tax 1 - 1st hw digests

7/27/2019 Tax 1 - 1st HW Digests

1/8

Commissioner vs. Algue

cts:he Philippine Sugar Estate Development Company (PSEDC)ppointed Algue Inc. as its agent, authorizing it to sell its land,ctories, and oil manufacturing process. The Vegetable Oilvestment Corporation (VOICP) purchased PSEDC properties. Fore sale, Algue received a commission of P125,000 and it was fromis commission that it paid Guevara, et. al. organizers of theOICP, P75,000 in promotional fees. In 1965, Algue received ansessment from the Commissioner of Internal Revenue in the

mount of P83,183.85 as delinquency income tax for years 1958nd 1959 Algue filed a protest or request for reconsideration whichas not acted upon by the Bureau of Internal Revenue(BIR). . Theetitioner claims that these payments are fictitious because most

the payees are members of the same family in control of Algue.short, the petitioner suggests a tax dodge, an attempt to evadelegitimate assessment by involving an imaginary deduction.Theunsel for Algue had to accept the warrant of distraint and levy.gue, however, filed a petition for review with the Court of Taxppeals.

sue:hether or not the Collector of Internal Revenue correctlysallowed the P75,000.00 deduction claimed by privatespondent Algue as legitimate business expenses in its incomex returns.

eld:

o.

e agree with the respondent court that the amount of theomotional fees was not excessive. The total commission paid bye Philippine Sugar Estate Development Co. to the privatespondent was P125,000.00. After deducting the said fees, Alguell had a balance of P50,000.00 as clear profit from the

ansaction. The amount of P75,000.00 was 60% of the totalmmission. This was a reasonable proportion, considering that it

as the payees who did practically everything, from the formationthe Vegetable Oil Investment Corporation to the actual purchase

y it of the Sugar Estate properties. This finding of the respondenturt is in accord with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.--Incomputing net income there shall be allowed asdeductions

(a) Expenses:(1) In general.--All the ordinary and necessaryexpenses paid or incurred during the taxableyear in carrying on any trade or business,including a reasonable allowance for salaries orother compensation for personal services actuallyrendered; ... 22

nd Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary expensespaid or incurred in carrying on any trade orbusiness may be included a reasonableallowance for salaries or other compensation forpersonal services actually rendered. The test ofdeductibility in the case of compensation

payments is whether they are reasonable andare, in fact, payments purely for service. This testand deductibility in the case of compensationpayments is whether they are reasonable andare, in fact, payments purely for service. This testand its practical application may be furtherstated and illustrated as follows:

Any amount paid in the form of compensation,but not in fact as the purchase price of services,is not deductible. (a) An ostensible salary paid bya corporation may be a distribution of a dividendon stock. This is likely to occur in the case of acorporation having few stockholders, Practicallyall of whom draw salaries. If in such a case the

salaries are in excess of those ordinarily paidsimilar services, and the excessive paymentcorrespond or bear a close relationship to thstockholdings of the officers of employees, itwould seem likely that the salaries are not pwholly for services rendered, but the excessipayments are a distribution of earnings uponstock. . . . (Promulgated Feb. 11, 1931, 30 O.No. 18, 325.)

The Solicitor General is correct when he says that the burden the taxpayer to prove the validity of the claimed deduction. In present case, however, we find that the onus has been discharsatisfactorily. The private respondent has proved that the paym

of the fees was necessary and reasonable in the light of the effexerted by the payees in inducing investors and prominentbusinessmen to venture in an experimental enterprise and invthemselves in a new business requiring millions of pesos. This no mean feat and should be, as it was, sufficiently recompense

2. PAL v. EDUG.R. No. L- 41383 August 15, 1988

Facts:PAL is a corporation organized and existing under the

of the Philippines and engaged in the air transportation busineunder a legislative franchise, Act No. 42739, as amended byRepublic Act Nos. 25 and 269. Under its franchise, PAL is exemfrom the payment of taxes. Sometime in 1971, however,Commissioner Romeo F. Elevate issued a regulation requiring

tax exempt entities, among them PAL to pay motor vehicleregistration fees pursuant to Section 8, Republic Act No. 4136,otherwise known as the Land Transportation and Traffic Code.Because of Elevates refusal to register PALs motor vehicles uthe amounts imposed were settled, the latter paid the amountprotest. PAL then requested for a refund of the amount it paid,invoking the ruling in Calalang v. Lorenzo where it was held thmotor vehicle registration fees are in reality taxes from thepayment of which PAL is exempt by virtue of its legislativefranchise. Elevate, however, denied the request for refund bashis action on the decision in Republic v. Philippine Rabbit BusLines, Inc. to the effect that motor vehicle registration fees aretaxes, but regulatory fees imposed as an incident of the exercithe police power of the state. They contended that while Act 4exempts PAL from the payment of any tax except two per centits gross revenue or earnings, it does not exempt the latter fro

paying regulatory fees, such as motor vehicle registration fees

Issue:WON motor vehicle registration fees should be consid

as taxes or regulatory fees.

