cannot
discharge him from his duty to pay the taxes, and his obligation cannot be evaded. Furthermore,

the plaintiff-appellant’s action initiated against the defendant’s fraud has not prescribed because

the fraud committed by the defendant was only discovered at a much later time, and the case

was remanded to the lower court.

Prohibition against impairment of obligation of contracts

a) Non-Impairment Clause

- Mactan Cebu International Airport vs. Marcos, 261 SCRA 667

Mactan Cebu International Airport was created through RA 6958 which included a tax

exemptions clause in Section 14 of the said law. The City of Cebu demanded that MCIA pay

realty taxes on several parcels of land belonging to it, citing that it had the power to tax MCIA as

it was not a government instrumentality, but a government-owned corporation performing

proprietary functions. The RTC of Cebu City ruled that the City of Cebu had the power to levy

realty taxes on MCIA considering that it was given the power to do so by the Local Government

Code of 1991. The tax exemption granted to MCIA through Section 14 was withdrawn by the

taxing authority when Congress allowed local government units specific powers of taxation. The

only exception to this rule is where the exemption was granted to private parties based on

material consideration of a mutual nature, which then becomes contractual and is thus covered

by the non-impairment claim of the Constitution. In this case MCIA’s petition was denied and the

decision of the RTC of Cebu was affirmed.

People vs. Caguioa, G.R. No. 168584, October 15, 2007

An RTC Judge issued an injunction to enforce RA 9334 on items in the Subic special economic

zone imposing customs duties on alcohol and tobacco products. Petitioners insist that the

injunction on the products in question were not applicable to the products brought into the Subic

special economic zone by virtue of it being granted the exemption from national and local taxes.

It was determined however that the law sought to be enforced exhibited the Congressional

intent to withdraw tax-exemption privileges on alcohol and tobacco products even in the special
economic zones. The non-impairment clause of the Constitution cannot be invoked in support of

the Certificates of Registration and Tax Exemption, because these were not to be viewed in the

same way as contracts. The Court considered them as licenses, and may be given on certain

conditions or revoked by the grantor at their pleasure.

4. Prohibition against infringement of religious freedom

a) Religious Freedom

- American Bible Society vs. City of Manila, G.R. No. L-9637, April 30, 1957

Municipal tax was levied on the American Bible Society’s distribution as well as the sale of

bibles. Should it be considered as violative of the society’s religious freedom? The Supreme

Court ruled that the right to inform and communicate one’s religious beliefs is necessarily

included in the right to religious freedom, and the distribution and selling of bibles is purely a

religious act. Therefore, the municipal ordinances are not applicable to the Society.

5. Prohibition against appropriation for religious purposes

a. Aglipay vs. Ruiz, G.R. No. L-45459, March 13, 1937

Gregorio Aglipay sought the issuance of a writ of prohibition to prevent the respondent Director

of Posts from issuing and selling postage stamps commemorative of the Thirty-third Eucharistic

Congress, as it was violative of the constitutional prohibition against the use of public money or

property appropriated in favor of any sect or church. The Act cited by the Director of Posts to

have been the source of public funds for the printing of the postage stamps in question were

determined to not have been inspired by any sectarian feeling to favor a particular church or

religious denomination, and neither were the stamps issued and sold for the benefit of the

Roman Catholic Church. The money derived from the sale of the stamps given to the Roman

Catholic Church, and therefore seeing no violation to the cited constitutional prohibition by the

petitioner, the Court denied the writ of prohibition that was sought.

Prohibition against taxation of religious charitable, and educational entities, etc.

a) Tax Exemption of Religious, Charitable, and Educational Entities
 - Abra Valley College, Inc. vs. Aquino, G.R. No. L-39086, June 15, 1988

Upon renting out a portion of its building to a corporation, the municipal and provincial

treasurers served several notices for the alleged failure of the College to pay real estate taxes

and penalties. The school filed a suit insisting that it was exempt from paying taxes. It was held

that the lease could not be considered incidental to educational purposes, and may be properly

be subject to tax.

- Lung Center of the Philippines vs. Quezon City, G.R. No. 144104, June 29, 2000

Petitioner’s properties were assessed by the City Assessor of Quezon City for real property

taxes. It insists that as a charitable institution it is exempt from paying real property taxes. The

Supreme Court held that while petitioner is a charitable institution, real property leased to

private entities not directly and exclusively used for charitable purposes are not exempt from

real property tax. Only those occupied by the hospital and used for patients are tax-exempt.

CIR vs. De La Salle University, G.R. No. 196596, 198841, & 198941, November 9, 2016

BIR found DLSU to have been deficient in the payment of income taxes on

restaurants/canteens and bookstores operating in its campus and other business taxes. As a non-

stock, non-profit educational institution DLSU insisted it was exempt from taxes and duties provided

for by the Constitution. The Court ruled that the tax exemption granted by the Constitution to non-

stock, non-profit educational institutions is conditioned only on the actual, direct and exclusive

use of their assets, revenues and income for educational purposes, and found that a portion of

DLSU’s income did not fall within this categorization and was therefore taxable. DLSU was

ordered to pay the reduced amount of taxable income which was assessed.

- CIR vs. St. Paul College, G.R. No. 215383, March 8, 2017

The Commissioner on Internal Revenue issued a memorandum providing guidelines on the

tax exemption rulings of non-stock, non-profit corporations and associations which St. Paul
College sought to have declared unconstitutional for the reason that it provides prerequisites to

the enjoyment of tax exemptions of non-stock, non profit organizations. The CIR sought to have

the court resolve the question on whether or not the said memorandum imposed a prerequisite

before a non-stock, non-profit organization can avail of tax exemption, as it was deemed

unconstitutional by the lower court. Later, a subsequent memorandum from the CIR clarified that

a non-stock, non-profit organization are excluded from the questioned memorandum, and the

RTC decision no longer stands. The issue being moot, the petition was denied.

- CIR vs. St. Luke, G.R. No. 203514, February 13, 2017

St. Luke’s Medical Center was found by the BIR to have been deficient in their income

tax. Claiming it was a non-profit, non-stock charitable organization, SLMC insisted that it is

exempt from paying the deficient income tax. In a previous ruling, the Court found that SLMC

was not entitled to tax exemption and was ordered to pay its tax dues which it complied with.

The petition in this case was dismissed by virtue of the issue regarding SLMC’s tax exemption

being settled previously following payment made by SLMC in 2013. The Court reiterated that

SLMC had the obligation to pay income taxes insofar as its revenues from paying patients are

concerned.

MODULE 4 - Situs of Taxation and Double Taxation

1. Meaning of doubles taxation

a) Double Taxation

- City of Manila vs. Cosmos, G.R. No. 196681, June 27, 2018

Cosmos alleged that the collection of local business tax under Section 21 of the Revenue Code

of Manila together with Section 14 of the same code constituted double taxation. The Court held

that the assessment made on Cosmos using the two above-mentioned sections did in fact

constitute double taxation for the reasons that the Court found both sections were being

imposed on (1) the same subject matter – privilege of doing business in Manila, (2) the same

purpose – revenue, (3) made by the same taxing authority which was the City of Manila, (4)
within the same taxing jurisdiction, (5) for the same taxing period, and were (6) of the same kind

or character which was a local business tax imposed on gross sales or receipts of the business.

The petition made by the City of Manila was denied.