Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-1104             May 31, 1949

EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-appellants, vs.VICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL BOARD OF THE CITY OF MANILA, and JUAN NOLASCO, as Mayor of the City of Manila, defendants-appellees.

Francisco Zulueta and Poblador Jr. for appellants.City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio Villamor for appellees.Assistant Solicitor General Carmelino G. Alvendia, Solicitor Guillermo E.Torres and Manuel D. Baldeo as amicus curiae.

PERFECTO, J.:

Twelve corporation engaged in motion picture business have initiated these proceeding through a complaint dated May 5, 1946, to impugn the validity of Ordinance No. 2958 of the City of Manila which was enacted by the municipal Board of said city on April 25 1946 approved by the Mayor on April 27, 1946 and took effect on May 1, 1946 said ordinance reading as follows:

AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY ADMISSION TICKET SOLD BY CINEMATOGRAPHS, THEATERS VAUDEVILLE

COMPANIES THEATRICAL SHOWS AND BOXING EXHIBITION AND PROVIDING FOR OTHER PURPOSES.

SEC. 1. In addition to the fees paid by cinematographers, theaters, vaudeville companies, theatrical shows and boxing exhibitions, as provided for in sections 633 and 778 of Ordinance No. 1600, known as the Revised Ordinance of the City of Manila, as amended, there shall be collected from the place of amusement which are specifically mentioned above the following fees on the price of every admission ticket sold by such enterprises:

a. For every ticket sold the price of which is from P0.25 to P0.99 P0.05

b. For every ticket sold the price of which is from P1 to P1.99 0.10

c. For every ticket sold the price of which is from P2 to P2.99 0.15

d. for every ticket sold the price of which is from P3 to P4.99 0.20

e. or every ticket sold the price of which is from P5 to P5.99 0.25

f. For every ticket sold the price of which is from P0 to P14.99 0.35

g. For ticket sold thee price of which is from P15 or more 0.50

SEC. 2 It shall be the duty of every proprietor lessee, promoter, or operator of such cinematographs, theater, vaudeville companies, theatrical show and boxing exhibition to provide himself with tickets which shall be serially numbered, indication therein the name of amusement place and the fee charge for admission. Before such ticket are sold the same shall be presented to the office of the city Treasurer for registration. Tickets once issued and presented at the gate of entrance shall be cut by the gatekeeper into halves, the first half to be returned to the customer and the other half to be retained by the gate keeper.

It shall also be the duty of said proprietor lessee promoter or operator to deliver to the Office of the City Treasurer the fees corresponding to the number of ticket sold by him within two days after the performances or exhibition has taken place.

SEC. 3. The fees herein prescribed shall not be paid where the admission fees or charge are collection for and in behalf of any charitable education or religion institution or association.

All place of amusement which are operated by U.S. Army and Navy with fund belonging to the U.S. Government are hereby exempted from fees herein imposed.

SEC. 4. Any person violation any of the provision of this ordinance shall upon conviction thereof be punished by a fine of not more than P200 or by imprisonment for not more than six months or by both such fine and imprisonment in the discretion of the court. If the violation is committed by the club firm or corporation the manager the managing director or person charged with the management of the business of such club firm or corporation shall be criminally responsible therefor.

SEC. 5. This Ordinance shall take effect on the May 1, 1946.

Plaintiffs, operator of theaters in Manila And distributor of local or imported films allege that they are interested in the provision of section 1,2 and 4 of said ordinance which they impugn as null and void upon the following grounds: (a) For violation the Constitution more particular the provision regarding the uniformity and equality of taxation and the equal protection of the laws; (b) because the Municipal Board of Manila exceeded and over-stepped the power granted it the Charter of the City of Manila; (c) because it contravenes violates and is inconsistent with, existing national legislation more particularly revenue and tax laws and (d) because it is unfair, unjust, arbitrary capricious unreasonable oppressive and is contrary to and violation our basic and recognizes principles of taxation and licensing laws.

Defendants allege as affirmative defenses the following: (a) That the ordinance was passed by the Municipal Board of Manila by virtue of its express legislative power to tax fix the license fee and regulate the business of theaters, cinematographs and further to fix the location of and to tax, fix the license fee for and regulate the business of theatrical performances public exhibition circus and other performances and places of amusement; (b) that the graduated tax required by said ordinance being applied to all cinematographs, theaters, vaudeville companies theatrical show and boxing exhibitions similarly situated and as a class without distinction or exception the same does not violate the prohibition against uniformity and equality of taxation; (c) that the graduated tax on admission tickets to theaters and other places of amusement imposed by the National Internal Revenue Code (Commonwealth Act No. 466) is collected by and for the purposes of the National Government, whereas, Ordinance No.2958 imposes and requires the collection of a similar tax by and for the purposes of the Government of the City of Manila, and there is no case of double taxation, (d) that said ordinance having been enacted under the express power of the Municipal Board to tax for revenue as distinguished from its power to license for purely police purposes, the fact that the amount collected thereunder are higher than what are needed for police regulation and supervision does not render said ordinance unfair unjust capricious unreasonable and oppressive; (e) that consideration the nature of the business of the plaintiffs and the enormous volume of business they handle the graduated tax fixed by the ordinance is not unreasonable.

Defendants allege also that since May 1, 1946, when the ordinance in question took effect plaintiffs have been charging the theater-going public increased prices for admission to the cinematographs owned and operated to the graduated tax imposed by said ordinance and as a result while refusing to pay said tax but at the same time collecting an amount equal to said tax plaintiffs have taken undue advantage of said ordinance to realized more profits.

On September 5, 1946, Judge Emilio Pena of the court of first Instance of Manila rendered a decision upholding the validity of Ordinance No. 2958.

Plaintiffs appellants assign in the their brief three errors committed by the trial court. We will consider them separately.

Appellants contend that the lower court erred in holding that under section 2444 (m) of the Revised administrative Code the Municipal Board of the City of Manila had the power to enact Ordinance No. 2958.

Section 2444 (m) of the Revised Administrative code reads as follows:

To tax fix the license fee and regulate the business of hotels restaurants refreshment places, cafes, lodging houses, boarding houses livery garages warehouses, pawnshops theaters, cinematographs; and further to fix the location of and to tax fix the license fee for and regulate the businessof lively stables, the license fee for and regulate the business of livery stable, boarding stables, embalmers, public billiard table public pool tables, bowling alleys, dance halls, public dancing halls, cabarets, circusand other similar parades, public vehicles, race tracks, horse races,Junk dealers, theatrical performances, public exhibitions, circus andother performances and places of amusements, match factories, blacksmith shops, foundries, steam boilers, lumber yards, shipyards, thestorage and sale of gunpowder, tar, pitch, resin, coal, oil, gasoline,benzene, turpentine, 'hemp, cotton, nitroglycerin, petroleum or any Ofthe products thereof and of all other highly combustible or explosivematerials and other establishment likely to endanger the public safety or give rise to conflagration or explosion and subject to the provision of ordinance issue by the (Philippines Health Service) Bureau of Health in accordance with law tanneries, renders tallow chandlers bone factories and soap factories.