Held:It depends on the purpose of the fees. The fees may

properly be regarded as taxes even though they also serve as instrument of regulation. These exactions are sometimes calleregulatory taxes for indeed, taxation may be made the implemof the state's police power (Lutz v. Araneta, 98 Phil. 148). If thepurpose is primarily revenue, or if revenue is, at least, one of treal and substantial purposes, then the exaction is properly caa tax. Such is the case of motor vehicle registration fees. It ispatent therefrom that the legislators had in mind a regulatory as the law refers to the imposition on the registration, operatioownership of a motor vehicle as a "tax or fee." Though nowherRep. Act 4136 does the law specifically state that the impositioa tax, Section 591-593 speaks of "taxes" or fees ... for theregistration or operation or on the ownership of any motor vehor for the exercise of the profession of chauffeur ..." making thintent to impose a tax more apparent. Simply put, if the exactiunder Rep. Act 4136 were merely a regulatory fee, the impositin Rep. Act 5448 need not be an "additional" tax. Rep. Act 413also speaks of other "fees," such as the special permit fees forcertain types of motor vehicles (Sec. 10) and additional fees fochange of registration (Sec. 11). These are not to be understootaxes because such fees are very minimal to be revenue-raisin


2/8

hus, they are not mentioned by Sec. 591-593 of the Code as taxese the motor vehicle registration fee and chauffers' license fee.

uch fees are to go into the expenditures of the Landansportation Commission. It is quite apparent that vehiclegistration fees were originally simple exceptional intended onlyr rigidly purposes in the exercise of the State's police powers.ver the years, however, as vehicular traffic exploded in numbernd motor vehicles became absolute necessities without whichodem life as we know it would stand still, Congress found thegistration of vehicles a very convenient way of raising much

eeded revenues. Without changing the earlier deputy ofgistration payments as "fees," their nature has become that ofaxes."

G.R. Nos. L-28508-9 July 7, 1989

SSO STANDARD EASTERN, INC., (formerly, Standard-acuum Oil Company), petitioner,

.

HE COMMISSIONER OF INTERNAL REVENUE, respondent.

cts:he CTA denied ESSOs claims for refund of overpaid income taxes

P102,246.00 for 1959 and P434,234.93 for 1960 in CTA Caseso. 1251 and 1558 respectively.CTA Case No. 1251, petitioner ESSO deducted from its gross

come for 1959, as part of its ordinary and necessary businessxpenses, the amount it had spent for drilling and exploration of its

etroleum concessions. This claim wasdisallowed by thespondent Commissioner of Internal Revenue on the ground thate expenses should be capitalizedand might be written off as ass only when a "dry hole" should result. ESSO then filed anmended return where itasked for the refund of P323,279.00 byason of its abandonment as dry holes of several of its oil wells

nd claimed asordinary and necessary expenses the margin feesaid to the Central Bank on profit remittances to its New Yorkeadoffice.CTA Case No. 1558, the CR assessed ESSO a deficiency incomex for the year 1960 arising from the disallowanceof the margines paid by ESSO to the Central Bank on its profit remittances to New York head office. ESSOsettled the same by applying as taxedit its overpayment on its income tax in 1959 and paying underotest theremaining amount.

he CIR denied the claims for refund of the overpayment of its

959 and 1960 income taxes, holding that the marginfees paid toe Central Bank could not be considered taxes or allowed aseductible business expenses. ESSO appealedto the CTA andught the refund, contending that the margin fees were

eductible from gross income either as a tax or as an ordinary andecessary business expense, which was also denied.

sue: WON the margin fees were deductible from gross income astax or an ordinary and necessary business expense

eld:1. The margin fee was imposed by the State in the exercise of police power and not the power of taxation. There are at least

wo cases where we have held that a margin fee is not a tax but anxaction designed to curb the excessive demands upon ourternational reserve. The Court stated through Justice Jose P.engzon:

A margin levy on foreign exchange is a form of exchangecontrol or restriction designed to discourage imports andencourage exports, and ultimately, 'curtail any excessivedemand upon the international reserve' in order tostabilize the currency. By its nature, the margin levy ispart of the rate of exchange as fixed by the government.

oreover, it has been settled that a tax is levied to providevenue for government operations, while the proceeds of theargin fee are applied to strengthen our country's internationalserves. Earlier, in Chamber of Agriculture and Natural Resourcesthe Philippines v. Central Bank, the same idea was expressed,ough in connection with a different levy, through Justice J.B.L.eyes:

Neither do we find merit in the argument that the 20retention of exporter's foreign exchange constitutes aexport tax. A tax is a levy for the purpose of providingrevenue for government operations, while the proceethe 20% retention, as we have seen, are applied tostrengthen the Central Bank's international reserve.

2. The margin fees are not ordinary and necessary businessexpenses. Petitioner contends that such remittance was anexpenditure necessary and proper for the conduct of its corpoaffairs. The Court cited Atlas Consolidated Mining and DevelopCorporation v. Commissioner of Internal Revenue, where it laiddown the rules on the deductibility of business expenses, thus

the law allowing expenses as deduction from grossincome for purposes of the income tax is Section 30(aof the National Internal Revenue which allows a deducof 'all the ordinary and necessary expenses paid orincurred during the taxable year in carrying on any traor business. 'An item of expenditure, in order to bedeductible under this section of the statute, must fallsquarely within its language. We come, then, to thestatutory test of deductibility where it is axiomatic thabe deductible as a business expense, three conditionsimposed, namely: (1) the expense must be ordinary anecessary, (2) it must be paid or incurred within thetaxable year, and (3) it must be paid or incurred incarrying on a trade or business. In addition, not only mthe taxpayer meet the business test, he must

substantially prove by evidence or records the deductclaimed under the law, otherwise, the same will bedisallowed.

Ordinarily, an expense will be considered 'necessary'where the expenditure is appropriate andhelpful in thdevelopment of the taxpayer's business. It is 'ordinarwhen it connotes a paymentwhich is normal in relatiothe business of the taxpayer and the surroundingcircumstancesAssuming that the expenditure is ordand necessary in the operation of the taxpayer'sbusiness,the answer to the question as to whether theexpenditure is an allowable deduction as abusinessexpense must be determined from the naturethe expenditure itself, which in turn depends on theexand permanency of the work accomplished by theexpenditure.