Appellants line of argument runs as follows:

By virtue of the specific power granted in the above quoted provision of the Revised Administration Code Ordinance No. 2958 was enacted.

On August 7, 1940 the National Assembly enacted Commonwealth Act No. 466, known as the National Internal Revenue Code section 18, 260 and 261 of which read as follows:

SEC. 18. Sources of revenue. — The following taxes fees and charges are deemed to be national internal revenue taxes:

(a) Income tax;(b) Estate inheritance and gift taxes; (c) Specific taxes on certain articles;(d) Privilege taxes on business or occupation;(e) Documentary stamp taxes;(f) Mining taxes;(g) Miscellaneous taxes fees and charges, namely, taxes on banks and insurance companies franchise taxes on amusements charges on forest product fees for sealing weights and measures firearms license fees radio registration fees and water rentals.

SEC. 260. Amusement taxes. — There shall be collected from the proprietor, lessee, or operation of theater cinematographs, concert halls, circuses, boxing exhibition and other places of amusement the following taxes:

(a) When the amount paid for admission exceeds twenty-nine centavos, two centavos on each admission;

(b) When the amount paid for admission exceeds twenty-nine but does not exceed thirty-nine centavos, three centavos on each admission;

(c) When the amount paid for admission exceeds thirty-nine centavos but does not exceed forty-nine centavos four centavos on each admission.

(d) When the amount paid for admission exceeds forty-nine centavos but does not exceed fifty-nine centavos five admission.

(e) When the amount paid for admission exceeds fifty-nine centavos but does not exceed sixty-nine centavos six centavos on each admission.

(f) When the amount paid for admission exceeds sixty-nine centavos but does not exceed seventy nine centavos seven centavos on each admission.

(g) When the amount paid for admission exceeds seventy nine centavos but does not exceed eighty-nine centavos eight centavos on each admission;

(h) When the amount paid for admission exceeds eighty-nine centavos but does not exceed ninty-nine centavos, nine centavos on each admission;

(i) When the amount paid for admission exceeds ninety-nine centavos, ten centavos on each admission.

In the case of theaters or cinematographs, the taxes herein prescribed shall first be decuted and withheld by the proprietros, lessees, or operators of such theaters or cinematogrphs and paid to the Collector of Internal Revenue before the gross receipts are divided between the proprietros, lessees, or operators of the theaters of cinematographs and the distributors of the cinematographic films.

In the case of cockpits, race tracks, and cabarets, there shall be collected from the proprietor, lessee, or operator a tax equivalent to ten per centum of the gross receipts, irrespective of whether or not any amount is charged or paid for admission: Provided, however, That in the case of race tracks, this tax is in addition to the privilege tax prescribed in seciton 193. for the purpose of the amusement tax, the term "gross receipts" embraces all the receipts of the proprietor, lessee, or operator of the amusement place, excluding the receipts derived by him from the sale of liquors, beverages, or other articles subject to specific tax, or from any business subject to tax under this Code. (This section was amended by section 8, Republic Act No. 39, effective October 1, 1946. We are quoting the original provision to show the status of the law when the Ordinance was passed.)

SEC. 261. Exemption. — The tax herein imposed shall not be paid where the admission fee or charges are collected by or for and in behalf of any religious, charitable, scientific, or educational institution or association, and where no part of the net proceeds of such admission fees or charges inures to the benefit of any private stockholder or individual.

Ordinance No. 2958 does not specify the kind of the tax sought to be imposed but the seven schedules and other details of said ordinance are, in every respect, identical with the amusement tax provided by section 260 of Commonwealth Act No. 466.

But, plaintiffs argue, that section 2444(m) of the Revised Administrative Code confers upon the City of Manila the power to impose a tax on business but not on amusement and, consequently, Ordinance No. 2958 was enacted beyond the charter powers of the City of Manila.

The whole argument of plaintiffs hinges, therefore, on the assumption that the power granted to the City of Manila by section 2444(m) of the Revised Administrative Code is limited to the authority to impose a tax on business, with exclusion of the power to impose a tax amusement; but, the assumption is based on an arbitrary labeling of the kind of tax authorized by said section 2444(m). The distinction made by plaintiffs as to the power to tax on business and the power to tax on amusement has no ground under the provisions of section 2444(m) of the Revised Administrative Code. The tax therein authorized cannot be defined as tax on business and cannot be restricted within a smaller scope than what is authorized by the words used, to the extent of excluding what plaintiffs describe as tax on amusement.

The very fact that section 2444 (m) of the Revised Administrative Code includes theaters, cinematographs, public billiard tables, public pool tables, bowling alleys, dance halls, public dancing halls, cabarets, circuses and other similar places, race tracks, horse races, theatrical performances,

public exhibition, circus and other performances and places of amusements, will show conclusively that the power to tax amusement is expressly included within the power granted by section 2444(m) of the Revised Administrative Code.

Plaintiffs-appellants contend that the lower court erred in not holding that section 2444 (m) of the Revised Administrative Code was repealed or the power therein contained was withdrawn by the National Assembly by the enactment of Commonwealth Act No. 466 known as the National Internal Revenue Code.

In support of this contention, plaintiffs aver that the Charter of the City of Manila, containing section 2444(m) of the Revised Administrative Code, was enacted on December 8, 1929. On April 25, 1940, the National Assembly enacted Commonwealth Act No. 466, including provisions on amusement tax, covering the whole field on taxation and provided for more than what the ordinance in question has provided. As a result, there are two taxing powers seeking to occupy exactly the same field of legislation, and so the apparent conflict must be resolved with the conclusion that, with the enactment of Commonwealth Act No. 466, as later amended by Republic Act No. 39, section 2444(m) of the Revised Administrative Code has been impliedly repealed and the power therein delegated to the City of Manila withdrawn.

We see absolutely no force in plaintiffs' contention. The conflict pointed out by them is imaginary. Both provisions of law may stand together and be enforced at the same time without any incompatibility among themselves.

Finally, plaintiffs contend that the trial court erred in not holding that Ordinance No. 2958 violated the principle of equality and uniformity of taxation enjoined by the Constitution (sec. 22, sub-sec. 1, Art. VI, Constitution of the philippines).

To support this contention, appellants point out to the fact that the ordinance in question does not tax "many more kinds of amusements" than those therein specified, such as "race tracks, cockpits, cabarets, concert halls, circuses, and other places of amusement." the argument has absolutely no merit. The fact that some places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is no argument at all against the equality and uniformity of the tax imposition. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; and the appellants cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance.

The judgment of the trial court is affirmed with costs against appellants.

Paras, Pablo, Bengzon, Tuason, Montemayor and Reyes, JJ., concur.Perfecto, J., We certify that the Chief Justice voted to affirm the appealed judgment.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-6093             February 24, 1954

THE SHELL CO. OF P.I., LTD., plaintiff-appellant, vs.E. E. VAÑO, as Municipal Treasurer of the Municipality of Cordova, Province of Cebu, defendant-appellee.

C.J. Johnston and A.P. Deen for appellant.Provincial Fiscal Jose C. Borromeo and Assistant Provincial Fiscal Ananias V. Maribao for appellee.