The Court held that the CTA was correct in saying that the mafees are not expenses in connection with the production or earof petitioner's incomes in the Philippines. Since the margin feequestion were incurred for the remittance of funds to petitioneHead Office in New York, which is a separate and distinct incomtaxpayer from the branch in the Philippines, for its disposal abrit can never be said therefore that the margin fees wereappropriate and helpful in the development of petitioner's busin the Philippines exclusively or were incurred for purposes proto the conduct of the affairs of petitioner's branch in the Philippexclusively or for the purpose of realizing a profit or of minimizloss in the Philippines exclusively. ESSO has not shown that thremittance to the head office of part of its profits was made infurtherance of its own trade or business.

It is clear that ESSO, having assumed an expense properlyattributable to its head office, cannot now claim this as an ordiand necessary expense paid or incurred in carrying on its owntrade or business.

4. Physical Therapy vs. Municipal Board of Manila [G.R. No. L-10448. August 30, 1957.]

5. G.R. No. L-17725 February 28, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,


3/8

.

AMBULAO LUMBER COMPANY, ET AL., defendants-ppellants.

ACTS:

appears that defendant Mambulao Lumber Company paid to theepublic of the Philippines a total amount P9,127.50 P8,200.52 foreforestation charges' from 1947 to 1956. These reforestationere paid to the plaintiff in pursuance of Section 1 of Republic Act15 which provides that there shall be collected, in addition to the

gular forest charges provided under Section 264 ofommonwealth Act 466 known as the National Internal Revenueode, the amount of P0.50 on each cubic meter of timber... cut outnd removed from any public forest for commercial purposes. Themount collected shall be expended by the director of forestry,th the approval of the secretary of agriculture and commerce, forforestation and afforestation of watersheds, denuded areas ...

nd other public forest lands, which upon investigation, are foundeeding reforestation or afforestation ....It is now the contention ofe defendant Lumber Company that since the Republic of the

hilippines has not made use of those reforestation chargesollected from it for reforesting the denuded area of the landvered by its license, the Republic of the Philippines should refundid amount, or, if it cannot be refunded, at least it should be

ompensated with what Mambulao Lumber Company owed theepublic of the Philippines for reforestation charges.

SUE:

hether the sum of P9,127.50 paid by defendant-appellantmpany to plaintiff-appellee as reforestation charges may be setf or applied to the payment of the sum due and owing from

ppellant to appellee arguing that said sum not having been usedthe reforestation of the area covered by its license, the same isfundable to it or may be applied in compensation.

ELD:

O.

ection 1 of Republic Act No. 115, provides that the amountollected as reforestation charges from a timber licenses oroncessionaire shall constitute a fund to be known as the

eforestation Fund, and that the same shall be expended by therector of Forestry, with the approval of the Secretary ofgriculture and Natural Resources for the reforestation orforestation, among others, of denuded areas which, uponvestigation, are found to be needing reforestation orforestation. The conclusion seems to be that the amount paid bylicensee as reforestation charges is in the nature of a tax whichrms a part of the Reforestation Fund, payable by him irrespectivewhether the area covered by his license is reforested or not.

aid fund, as the law expressly provides, shall be expended inrrying out the purposes provided for thereunder, namely, theforestation or afforestation, among others, of denuded areas

eeding reforestation or afforestation.

so, the principle of compensation in Article 1278 of the new Civilode is not applicable because appellant and appellee are notutually creditors and debtors of each other.With respect to the

rest charges which the defendant has paid to the government,ey are in the coffers of the government as taxes collected.

claim for taxes is not such a debt, demand, contract or judgment is allowed to be set-off under the statutes of set-off, which are

onstrued uniformly, in the light of public policy, to exclude themedy in an action or any indebtedness of the state orunicipality to one who is liable to the state or municipality forxes. Neither are they a proper subject of recoupment since they

o not arise out of the contract or transaction sued on.

he general rule, based on grounds of public policy is well-settledat no set-off is admissible against demands for taxes levied for

eneral or local governmental purposes. The reason on which theeneral rule is based, is that taxes are not in the nature of

contracts between the party and party but grow out of a dutand are the positive acts of the government, to the makingenforcing of which, the personal consent of individual taxpaynot required. ... If the taxpayer can properly refuse to pay hiwhen called upon by the Collector, because he has a claim agthe governmental body which is not included in the tax levyplain that some legitimate and necessary expenditure mucurtailed. If the taxpayer's claim is disputed, the collection otax must await and abide the result of a lawsuit, and meanthe financial affairs of the government will be thrown into gconfusion.

6. FRANCIA VS. IAC & FERNANDEZGutierrez, Jr., J.:

Facts: Engracio Francia is the registered owner of a residentand a two-story house built upon it situated Pasay City, MManila covered by Transfer Certificate of Title in the RegistDeeds of Pasay City. On October 15, 1977, a 125 square mportion of Francia's property was expropriated by the Repubthe Philippines for the sum of P4,116.00 representingestimated amount equivalent to the assessed value ofaforesaid portion. Since 1963 up to 1977 inclusive, Francia failpay his real estate taxes. Thus, on December 5, 1977, his propwas sold at public auction. Francia was not present duringauction sale since he was in Iligan City at that time helpinuncle ship bananas. Francia received a notice of hearing fileHo Fernandez, seeking the cancellation of TCT No. 4739 (37and the issuance in his name of a new certificate of title. Uverification through his lawyer, Francia discovered that a Finaof Sale had been issued in favor of Fernandez.chanroblesvirtualawlibrary

On March 20, 1979, Francia filed a complaint to annul the ausale. He later amended his complaint on January 24, 1980lower court rendered a decision in favor of Ho FernandezAppellate Court affirmed the decision of the lower court in hence, this petition for review. Francia contends that hisdelinquency of P2,400.00 has been extinguished by compensation. He claims that the government owed him P4,11when a portion of his land was expropriated on October 15, 1Hence, his tax obligation had been set-off by operation of law October 15, 1977.

Issue: Whether or not Francias tax delinquency can be set-o

legal compensation.

Ruling: There is no legal basis for the contention. By compensation, obligations of persons, who in their own righreciprocally debtors and creditors of each other, are extingui(Art. 1278, Civil Code). The circumstances of the case dosatisfy the requirements provided by Article 1279. We consistently ruled that there can be no offsetting of taxes agthe claims that the taxpayer may have against the governmeperson cannot refuse to pay a tax on the ground thatgovernment owes him an amount equal to or greater than thbeing collected.

The collection of a tax cannot await the results of a lawsuit agthe government. In the case of Republic v. Mambulao Lumbe(4 SCRA 622), this Court ruled that Internal Revenue Taxes ca

be the subject of set-off or compensation. We stated that:A claim for taxes is not such a debt, demand, contract or judgas is allowed to be set-off under the statutes of set-off, whicconstrued uniformly, in the light of public policy, to excluderemedy in an action or any indebtedness of the statmunicipality to one who is liable to the state or municipalittaxes. Neither are they a proper subject of recoupment since do not arise out of the contract or transaction sued on.general rule based on grounds of public policy is well settledno set-off is admissible against demands for taxes leviedgeneral or local governmental purposes. The reason on whichgeneral rule is based, is that taxes are not in the natucontracts between the party and party but grow out of duty toare the positive acts of the government to the making


4/8

nforcing of which, the personal consent of individual taxpayers isot required.

DOMINGO vs. GARLITOSACTS

etitioner is the Commissioner of Internal Revenue. In this petitionr certiorari and mandamus, he seeks for an order in this Courtrecting the respondent Hon. Lorenzo Garlitos, the judge of CFI

eyte, to execute the judgment in favor of the Government againste estate of Walter Scott Price for internal revenue taxes.

a special proceedings entitled "In the matter of the Intestatetate of the Late Walter Scott Price", the SC, in Domingo vs. Hon.

oscoso, declared as final and executory the order for theayment by the estate of Price estate and inheritance taxes,arges and penalties, amounting to P40,058.55.

order to enforce the claims, the fiscal presented a petition to theurt below for the execution of the judgment. This petition was,

owever, denied by the respondent judge.

he latter ruled that the execution is not justifiable as theovernment is indebted to the estate under administration in themount of P262,200. Said amount arose from a contract betweenmeon Price, the administratrix of the estate of her late husbandalter Scott Price, and Director Zoilo Castrillo of the Bureau ofnds. Thus, the payment of inheritance taxes in the sum of

40,058.55 due the Collector of Internal Revenue as ordered paidy the SC be deducted from the amount of P262,200.00 due andayable to the Administratrix Simeona Price.

espondent also ordered that the payment of the claim of theollector of Internal Revenue be deferred until the Governmentall have paid its accounts to the administratrix herein amounting P262,200.00. According to him, it is only fair for the

overnment, as a debtor, to its accounts to its citizens-creditorsefore it can insist in the prompt payment of the latter's account to

specially taking into consideration that the amount due to theovernment draws interests while the credit due to the presentate does not accrue any interest.

SUE

ON petitioner, as the Commissioner of Internal Revenue, has theght to execute the judgment for taxes against the estate of theeceased Walter Scott Price. NO.

ELD

he petition to set aside the orders of the court below andr the execution of the claim of the Government againste estate is misplaced.

he ordinary procedure by which to settle claims of indebtednessgainst the estate of a deceased person, as an inheritance tax, isr the claimant to present a claim before the probate court so thatid court may order the administrator to pay the amount thereof.

Aldamiz vs. Judge of the Court of First Instance of Mindoro , weeld that a writ of execution is not the proper procedure allowed bye Rules of Court for the payment of debts and expenses of

dministration. The proper procedure is for the court to order thele of personal estate or the sale or mortgage of real property ofe deceased and all debts or expenses of administrator and withe written notice to all the heirs legatees and devisees residing in

e Philippines, according to Rule 89, section 3, and Rule 90,ction 2. And when sale or mortgage of real estate is to be made,e regulations contained in Rule 90, section 7, should be compliedth.1wph1.t

xecution may issue only where the devisees, legatees or heirsave entered into possession of their respective portions in thetate prior to settlement and payment of the debts and expensesadministration and it is later ascertained that there are such

ebts and expenses to be paid. In such case "the court havingrisdiction of the estate may, by order for that purpose, afterearing, settle the amount of their several liabilities, and order howuch and in what manner each person shall contribute, and maysue execution if circumstances require"

The legal basis for such a procedure is the fact that in the teor intestate proceedings to settle the estate of a deceased pethe properties belonging to the estate are under the jurisdictithe court and such jurisdiction continues until said propertiesbeen distributed among the heirs entitled thereto.