PADILLA, J.:

The Municipal Council of Cordova, Province of Cebu, adopted the following ordinances: No. 10, series of 1946, which imposes an annual tax of P150 on occupation or the exercise of the privilege of installation manager; No. 9, series of 1947, which imposes an annual tax of P40 for local deposits in drums of combustible and inflammable materials and an annual tax of P200 for tin can factories; and No. 11, series of 1948, which imposes an annual tax of P150 on tin can factories having a maximum output capacity of 30,000 tin cans. The Shell Co. of P.I. Ltd., a foreign corporation, filed suit for the refund of the taxes paid by it, on the ground that the ordinances imposing such taxes are ultra vires. The defendant denies that they are so. The controversy was submitted for judgment upon stipulation of facts which reads as follows:

Come now the parties in the above-entitled case by their undersigned attorneys and hereby agree to the following stipulation of facts:

1. That the parties admit the allegations contained in Paragraph 1 of the Amended Complaint referring to residence, personality, and capacity of the parties except the fact that E.E. Vaño is now replaced by F.A. Corbo as Municipal Treasurer of Cordova, Cebu;

2. That the parties admit the allegations contained in paragraph 2 of the Amended Complaint. Official Receipts Nos. A-1280606, A-37607422, A-3769852 and A-21030388 are herein marked as Exhibits A, B, C, and D, respectively for the plaintiff;

3. That the parties admit that payments made under Exhibits B, C, and D were all under protest and plaintiff admits that Exhibit A was not paid under protest;

4. That the parties admit that Official Receipt No. A-1280606 for P40 and Official Receipt No. A-3760742 for P200 were collected by the defendant by virtue of Ordinance No. 9, (Secs. E-4 and E-6, respectively) under Resolution No. 31, series of 1947, enacted December 15, 1947, approved by the Provincial Board of Cebu in its Resolution No. 644, series of 1948. Copy of said Ordinance No. 9, series of 1947, is herein marked as Exhibit "E" for the plaintiff, and as Exhibit "I" for the defendant;

5. That the parties admit that Official Receipt No. A-3760852 for P150 was paid for taxes imposed on Installation Managers, collected by the defendant by virtue of Ordinance No. 10 (section 3, E-12) under Resolution No. 38, series of 1946, approved by the Provincial Board of Cebu in its Resolution No. 1070, series of 1946. Copy of .said Ordinance No. 10, series of 1946 is marked as Exhibit "F" for the plaintiff and as Exhibit "2" for the defendant;

6. That the parties admit that Official Receipt No. A-21030388 for P5,450 was paid by plaintiff and that said amount was collected by defendant by virtue of Ordinance No. 11, series of 1948 (under Resolution No. 46) enacted August 31, 1948 and approved by the Provincial Board of Cebu in its Resolution No. 115, series of 1949, and same was approved by the Honorable Secretary of Finance under the provisions of section 4 of Commonwealth Act No. 472. Copy of said Ordinance No. 11, series of 1948 is herein marked as Exhibit "G" for the plaintiff, and Exhibit "3" for the defendant. Copy of the approval of the Honorable Secretary of Finance of the same Ordinance is herein marked as Exhibit "4" for the defendant.

Wherefore, aside from oral evidence which may be offered by the parties and other points not covered by this stipulation, this case is hereby submitted upon the foregoing agreed facts and record of evidence.

Cebu City, Philippines, January 20, 1950.

THE SHELL CO. OF P.I. LTD.    (Sgd.) L. DE BLECHYNDEN                        Plaintiff

C.D. JOHNSTON & A.P. DEEN    (Sgd.) A.P. DEEN    Attys. for the plaintiff

THE MUNICIPALITY OF CORDOVA    (Sgd.) F.A. CORBO              Defendant

    (Sgd.) JOSE C. BORROMEO                  Provincial Fiscal            Attorney for the defendant

(Record on Appeal, pp. 15-18.)

The parties reserved the right to introduce parole evidence but no such evidence was submitted by either party. From the judgment holding the ordinances valid and dismissing the complaint the plaintiff has appealed.

It is contended that as the municipal ordinance imposing an annual tax of P40 for "minor local deposit in drums of combustible and inflammable materials," and of P200 "for tin factory" was adopted under and pursuant to section 2244 of the Revised Administrative Code, which provides that the municipal council in the exercise of the regulative authority may require any person engaged in any business or occupation, such as "storing combustible or explosive materials" or "the conducting of any other business of an unwholesome, obnoxious, offensive, or dangerous character," to obtain a permit for which a reasonable fee, in no case to exceed P10 per annum, may be charged, the annual tax of P40 and P200 are unauthorized and illegal. The permit and the fee referred to may be required and charged by the Municipal Council of Cordova in the exercise of its regulative authority, whereas the ordinance which imposes the taxes in question was adopted under and pursuant to the provisions of Commonwealth Act No. 472, which authorizes municipal councils and municipal district councils "to impose license taxes upon persons engaged in any occupation or business, or exercising privileges in the municipality or municipal district, by requiring them to secure licenses at rates fixed by the municipal council or municipal district council," which shall be just and uniform but not "percentage taxes and taxes on specified articles." Likewise, Ordinance No. 10, series of 1946, which imposes an annual tax of P150 on "installation manager" comes under the provisions of Commonwealth Act No. 472. But it is claimed that "installation manager" is a designation made by the plaintiff and such designation cannot be deemed to be a "calling" as defined in section 178 of the National Internal Revenue Code (Com. Act No. 466), and that the installation manager employed by the plaintiff is a salaried employee which may not be taxed by the municipal council under the provisions of Commonwealth Act No. 472. This contention is without merit, because even if the installation manager is a salaried employee of the plaintiff, still it is an occupation "and one occupation or line of business does not become exempt by being conducted with some other occupation or business for which such tax has been paid'1 and the occupation tax must be paid "by each individual engaged in a calling subject thereto."2 And pursuant to section 179 of the National Internal Revenue Code, "The payment of . . . occupation tax shall not exempt any person from any tax, . . . provided by law or ordinance in places where such . . . occupation in . . . regulated by municipal law, nor shall the payment of any such tax be held to prohibit any municipality from placing a tax upon the same . . . occupation, for local purposes,

where the imposition of such tax is authorized by law." It is true that, according to the stipulation of facts, Ordinance No. 10, series of 1946, was approved by the Provincial Board of Cebu in its Resolution No. 1070, series of 1946, and that it does not appear that it was approved by the Department of Finance, as provided for and required in section 4, paragraph 2, of Commonwealth Act No. 472, the rate of municipal tax being in excess of P50 per annum. But at this point on the approval of the Department of Finance was not raised in the court below, it cannot be raised for the first time on appeal. The issue joined by the parties in their pleadings and the point raised by the plaintiff is that the municipal council was not empowered to adopt the ordinance and not that it was not approved by the Department of Finance. The fact that it was not stated in the stipulation of facts justifies the presumption that the ordinance was approved in accordance with law.

The contention that the ordinance is discriminatory and hostile because there is no other person in the locality who exercises such "designation" or occupation is also without merit, because the fact that there is no other person in the locality who exercises such a "designation" or calling does not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation named or designated as "installation manager."