During the pendency of the proceedings all the estain custodia legis and the proper procedure is not to allowsheriff, in case of the court judgment, to seize the properties bask the court for an order to require the administrator to paamount due from the estate and required to be paid.

The claim of the estate against the Government has alrbeen recognized.

Under the above circumstances, both the claim of the Governfor inheritance taxes and the claim of the intestate for serrendered have already become overdue and demandable is wfully liquidated. An amount of P262,200 has already appropriated for the purpose by a corresponding law (Rep. Ac2700).

Compensation, therefore, takes place by operation of laaccordance with the provisions of Articles 1279 and 1290 oCivil Code, and both debts are extinguished to the concuamount. Thus:

ART. 1200. When all the requisites mentioned in a1279 are present, compensation takes effect by operof law, and extinguished both debts to the concuamount, even though the creditors and debtors araware of the compensation.

It is clear, therefore, that the petitioner has no clear rigexecute the judgment for taxes against the estate of the deceWalter Scott Price.

DISPOSITION: The petition is dismissed.

8. Davao Gulf Lumber Corporation vs. Commissioner of IntRevenue, 293 SCRA 76(1998)]FACTS:

Petitioner is a licensed forest concessionaire possessing a TimbLicense Agreement granted by the Ministry of Natural Resourc(now Department of Environment and Natural Resources). FromJuly 1, 1980 to January 31, 1982 petitioner purchased, from vaoil companies, refined and manufactured mineral oils as well a

motor and diesel fuels, which it used exclusively for theexploitation and operation of its forest concession. Said oilcompanies paid the specific taxes imposed, under Sections 15and 1567 of the 1977 National Internal Revenue Code (NIRC), othe sale of said products. Being included in the purchase price the oil products, the specific taxes paid by the oil companies weventually passed on to the user, the petitioner in this case.Petitioner filed before Respondent Commissioner of InternalRevenue (CIR) a claim for refund in the amount of P120,825.11representing 25% of the specific taxes actually paid on the abomentioned fuels and oils that were used by petitioner in itsoperations as forest concessionaire. It is an unquestioned fact petitioner complied with the procedure for refund, including thsubmission of proof of the actual use of the aforementioned oiits forest concession as required by Law. On June 21, 1994, therendered its decision finding petitioner entitled to a partial refuof specific taxes the latter had paid in the reduced amount ofP2,923.15. The CTA ruled that the claim on purchases of lubricoil (from July 1, 1980 to January 19, 1981) and on manufactureoils other than lubricating oils (from July 1, 1980 to January 4,1981) had prescribed. Disallowed on the ground that they wereincluded in the original claim filed before the CIR were the claifor refund on purchases of manufactured oils from January 1, 1to June 30, 1980 and from February 1, 1982 to June 30, 1982. regard to the other purchases, the CTA granted the claim, but computed the refund based on rates deemed paid under RA 14and not on the higher rates actually paid by petitioner under thNIRC.Insisting that the basis for computing the refund should bthe increased rates prescribed by Sections 153 and 156 of theNIRC, petitioner elevated the matter to the Court of Appeals. Anoted earlier, the Court of Appeals affirmed the CTA Decision.


5/8

ence, this petition for review. [Davao Gulf Lumber Corporation vs.ommissioner of Internal Revenue, 293 SCRA 76(1998)]

SUE: Whether or not petitioner is entitled under Republic Act No.435 to the refund of 25% of the amount of specific taxes ittually paid on various refined and manufactured mineral oils andher oil products taxed under Sec. 153 and Sec. 156 of the 1977ec. 142 and Sec. 145 of the 1939) National Internal Revenueode.

ELD: Yes he may claim but he cannot claim on the higher rate. Ax cannot be imposed unless it is supported by the clear and

xpress language of a statute;19 on the other hand, once the tax isnquestionably imposed, [a] claim of exemption from taxayments must be clearly shown and based on language in the lawo plain to be mistaken.20 Since the partial refund authorized

nder Section 5, RA 1435, is in the nature of a tax exemption,21 itust be construed strictissimi juris against the grantee. Hence,

etitioners claim of refund on the basis of the specific taxes ittually paid must expressly be granted in a statute stated in anguage too clear to be mistaken.

e have carefully scrutinized RA 1435 and the subsequentertinent statutes and found no expression of a legislative willuthorizing a refund based on the higher rates claimed byetitioner. The mere fact that the privilege of refund was includedSection 5, and not in Section 1, is insufficient to support

etitioners claim. When the law itself does not explicitly provideat a refund under RA 1435 may be based on higher rates whichere nonexistent at the time of its enactment, this Court cannotesume otherwise. [Davao Gulf Lumber Corporation vs.

ommissioner of Internal Revenue, 293 SCRA 76(1998)]

CALTEX VS. COA

ACTS:

ommission on Audit (COA) sent a letter to Caltex Philippines, Inc.altex) directing the latter to remit to the OPSF its collection,

xcluding that unremitted for the years 1986 and 1988, of the

dditional tax on petroleum products authorized under theoresaid Section 8 of P.D. No. 1956 which as of 31 December987, amounted to 335,037,649.00 and informing it that, pendingch remittance, all of its claims for from the OPSF shall be held in

beyance.

n 9 March 1989, the COA sent another letter to petitionerforming it that partial verification with the OEA showed that theand total of its unremitted collections of the above tax is

1,287,668,820.00, directing it to remit the same, with interest andrcharges thereon,; and directing it to desist from furtherfsetting the taxes collected against outstanding claims in 1989

nd subsequent periods.

etitioner requested the COA for an early release of itsimbursement certificates from the OPSF covering claims with the

ffice of energy Affairs since June 1987 up to March 1989, but theOA denied petitioner's request saying it was bereft of legal basis.altexs omnibus petition for reconsideration as denied.

SUE: Whether or not the amounts due to the OPSF frometitioner may be offset against petitioner's outstanding claimsom said fund

ELD:

No. It is settled that a taxpayer may not offset taxes due from claims that he may have against the government. Taxes cannothe subject of compensation because the government andtaxpayer are not mutually creditors and debtors of each other a claim for taxes is not such a debt, demand, contract or judgmas is allowed to be set-off.

We find no merit in petitioner's contention that the OPSFcontributions are not for a public purpose because they go to aspecial fund of the government. Taxation is no longer envisionas a measure merely to raise revenue to support the existencethe government; taxes may be levied with a regulatory purposprovide means for the rehabilitation and stabilization of athreatened industry which is affected with public interest as towithin the police power of the state.

10. CIR vs. CA, CTA and Young Mens Christian AssociatiGR. No. 124043 / October 14, 1998 / Panganiban, J.

FACTS:

YMCA is a non-stock, non-profit institution, w

conducts various programs and activities thatbeneficial to the public, especially the young pepursuant to its religious, educational and charobjectives.

1980 YMC earned an income of 676, 82from leasing out a portion of its premises to shop owand 44, 259 from parking fees collected from members.

1984 CIR issued an assessment of 415,61

including surcharge and interest, for deficiency intax, deficiency expanded withholding tax on rentalsprofessional fees and deficiency withholding tawages.

YMCA protested the assessment but CIR d

the claim.

YMCA filed a petition for review with CTA.

CTA: Ruling in favor of YMCA. The leasing o

facilities are reasonably incidental and necessary foaccomplishment of the objectives of YMCA.

CA: Ruling in favor of CIR.

YMCA filed a motion for reconsideration

CA: Reversed itself and ruled in favor of YMC

ISSUE: Whether or not the income of YMCA is exempt taxation

HELD: Petition is meritorious.

Relative provision of NIRC: Sec. 27 (g) (h

last paragraph.

Because taxes are the lifeblood of the nation

Court has always applied the doctrine of striinterpretation in construing tax exemptions. A clastatutory exemption from taxation should be maand unmistakable from the language of the law on wit is based. Thus, the claimed exemption "must exprbe granted in a statute stated in a language too clebe mistaken."


6/8

In the instant case, the exemption claimed by the

YMCA is expressly disallowed by the very wording of thelast paragraph of then Section 27 of the NIRC whichmandates that the income of exempt organizations (suchas the YMCA) from any of their properties, real orpersonal, be subject to the tax imposed by the same Code

Verba legis non est recedendum. CA committed

reversible error when it allowed the tax exemptionclaimed by YMCA on income it derived from renting out itsreal property, on the solitary but unconvincing groundthat the said income is not collected for profit but ismerely incidental to its operation. The law does not makea distinction. The rental income is taxable regardless ofwhence such income is derived and how it is used ordisposed of. Where the law does not distinguish, neithershould we.

". . . what is exempted is not the institution

itself . . .; those exempted from real estate taxes arelands, buildings and improvements actually, directly andexclusively used for religious, charitable or educationalpurposes." The exemption created by said provisionpertained only to property taxes. "The tax exemptioncovers property taxes only."

As previously discussed, laws allowing tax

exemption are construed strictissimi juris. Hence, for the

YMCA to be granted the exemption it claims under theaforecited provision, it must prove with substantialevidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) theincome it seeks to be exempted from taxation is usedactually, directly, and exclusively for educationalpurposes.

YMCA is not an educational institution. Under the

Education Act of 1982, such term refers to schools. Theschool system is synonymous with formal education,which "refers to the hierarchically structured andchronologically graded learnings organized and providedby the formal school system and for which certification isrequired in order for the learner to progress through thegrades or move to the higher levels." The Court has

examined the "Amended Articles of Incorporation" and"By-Laws" of the YMCA, but found nothing in them thateven hints that it is a school or an educational institution.

PETITION GRANTED.

1. PASCUAL VS. SEC. OF PUBLIC WORKS ANDOMMUNICATIONS

R. NO. L-10405, DECEMBER 29, 1960, CONCEPCION, J.

ACTS:

etitioner Wenceslao Pascual as Provincial Governor of Rizalstituted an action for declatory relief, with injunction, upon theound that Republic Act No. 920, entitled An Act Appropriatingnds for Public Works contained an item (43[h]) of P85,000.00r the construction, reconstruction, repair, extension, and

mprovement of Pasig feeder road terminals, which do not connectny government property or any important premises to the mainghway. According to petitioner, the Antonio Subdivision (as wellthe lands on which said feeder roads were to be construed)

ere private property of respondent Jose C. Zulueta, who, at theme of the passage and approval of said Act, was a member of theenate of the Philippines. Petitioner prayed, therefore, that thentested item of R.A. No. 920 be declared null and void.

espondents maintained that petitioner could not assail the

appropriation in question because he has not shown that he hpersonal and substantial interest in said Act and that itsenforcement has caused or will cause him a direct injury.

ISSUE(S):

1. Whether or not R.A. No. 920 is unconstitutional

2. Whether or not Pascual has the legal capacity to sue

HELD:

1. Yes. Referring to the P85,000.00 appropriation for the

projected feeder roads in question, the legality thereofdepended upon whether said roads were public or privateproperty when the bill, which, latter on, became Republic A920, was passed by Congress, or, when said bill was approby the President and the disbursement of said sum becameffective, or on June 20, 1953. Inasmuch as the land on whthe projected feeder roads were to be constructed belongethen to respondent Zulueta, the result is that saidappropriation sought a private purpose, and hence, was nand void.