Lastly, Ordinance No. 11, series of 1948, which imposes a municipal tax of P150 on tin can factories having a maximum annual output capacity of 30,000 tin cans which, according to the stipulation of facts, was approved by the Provincial Board of Cebu and the Department of Finance, is valid and lawful, because it is neither a percentage tax nor one on specified articles which are the only exceptions provided in section 1, Commonwealth Act No. 472. Neither does it fall under any of the prohibitions provided for in section 3 of the same Act. Specific taxes enumerated in the National Internal Revenue Code are those that are imposed upon "things manufactured or produced in the Philippines for domestic sale or consumption" and upon "things imported from the United States and foreign countries," such as distilled spirits, domestic denatured alcohol, fermented liquors, products of tobacco, cigars and cigarettes, matches, mechanical lighters, firecrackers, skimmed milk, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, sacharine.3 And it is not a percentage tax because it is tax on business and the maximum annual output capacity is not a percentage, because it is not a share or a tax based on the amount of the proceeds realized out of the sale of the tin cans manufactured therein but on the business of manufacturing tin cans having a maximum annual output capacity of 30,000 tin cans.

In an action for refund of municipal taxes claimed to have been paid and collected under an illegal ordinance, the real party in interest is not the municipal treasurer but the municipality concerned that is empowered to sue and be sued.4

The judgment appealed from is hereby affirmed, with costs against the appellant.

Paras, C.J., Pablo, Bengzon, Montemayor, Reyes, Jugo, Bautista Angelo, Labrador, Concepcion and Diokno, JJ., concur.

Footnotes

1 Section 178, National Internal Revenue Code (Com. Act. No. 466).

2 Supra.

3 Section 178, National Internal Revenue Code (Com. Act No. 466).

4 Tan vs. De la Fuente et al., 90 Phil., 519.

Republic of the PhilippinesSupreme Court

Manila

SECOND DIVISION

COMMISSIONER OF CUSTOMS and the DISTRICT COLLECTOR OF THE PORT OF SUBIC,

Petitioners,

- versus -

HYPERMIX FEEDS CORPORATION,

Respondent.

G.R. No. 179579

Present:

CARPIO, J., Chairperson, BRION,PEREZ,SERENO, andREYES, JJ.

Promulgated:

February 1, 2012

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

SERENO, J.:

Before us is a Petition for Review under Rule 45,1[1] assailing the

Decision2[2] and the Resolution3[3] of the Court of Appeals (CA), which

nullified the Customs Memorandum Order (CMO) No. 27-20034[4] on

the tariff classification of wheat issued by petitioner Commissioner of

Customs.

The antecedent facts are as follows:

On 7 November 2003, petitioner Commissioner of Customs issued

CMO 27-2003. Under the Memorandum, for tariff purposes, wheat was

classified according to the following: (1) importer or consignee; (2)

country of origin; and (3) port of discharge.5[5] The regulation provided

an exclusive list of corporations, ports of discharge, commodity

descriptions and countries of origin. Depending on these factors, wheat

would be classified either as food grade or feed grade. The corresponding

tariff for food grade wheat was 3%, for feed grade, 7%.

1[1] Rollo, pp. 124-142.

2[2] Id. at 33-46.

3[3] Id. at 47.

4[4] Records, pp. 16-18.

5[5] SUBJECT: Tariff Classification of Wheat

In order to monitor more closely wheat importations and thus prevent their misclassification, the following are hereby prescribed:

1.       For tariff purposes, wheat shall be classified as follows:1.1    Under HS 1001.9090 (Food Grade) when all the following elements are present:

1.1.1           the importer/consignee of the imported wheat is a flour miller as per attached list (Annex ‘A’), which shall form as integral part of this Order

1.1.2           the wheat importation consists of any of those listed in Annex ‘A’ according to the country of origin indicated therein

1.1.3           the wheat importation is entered/unloaded in the Port of Discharge indicated opposite the name of the flour miller, as per Annex ‘A’

1.2    Under HS 1001.9010 (Feed Grade)1.2.1           When any or all of the elements prescribed under 1.1 above is not present.

1.2.2                       All other wheat importations by non-flour millers, i.e., importers/consignees NOT listed in Annex ‘A’

CMO 27-2003 further provided for the proper procedure for protest

or Valuation and Classification Review Committee (VCRC) cases. Under

this procedure, the release of the articles that were the subject of protest

required the importer to post a cash bond to cover the tariff differential.6

[6]

A month after the issuance of CMO 27-2003, on 19 December

2003, respondent filed a Petition for Declaratory Relief7[7] with the

Regional Trial Court (RTC) of Las Piñas City. It anticipated the

implementation of the regulation on its imported and perishable Chinese

milling wheat in transit from China.8[8] Respondent contended that CMO

27-2003 was issued without following the mandate of the Revised

Administrative Code on public participation, prior notice, and publication

or registration with the University of the Philippines Law Center.

6[6] SUBJECT: Tariff Classification of Wheat

xxx xxx xxx

2. Any issue arising from this Order shall be resolved in an appropriate protest or VCRC case.

3. In case of a VCRC case, the following applies:3.1    The shipment may qualify for Tentative Release upon payment of the taxes and

duties as per declaration and the posting of cash bond to cover the tariff differential. 3.2    The Tentative Release granted by the VCRC shall, prior to the release of the

shipment from Customs custody, be subject to representative. For this purpose, the District/Port Collector concerned shall forward to the Office of the Commissioner the Tentative Release papers, together with all pertinent shipping and supporting documents, including, but not limited to, contract of sale, phytosanitary certificate and certificate of quality. In the case of Outports, the required documents shall be faxed to the Office of the Commissioner of Customs to any of these numbers: 527-1953/527-4573.

3.3 In resolving the classification issue, the VCRC shall consider the import/consignee, type/source of wheat and port of discharge of the wheat importation, as indicated in Annex ‘A’, and require the proofs/evidences (sic), including, but not limited to, proofs of sale or consumption of said wheat importation, certificate of quality issued by manufacturing country and contract of sale.

3.4 Any VCRC decision adverse to the government shall be subject to automatic review by the Commissioner of Customs.

7[7] Rollo¸ pp. 158-168.

8[8] Records, p. 12.

Respondent also alleged that the regulation summarily adjudged it

to be a feed grade supplier without the benefit of prior assessment and

examination; thus, despite having imported food grade wheat, it would be

subjected to the 7% tariff upon the arrival of the shipment, forcing them

to pay 133% more than was proper.

Furthermore, respondent claimed that the equal protection clause of

the Constitution was violated when the regulation treated non-flour

millers differently from flour millers for no reason at all.

Lastly, respondent asserted that the retroactive application of the

regulation was confiscatory in nature.

On 19 January 2004, the RTC issued a Temporary Restraining

Order (TRO) effective for twenty (20) days from notice.9[9]

Petitioners thereafter filed a Motion to Dismiss.10[10] They alleged

that: (1) the RTC did not have jurisdiction over the subject matter of the

case, because respondent was asking for a judicial determination of the

classification of wheat; (2) an action for declaratory relief was improper;

(3) CMO 27-2003 was an internal administrative rule and not legislative

in nature; and (4) the claims of respondent were speculative and

premature, because the Bureau of Customs (BOC) had yet to examine

respondent’s products. They likewise opposed the application for a writ

of preliminary injunction on the ground that they had not inflicted any

injury through the issuance of the regulation; and that the action would be

contrary to the rule that administrative issuances are assumed valid until

declared otherwise.

9[9] Rollo, pp. 58-59.

10[10] Id. at 60-78.

On 28 February 2005, the parties agreed that the matters raised in

the application for preliminary injunction and the Motion to Dismiss

would just be resolved together in the main case. Thus, on 10 March

2005, the RTC rendered its Decision11[11] without having to resolve the

application for preliminary injunction and the Motion to Dismiss.

The trial court ruled in favor of respondent, to wit:

WHEREFORE, in view of the foregoing, the Petition is GRANTED and the subject Customs Memorandum Order 27-2003 is declared INVALID and OF NO FORCE AND EFFECT. Respondents Commissioner of Customs, the District Collector of Subic or anyone acting in their behalf are to immediately cease and desist from enforcing the said Customs Memorandum Order 27-2003.

SO ORDERED.12[12]   

The RTC held that it had jurisdiction over the subject matter, given

that the issue raised by respondent concerned the quasi-legislative powers

of petitioners. It likewise stated that a petition for declaratory relief was

the proper remedy, and that respondent was the proper party to file it. The

court considered that respondent was a regular importer, and that the

latter would be subjected to the application of the regulation in future

transactions.

With regard to the validity of the regulation, the trial court found

that petitioners had not followed the basic requirements of hearing and

publication in the issuance of CMO 27-2003. It likewise held that

petitioners had “substituted the quasi-judicial determination of the

11[11] Id. at 108-114; penned by Judge Romeo C. De Leon.

12[12] Id. at 114.

commodity by a quasi-legislative predetermination.”13[13] The lower

court pointed out that a classification based on importers and ports of

discharge were violative of the due process rights of respondent.

Dissatisfied with the Decision of the lower court, petitioners

appealed to the CA, raising the same allegations in defense of CMO 27-

2003.14[14] The appellate court, however, dismissed the appeal. It held

that, since the regulation affected substantial rights of petitioners and

other importers, petitioners should have observed the requirements of

notice, hearing and publication.

Hence, this Petition.

Petitioners raise the following issues for the consideration of this

Court:

I.       THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE WHICH IS NOT IN ACCORD WITH THE LAW AND PREVAILING JURISPRUDENCE.

II.    THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE TRIAL COURT HAS JURISDICTION OVER THE CASE.

The Petition has no merit.

We shall first discuss the propriety of an action for declaratory

relief.

Rule 63, Section 1 provides:

Who may file petition. – Any person interested under a deed, will, contract or other written instrument, or whose rights are affected

13[13] Id. at 112.

14[14] Id. at 117-122.

by a statute, executive order or regulation, ordinance, or any other governmental regulation may, before breach or violation thereof, bring an action in the appropriate Regional Trial Court to determine any question of construction or validity arising, and for a declaration of his rights or duties, thereunder.

The requirements of an action for declaratory relief are as follows:

(1) there must be a justiciable controversy; (2) the controversy must be

between persons whose interests are adverse; (3) the party seeking

declaratory relief must have a legal interest in the controversy; and (4) the

issue involved must be ripe for judicial determination.15[15] We find that

the Petition filed by respondent before the lower court meets these

requirements.

First, the subject of the controversy is the constitutionality of CMO

27-2003 issued by petitioner Commissioner of Customs. In Smart

Communications v. NTC,16[16] we held:

 The determination of whether a specific rule or set of rules

issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts.  Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts.  This is within the scope of judicial power, which includes the authority of the courts to determine in an appropriate action the validity of the acts of the political departments.  Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied)

 

15[15] Tolentino v. Board of Accountancy, 90 Phil. 83 (1951).

16[16] 456 Phil. 145 (2003).

Meanwhile, in Misamis Oriental Association of Coco Traders, Inc.

v. Department of Finance Secretary,17[17] we said:

xxx [A] legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. xxx

In addition such rule must be published. On the other hand, interpretative rules are designed to provide guidelines to the law which the administrative agency is in charge of enforcing.

Accordingly, in considering a legislative rule a court is free to make three inquiries: (i) whether the rule is within the delegated authority of the administrative agency; (ii) whether it is reasonable; and (iii) whether it was issued pursuant to proper procedure.  But the court is not free to substitute its judgment as to the desirability or wisdom of the rule for the legislative body, by its delegation of administrative judgment, has committed those questions to administrative judgments and not to judicial judgments.  In the case of an interpretative rule, the inquiry is not into the validity but into the correctness or propriety of the rule.  As a matter of power a court, when confronted with an interpretative rule, is free to (i) give the force of law to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some intermediate degree of authoritative weight to the interpretative rule. (Emphasis supplied)

 

Second, the controversy is between two parties that have adverse

interests. Petitioners are summarily imposing a tariff rate that respondent

is refusing to pay.

Third, it is clear that respondent has a legal and substantive interest

in the implementation of CMO 27-2003. Respondent has adequately

shown that, as a regular importer of wheat, on 14 August 2003, it has

actually made shipments of wheat from China to Subic. The shipment

was set to arrive in December 2003. Upon its arrival, it would be

subjected to the conditions of CMO 27-2003. The regulation calls for the

imposition of different tariff rates, depending on the factors enumerated

therein. Thus, respondent alleged that it would be made to pay the 7%

17[17] G.R. No. 108524, 10 November 1994, 238 SCRA 63, 69-70.

tariff applied to feed grade wheat, instead of the 3% tariff on food grade

wheat. In addition, respondent would have to go through the procedure

under CMO 27-2003, which would undoubtedly toll its time and

resources. The lower court correctly pointed out as follows:

xxx As noted above, the fact that petitioner is precisely into the business of importing wheat, each and every importation will be subjected to constant disputes which will result into (sic) delays in the delivery, setting aside of funds as cash bond required in the CMO as well as the resulting expenses thereof. It is easy to see that business uncertainty will be a constant occurrence for petitioner. That the sums involved are not minimal is shown by the discussions during the hearings conducted as well as in the pleadings filed. It may be that the petitioner can later on get a refund but such has been foreclosed because the Collector of Customs and the Commissioner of Customs are bound by their own CMO. Petitioner cannot get its refund with the said agency. We believe and so find that Petitioner has presented such a stake in the outcome of this controversy as to vest it with standing to file this petition.18[18] (Emphasis supplied)

 

Finally, the issue raised by respondent is ripe for judicial

determination, because litigation is inevitable19[19] for the simple and

uncontroverted reason that respondent is not included in the enumeration

of flour millers classified as food grade wheat importers. Thus, as the trial

court stated, it would have to file a protest case each time it imports food

grade wheat and be subjected to the 7% tariff.

It is therefore clear that a petition for declaratory relief is the right

remedy given the circumstances of the case.

Considering that the questioned regulation would affect the

substantive rights of respondent as explained above, it therefore follows

18[18] Rollo, p. 112.