2. Yes. In the determination of the degree of interestessential to give the requisite standing to attack theconstitutionality of a statute, the general rule is that not opersons individually affected, but also taxpayers, havesufficient interest in preventing the illegal expenditure of

moneys raised by taxation and may therefore question theconstitutionality of statutes requiring expenditure of publicmoneys.

12. Mactan Cebu International Airport Authority vs Marcos

Date: September 11, 1996Petitioner: Mactan Cebu InternationaAirport AuthorityRespondents: Hon. Ferdinand Marcos, City ofCebu, et al

Ponente: Davide Jr

Facts: Petitioner was created by virtue of RA6958, mandated t"principally undertake the economical, efficient and effectivecontrol, management and supervision of the Mactan InternatioAirport in the Province of Cebu and the Lahug Airport in Cebu CUnder Section 1: The authority shall be exempt from realty taximposed by the National Government or any of its politicalsubdivisions, agencies and instrumentalities. However, the Offof the Treasurer of Cebu City demanded payment for realty taxon parcels of land belonging to petitioner. Petitioner objectedinvoking its tax exemption. It also asserted that it is aninstrumentality of the government performing governmentalfunctions, citing section 133 of the LGC which puts limitations the taxing powers of LGUs. The city refused insisting that petitis a GOCC performing proprietary functions whose tax exemptwas withdrawn by Sections 193 and 234 of the LGC. Petitioner a declaratory relief before the RTC. The trial court dismissed thpetitioner ruling that the LGC withdrew the tax exemption gran

the GOCCs.

Issue:WON the City of Cebu has the power to impose taxeson petitioner

Held:Yes

Ratio: As a general rule, the power to tax is an incidentof sovereignty and is unlimited in its range, acknowledging in ivery nature no limits, so that security against its abuse is to befound only in the responsibility of the legislature which imposetax on the constituency who are to pay it. Since taxes are whapay for civilized society, or are the lifeblood of the nation, the lfrowns against exemptions from taxation and statutes granting


7/8

x exemptions are thus construed strictissimi juris against thexpayers and liberally in favor of the taxing authority. A claim of

xemption from tax payment must be clearly shown and based onnguage in the law too plain to be mistaken. There can be nouestion that under Section 14 RA 6958 the petitioner is exemptom the payment of realty taxes imposed by the Nationalovernment or any of its political subdivisions, agencies, andstrumentalities. Nevertheless, since taxation is the rulend exemption is the exception, the exemption may thus bethdrawn at the pleasure of the taxing authority. The LGC,

nacted pursuant to Section 3, Article X of the constitutionovides for the exercise by LGUs of their power to tax, the scopeereof or its limitations, and the exemption from taxation.

ection133 of the LGC prescribes the common limitations on thexing powers of LGUs: (o) Taxes, fees or charges of any kind

n the national government, its agencies and instrumentalities andGUs. Among the "taxes enumerated in the LGC is real propertyx. Section 234 of LGC provides for the exemptions from paymentGOCCs, except as provided therein. On the other hand, the LGC

uthorizes LGUs to grant tax exemption privileges. Readinggether Section 133, 232 and 234 of the LGC, we conclude that asgeneral rule, as laid down in Secs 133 the taxing powers of LGUsnnot extend to the levy of inter alia, "taxes, fees, and charges of

ny kind of the National Government, its agencies andstrumentalities, and LGUs"; however, pursuant to Sec 232,ovinces, cities, municipalities in the Metropolitan Manila Areaay impose the real property tax except on, inter alia, "realoperty owned by the Republic of the Philippines or any of its

olitical subdivisions except when the beneficial used thereofas been granted to a taxable person."As to tax exemptions

incentives granted to or presently enjoyed by natural or juridicalersons, including government-owned and controlled corporations,ection 193 of the LGC prescribes the general rule, viz., they arethdrawn upon the effectivity of the LGC, except upon thefectivity of the LGC,except those granted to local water districts,operatives duly registered under R.A. No. 6938, non stock and

on-profit hospitals and educational institutions, and unlessherwise provided in the LGC. The latter proviso could refer to

ection 234, which enumerates the properties exempt from realoperty tax. But the last paragraph of Section 234 further qualifiese retention of the exemption in so far as the real property taxese concerned by limiting the retention only to those enumeratedere-in; all others not included in the enumeration lost theivilege upon the effectivity of the LGC. Moreover, even as theal property is owned by the Republic of the Philippines, or anyits political subdivisions covered by item (a)of the first paragraphSection 234, the exemption is withdrawn if the beneficial use ofch property has-been granted to taxable person fornsideration or otherwise. Since the last paragraph of Section 234

nequivocally withdrew, upon the effectivity of the LGC,xemptions from real property taxes granted to natural or juridicalersons, including GOCCs, except as provided in the said section,nd the petitioner is, undoubtedly, a government-ownedrporation, it necessarily follows that its exemption from such taxanted it in Section 14 of its charter, R.A. No. 6958,has beenthdrawn. Any claim to the contrary can only be justified if the

etitioner can seek refuge under any of the exceptions provided inection 234, but not under Section 133, as it now asserts, since, asown above, the said section is qualified by Section 232 and 234.short, the petitioner can no longer invoke the general rule in

ection 133.It must show that the parcels of land in question,hich are real property, are any one of those enumerated inection 234, either by virtue of ownership, character, or use of the

operty. Most likely, it could only be the first, but not under anyxplicit provision of the said section, for one exists. In light of theetitioners theory that it is an "instrumentality of theovernment", it could only be within be first item of the firstaragraph of the section by expanding the scope of the termsepublic of the Philippines" to embrace ."instrumentalities" andgencies." This view does not persuade us. In the first place, the

etitioner's claim that it is an instrumentality of the Governmentbased on Section 133(o), which expressly mentions the word

nstrumentalities"; and in the second place it fails to consider thect that the legislature used the phrase "National Government, its

gencies and instrumentalities" "in Section 133(o),but only thehrase "Republic of the Philippines or any of its political subdivisionn Section 234(a).