19[19] Office of the Ombudsman v. Ibay, 416 Phil. 659 (2001).

that petitioners should have applied the pertinent provisions of Book VII,

Chapter 2 of the Revised Administrative Code, to wit:

Section 3. Filing. – (1) Every agency shall file with the University of the Philippines Law Center three (3) certified copies of every rule adopted by it. Rules in force on the date of effectivity of this Code which are not filed within three (3) months from that date shall not thereafter be the bases of any sanction against any party of persons.

xxx xxx xxx

Section 9. Public Participation. - (1) If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.

(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper of general circulation at least two (2) weeks before the first hearing thereon.

(3) In case of opposition, the rules on contested cases shall be observed. 

When an administrative rule is merely interpretative in nature, its

applicability needs nothing further than its bare issuance, for it gives no

real consequence more than what the law itself has already prescribed.

When, on the other hand, the administrative rule goes beyond merely

providing for the means that can facilitate or render least cumbersome the

implementation of the law but substantially increases the burden of those

governed, it behooves the agency to accord at least to those directly

affected a chance to be heard, and thereafter to be duly informed, before

that new issuance is given the force and effect of law.20[20]

Likewise, in Tañada v. Tuvera,21[21] we held:

The clear object of the above-quoted provision is to give the general public adequate notice of the various laws which are to regulate their actions and conduct as citizens. Without such notice and publication, there would be no basis for the application of the maxim “ignorantia legis non excusat.” It would be the height of injustice to punish or otherwise burden a citizen for the

20[20] CIR v. Michel J. Lhuiller Pawnshop Inc., 453 Phil. 1043 (2003).

21[21] 220 Phil. 422 (1985).

transgression of a law of which he had no notice whatsoever, not even a constructive one.

 Perhaps at no time since the establishment of the Philippine

Republic has the publication of laws taken so vital significance that at this time when the people have bestowed upon the President a power heretofore enjoyed solely by the legislature. While the people are kept abreast by the mass media of the debates and deliberations in the Batasan Pambansa – and for the diligent ones, ready access to the legislative records – no such publicity accompanies the law-making process of the President. Thus, without publication, the people have no means of knowing what presidential decrees have actually been promulgated, much less a definite way of informing themselves of the specific contents and texts of such decrees. (Emphasis supplied)

 

Because petitioners failed to follow the requirements enumerated

by the Revised Administrative Code, the assailed regulation must be

struck down.

Going now to the content of CMO 27-3003, we likewise hold that

it is unconstitutional for being violative of the equal protection clause of

the Constitution.

The equal protection clause means that no person or class of

persons shall be deprived of the same protection of laws enjoyed by other

persons or other classes in the same place in like circumstances. Thus, the

guarantee of the equal protection of laws is not violated if there is a

reasonable classification. For a classification to be reasonable, it must be

shown that (1) it rests on substantial distinctions; (2) it is germane to the

purpose of the law; (3) it is not limited to existing conditions only; and

(4) it applies equally to all members of the same class.22[22]

Unfortunately, CMO 27-2003 does not meet these requirements.

We do not see how the quality of wheat is affected by who imports it,

where it is discharged, or which country it came from.

22[22] Philippine Rural Electric Cooperatives Association, Inc. v. DILG, 451 Phil. 683 (2003).

Thus, on the one hand, even if other millers excluded from CMO

27-2003 have imported food grade wheat, the product would still be

declared as feed grade wheat, a classification subjecting them to 7%

tariff. On the other hand, even if the importers listed under CMO 27-2003

have imported feed grade wheat, they would only be made to pay 3%

tariff, thus depriving the state of the taxes due. The regulation, therefore,

does not become disadvantageous to respondent only, but even to the

state.

It is also not clear how the regulation intends to “monitor more

closely wheat importations and thus prevent their misclassification.” A

careful study of CMO 27-2003 shows that it not only fails to achieve this

end, but results in the opposite. The application of the regulation

forecloses the possibility that other corporations that are excluded from

the list import food grade wheat; at the same time, it creates an

assumption that those who meet the criteria do not import feed grade

wheat. In the first case, importers are unnecessarily burdened to prove the

classification of their wheat imports; while in the second, the state carries

that burden.

Petitioner Commissioner of Customs also went beyond his powers

when the regulation limited the customs officer’s duties mandated by

Section 1403 of the Tariff and Customs Law, as amended. The law

provides:

Section 1403. – Duties of Customs Officer Tasked to Examine, Classify, and Appraise Imported Articles. – The customs officer tasked to examine, classify, and appraise imported articles shall determine whether the packages designated for examination and their contents are in accordance with the declaration in the entry, invoice and other pertinent documents and shall make return in such a manner as to indicate whether the articles have been truly and correctly declared in the entry as regard their quantity, measurement, weight, and tariff classification and not imported

contrary to law. He shall submit samples to the laboratory for analysis when feasible to do so and when such analysis is necessary for the proper classification, appraisal, and/or admission into the Philippines of imported articles.

Likewise, the customs officer shall determine the unit of quantity in which they are usually bought and sold, and appraise the imported articles in accordance with Section 201 of this Code.

Failure on the part of the customs officer to comply with his duties shall subject him to the penalties prescribed under Section 3604 of this Code.

The provision mandates that the customs officer must first assess

and determine the classification of the imported article before tariff may

be imposed. Unfortunately, CMO 23-2007 has already classified the

article even before the customs officer had the chance to examine it. In

effect, petitioner Commissioner of Customs diminished the powers

granted by the Tariff and Customs Code with regard to wheat importation

when it no longer required the customs officer’s prior examination and

assessment of the proper classification of the wheat.

It is well-settled that rules and regulations, which are the product of

a delegated power to create new and additional legal provisions that have

the effect of law, should be within the scope of the statutory authority

granted by the legislature to the administrative agency. It is required that

the regulation be germane to the objects and purposes of the law; and that

it be not in contradiction to, but in conformity with, the standards

prescribed by law.23[23]

In summary, petitioners violated respondent’s right to due process

in the issuance of CMO 27-2003 when they failed to observe the

requirements under the Revised Administrative Code. Petitioners

23[23] Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles v. Home Development Mutual Fund, 389 Phil. 296 (2000).

likewise violated respondent’s right to equal protection of laws when they

provided for an unreasonable classification in the application of the

regulation. Finally, petitioner Commissioner of Customs went beyond his

powers of delegated authority when the regulation limited the powers of

the customs officer to examine and assess imported articles.

WHEREFORE, in view of the foregoing, the Petition is

DENIED.

SO ORDERED.

 

MARIA LOURDES P. A. SERENO

Associate Justice  WE CONCUR: 

  

ANTONIO T. CARPIO

Associate Justice

Chairperson  

 

 

ARTURO D. BRION JOSE PORTUGAL PEREZAssociate Justice Associate Justice

 

 

 

 

 

BIENVENIDO L. REYES

Associate Justice

 

 

 

 

 

A T T E S T A T I O N

 

I attest that the conclusions in the above Decision were reached in

consultation before the case was assigned to the writer of the opinion of

the Court’s Division.

 

ANTONIO T. CARPIO Associate Justice

Chairperson, Second Division

 

 

 

C E R T I F I C A T I O N

 

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s

Attestation, I certify that the conclusions in the above Decision had been reached in consultation before

the case was assigned to the writer of the opinion of the Court’s Division.

 

 RENATO C. CORONA

Chief Justice

 

 

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 3473            March 22, 1907

J. CASANOVAS, plaintiff-appellant, vs.JNO. S. HORD, defendant-appellee.

F.G. Waite for appellant.Attorney-General Araneta for appellee.

WILLARD, J.:

The plaintiff brought this action against the defendant, the Collector of Internal Revenue, to recover the sum of P9,600, paid by him under protest as taxes on certain mining claims owned by him in the Province of Ambos Camarines. Judgment was rendered in the court below in favor of the defendant, and from that judgment the plaintiff appealed.

There is no dispute about the facts.

In January, 1897, the Spanish Government, in accordance with the provisions of the royal decree of the 14th of May, 1867, granted to the plaintiff certain mines in the said Province of Ambos Camarines, of which mines the plaintiff is now the owner.

That there were valid perfected mining concessions granted prior to the 11th of April, 1899, is conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall within the provisions of section 134 of Act No. 1189, known as the Internal Revenue Act. That section is as follows:

SEC. 134. On all valid perfected mining concessions granted prior to April eleventh, eighteen hundred and ninety-nine, there shall be levied and collected on the after January first, nineteen hundred and five, the following taxes:

2. (a) On each claim containing an area of sixty thousand square meters, an annual tax of one hundred pesos; (b) and at the same rate proportionately on each claim containing an area in excess of, or less than, sixty thousand square meters.

3. On the gross output of each an ad valorem tax equal to three per centum of the actual market value of such output.

The defendant accordingly imposed upon these properties the tax mentioned in section 134, which tax, as has before been stated, plaintiff paid under protest.

The only question in the case is whether this section 134 is void or valid.

I. It is claimed by the plaintiff that it is void because it comes within the provision of section 5 of the act of Congress of July 1, 19021 (32 U.S. Stat. L., 691), which provides "that no law impairing the obligation of contracts shall be enacted." The royal decree of the 14th of May, 1867, provided, among other things, as follows:

ART. 76. On each pertenencia minera (mining claim) of the area prescribed in the first paragraph of article 13 (sixty thousand square meters) there shall be paid annually a fixed tax of forty escudos (about P20.00). The pertenencia referred to in the second paragraph of the same article, though of greater area than the others (one hundred and fifty thousand square meters), shall pay only twenty escudos (about P10.00).

ART. 78. Pertenencia of iron mines and mines of combustible minerals shall be exempt from the annual tax for a period of thirty years from the date of publication of this decree.

ART. 80. A further tax of three per centum on the gross earnings shall be paid without deduction of costs of any kind whatsoever. All substances enumerated in section one shall be exempt from said tax of three per centum for a period of thirty years.

ART. 81. No other taxes than those herein mentioned shall be imposed upon mining and metallurgical industries.

The royal decree and regulation for its enforcement provided that the deeds granted by the Government should be in a particular form, which form was inserted in the regulations. It must be presumed that the deeds granted to the plaintiff were made as provided by law, and, in fact, one of such concessions was exhibited during the argument in this court, and was found to be in exact conformity with the form prescribed by law. The deed is as follows:

Don Camilo Garcia de Polavieja, Marquez de Polavieja, Teniente General de los Ejercitos Nacionales, Caballero Gran Cruz de la Real y Militar Orden de San Hermenegildo, de la Real y distinguida de Isabel la Catolica, de la del Merito Militar Roja, de la de la Corona de Italia, Comendador de Carlos Tercero, Bennemerito de la Patria en grado eminente, condecorado con varias cruses de distincion por meritos de guerra, Capitan General y Gobernador General de Filipinas.

Whereas I have granted to Don Joaquin Casanovas y Llovet and to Don Martin Buck the concession of a gold mine entitled "Nueva California Segunda" in the jurisdiction of Paracale, Province of Ambos Camarines: Now, therefore, in the name of His Majesty the King (whom God preserve), and pursuant to the provisions of article 37 of the royal decree of May 14, 1867, regulating mining in these Islands, I issue, this fifth day of November, eighteen hundred and ninety-six, this title deed to four pertenencias, comprising an area of two hundred and forty thousand square meters, as shown in the attached sketch map drafted by the engineer Don Enrique Abella y Casariego, and dated at Manila December sixteenth of the said year, subject to the following general terms and conditions:

1. That the mine shall be worked in conformity with the rules in mining, the grantee and his laborers to be governed by the police rules established by existing regulations.

2. That the grantee shall be liable for all damages to third parties that may be caused by his operations.

3. That the grantee shall likewise indemnify his neighbors for any damage they may suffer by reason of water accumulated on his works, if, upon being requested, he fail to drain the same within the time indicated.

4. That he shall contribute for the drainage of the adjacent mines and for the general galleries for drainage or haulage in proportion to the benefit he derives therefrom, whenever, by authority of the Governor-General, such works shall be opened for a group of pertenencias or for the entire mining locality in which the mine is situated.

5. That he shall commence work on the mine immediately upon receipt of this concession unless prevented by force majeure.

6. That he shall keep the mine in active operation by employing at the rate of at least four laborers for each pertenencia for at least six months of each year.

7. That he shall strengthen the walls of the mine within the time indicated whenever, by reason of mismanagement of the work, it threatens to cave in, unless he be prevented by force majeure.

8. That he shall not render further profitable development of the mine difficult or impossible by avaricious operation.

9. That he shall not suspend the operation of the mine with the intention of abandoning the same without first informing the Governor of his intention, in which case he must leave the mine in a good state of timbering.

10. That he shall pay taxes on the mine and its output as prescribed in the royal decree.

11. Finally, that he shall comply with all the requirements contained in the royal decree and in the regulations for concessions of the same nature as the present.

Without special conditions.

Now, therefore, by virtue of this title deed, I grant to Don Joaquin Casanovas y Llovet and to Don Martin Buck the ownership of the said mine for an unlimited period of time so long as they shall comply with the foregoing terms and conditions, to the end that they may develop the same and make free use and disposition of the output thereof, with the right to alienate the said mine subject to the provisions of existing laws, and to enjoy all the rights and benefits conceded to such grantees by the royal decree and by the mining regulations. And for the prompt fulfillment and observance of the said conditions, both on the part of the said grantees and by all authorities, courts, corporations, and private persons whom it may concern, I have ordered this title deed to be issued — given under my hand and the proper seal and countersigned by the undersigned Director-General of Civil Administration.

It seems very clear to us that this deed constituted a contract between the Spanish Government and the plaintiff, the obligation of which contract was impaired by the enactment of section 134 of the Internal Revenue Law above cited, thereby infringing the provisions above quoted from section 5 of the act of Congress of July 1, 1902. This conclusion seems necessarily to result from the decisions of the Supreme Court of the United States in similar cases. In the case of McGee vs. Mathis (4 Wallace, 143), it appeared that the State of Arkansas, by an act of the legislature of 1851, provided for the sale of certain swamp lands granted to it by the United States; for the issue of transferable scrip receivable for any lands not already taken up at the time of selection by the holder; for contracts for the making of levees and drains, and for the payment of contractors in scrip and otherwise. In the fourteenth section of this act it was provided that —

To encourage by all just means the progress and completion of the reclaiming of such lands by offering inducements to purchasers and contractors to take up said lands, all said swamp and overflowed lands shall be exempt from taxation for the term of ten years or until they shall be reclaimed.