The terms "Republic of the Philippines" and "NationalGovernment" are not interchangeable. The former isboarder asynonymous with "Government of the Republic of the Philippinwhich the Administrative Code of the1987 defines as the"corporate governmental entity though which the functions of government are exercised through at the Philippines, includingsaves as the contrary appears from the context, the various arthrough which political authority is made effective in thePhilippines, whether pertaining to the autonomous reason, theprovincial,city, municipal or barangay subdivision or other formlocal government." These autonomous regions, provincial,city,municipal or barangay subdivisions" are the political subdivisioOn the other hand, "National Government refers "to the entiremachinery of the central government, as distinguished from thdifferent forms of local Governments." The National Governmethen is composed of the three great departments the executivthe legislative and the judicial. An "agency" of the Governmenrefers to "any of the various units of the Government, includingdepartment, bureau, office instrumentality, or government-owor controlled corporation, or a local government or a distinct utherein;" while an "instrumentality" refers to "any agency ofthe National Government, not integrated within the departmenframework, vested with special functions or jurisdiction by lawendowed with some if not all corporate powers, administeringspecial funds, and enjoying operational autonomy; usually throcharter. This term includes regulatory agencies, charteredinstitutions and government-owned and controlled corporationIf Section 234(a) intended to extend the exception therein to twithdrawal of the exemption from payment of real property taunder the last sentence of the said section to the agencies and

instrumentalities of the National Government mentioned in Se133(o), then it should have restated the wording of the latter. Yit did not Moreover, that Congress did not wish to expand thescope of the exemption in Section 234(a) to include real propeowned by other instrumentalities or agencies of the governmeincluding government-owned and controlled corporations is fuborne out by the fact that the source of this exemption is Secti40(a) of P.D. No. 646, otherwise known as the Real PropertyTaxCode. Note that as a reproduced in Section 234(a), the phr"and any government-owned or controlled corporation so exemby its charter" was excluded. The justification for this restrictedexemption in Section 234(a) seems obvious: to limit further taxexemption privileges, specially in light of the general provisionwithdrawal of exemption from payment of real property taxes the last paragraph of property taxes in the last paragraph ofSection 234. These policy considerations are consistent with thState policy to ensure autonomy to local governments 33 and objective of the LGC that they enjoy genuine and meaningful lautonomy to enable them to attain their fullest development aself-reliant communities and make them effective partners in tattainment of national goals. 34 The power to tax is the mosteffective instrument to raise needed revenues to finance andsupport myriad activities of local government units for the deliof basic services essential to the promotion of the general weland the enhancement of peace, progress, and prosperity of thepeople. It may also be relevant to recall that the original reasofor the withdrawal of tax exemption privileges granted togovernment-owned and controlled corporations and all otherunits of government were that such privilege resulted in serioutax base erosion and distortions in the tax treatment of similarsituated enterprises, and there was a need for this entities to sin the requirements of the development, fiscal or otherwise, bypaying the taxes and other charges due from them.

The crucial issues then to be addressed are: (a) whether theparcels of land in question belong to theRepublic of the Philippwhose beneficial use has been granted to the petitioner, and (bwhether thepetitioner is a "taxable person". It may be reasonato assume that the term "lands" refer to "lands" inCebu City thadministered by the Lahug Air Port and includes the parcels of the respondent City of Cebu seeks to levy on for real propertytaxes. This section involves a "transfer" of the "lands" among othings, to the petitioner and not just the transfer of the beneficuse thereof, with the ownership being retained by the Republicof the Philippines. This "transfer" is actually an absoluteconveyance of the ownership thereof because the petitionersauthorized capital stock consists of "the value of such real estaowned and/or administered by the airports." Hence, the petitio


8/8

now the owner of the land in question and the exception in Sec34(c) of the LGC is inapplicable. Petitioner cannot claim that itas never a "taxable person" under its Charter. It was onlyxempted from the payment of real property taxes. The grant

the privilege only in respect of this tax is conclusive proof ofe legislative intent to make it a taxable person subject to allxes, except real property tax. Finally, even if the petitioner wasiginally not a taxable person for purposes of real property tax, inht of the forgoing disquisitions, it had already become even if it

e conceded to be an "agency" or instrumentality" ofe Government, a taxable person for such purpose in view of thethdrawal in the last paragraph of Section 234 of exemptions frome payment of real property taxes, which, as earlier adverted to,

pplies to the petitioner. Accordingly, the position taken bye petitioner is untenable. Reliance on Basco vs. Pagcor is

navailing since it was decided before the effectivity of the LGC.esides, nothing can prevent Congress from decreeing that evenstrumentalities or agencies of the government performingovernmental functions may be subject to tax. Where it is doneecisely to fulfill constitutional mandate and national policy, no

ne can doubt its wisdom.

tax 1 - 1st hw digests

Documents