In 1855 this section was repealed and provision was made by law for the taxation of swamp and overflowed lands, sold or to be sold, precisely as other lands. McGee, before this appeal, had become the owner by transfer from contractors of a large amount of scrip issued under the Act of 1851, and with this scrip, after the repeal, took up and paid for many sections and parts of sections of the granted lands. Taxes were levied by the State on the lands so taken up by McGee. The Supreme Court held that these taxes could not be collected. The Court said at page 156:

It seems quite clear that the Act of 1851 authorizing the issue of land scrip constituted a contract between the State and the holders of the land scrip issued under the act.

In the case of the Home of the Friendless vs. Rouse (8 Wallace, 430), it appeared that on the 3d day of February, 1853, the legislature of Missouri passed on act to incorporate the Home of the Friendless in the city of St. Louis. Section 1 of the act provided that —

All property of said corporation shall be exempt from taxation.

The court held that the State had no power afterwards to pass laws providing for the levying of taxes upon this institution. The Court said among other things at page 438:

The validity of this contract is questioned at the bar on the ground that the legislature had no authority to grant away the power of taxation. The answer to this position is, that the question is no longer open for argument here, for it is settled by the repeated adjudications of this court, that a State may be contract based on a consideration exempt the property of an individual or corporation from taxation, either for a specified period or permanently. And it is equally well settled that the exemption is presumed to be on sufficient consideration, and binds the State if the charter containing it is accepted.

In the case of The Asylum vs. The City of New Orleans (105 U.S., 362), it appears that St. Ariva's Asylum was incorporated by an act of the legislature of Louisiana, approved April 29, 1853. The law incorporating it provided that it should enjoy the same exemption from taxation which was enjoyed by the Orphan Boys' Asylum of New Orleans. The law relating to the last named institution provided (page 364):

That, from and after the passage of this act, all the property, real and personal, belonging to the Orphan Boys' Asylum of New Orleans be, and the same is hereby exempted from all taxation, either by the State, parish, or city in which it is situated, any law to the contrary notwithstanding.

It was held that the State had no power by subsequent legislation to impose taxes upon the property of this institution.

That the doctrine announced in these cases is still maintained in that court is apparent from the case of Powers vs. The Detroit, Grand Haven and Milwaukee Railway which was decided on the 16th of April, 1906, and reported in 201 U. S., 543. Section 9 of the act of the legislature of Michigan, incorporating the railway company, provided:

Said company shall, on or before the 1st day of July, pay to the State treasurer, an annual tax of one per cent on the capital stock of said company, pain in, which tax shall be in lieu of all other taxation.

The court said at page 556:

It has often been decided by this court, so often that a citation on authorities in unnecessary, that the legislature of a State may, in the absence of special restrictions in its constitution, make a valid contract with a corporation in respect to taxation, and that such contract can be enforced against the State at the instance of the corporation.

The case at bar falls within the cases hereinbefore cited. It is to be distinguished from the case of the Metropolitan Street Railway Company vs. The New York State Board of Tax Commissioners (199 U.S., 1). In that case it was provided by various acts of the legislature, that the companies therein referred to, should pay annually to the city of New York, a fixed amount or percentage, varying from 2 to 8 per cent of their gross earnings additional taxes was sustained by the court. It was sustained on the ground that the prior legislation did not expressly say that the taxes thus provided for should be in lieu of all other taxes. The court said at page 37:

Applying these well-established rules to the several contracts, it will be perceived that there was no express relinquishment of the right of taxation. The plaintiff in error must rely upon

some implication, and not upon any direct stipulation. In each contract there was a grant of privileges, but the grant was specifically or privileges in respect to the construction, operation and maintenance of the street railroad. These were all that in terms were granted. As consideration for this grant, the grantees were to pay something, and such payment is nowhere said to be in lieu of, or as an equivalent or substitute of taxes. All that can be extracted from the language used, was a grant of privileges and a payment therefor. Other words must be written into the contract before there can be found any relinquishment of the power of taxation.

But in the case at bar, there is found not only the provisions for the payment of certain taxes annually, but there is also found the provision contained in article 81, above quoted, which expressly declares that no other taxes shall be imposed upon these mines.

The present case is to be distinguished also from that class of cases of which Grands Lodge vs. The City of New Orleans (166 U.S., 143) is a type, and which includes Salt Company vs. East Saginaw (13 Wall., 373) and Welch vs. Cook (97 U.S., 541). In these cases the exemption was a mere bounty and did not form a part of any contract.

The fact that this concession was made by the Government of Spain, and not by the Government of the United States, is not important. (Trustees of Dartmouth College vs. Woodward, 4 Wheaton, 518.)

Our conclusion is that the concessions granted by the Government of Spain to the plaintiff, constitute contracts between the parties; that section 134 of the Internal Revenue Law impairs the obligation of these contracts, and is therefore void as to them.

II. We think that this section is also void because in conflict with section 60 of the act of Congress of July 1, 1902. This section is as follows:

That nothing in this Act shall be construed to effect the rights of any person, partnership, or corporation, having a valid, perfected mining concession granted prior to April eleventh, eighteen hundred and ninety-nine, but all such concessions shall be conducted under the provisions of the law in force at the time they were granted, subject at all times to cancellation by reason of illegality in the procedure by which they were obtained, or for failure to comply with the conditions prescribed as requisite to their retention in the laws under which they were granted: Provided, That the owner or owners of every such concession shall cause the corners made by its boundaries to be distinctly marked with permanent monuments within six months after this act has been promulgated in the Philippine Islands, and that any concessions, the boundaries of which are not so marked within this period shall be free and open to explorations and purchase under the provisions of this act.2

This section seems to indicate that concessions, like those in question, can be canceled only by reason of illegality in the procedure by which they were obtained, or for failure to comply with the conditions prescribed as requisite for their retention in the laws under which they were granted. There is nothing in the section which indicates that they can be canceled for failure to comply with the conditions prescribed by subsequent legislation. In fact, the real intention of the act seems to be that such concession should be subject to the former legislation and not to any subsequent legislation. There is no claim in this case that there was any illegality in the procedure by which these concessions were obtained, nor is there any claim that the plaintiff has not complied with the conditions prescribed in the said royal decree of 1867.

III. In view of the result at which we have arrived, it is not necessary to consider the further claim made by the plaintiff that the taxes imposed by article 134 above quoted, are in violation of the part of section 5 of the act of July 1, 1902, which declares "that the rule of taxation in said Islands shall be uniform."

The judgment of the court below is reversed, and judgment is ordered in favor of the plaintiff and against the defendant for P9,600, with interest thereon, at 6 per cent, from the 21st day of February, 1906, and the costs of the Court of First Instance. No costs will be allowed to either party in this court.

After the expiration of twenty days let judgment be entered in accordance herewith and ten days thereafter let the case be remanded to the court from whence it came for proper action. So ordered.

Arellano, C.J., Torres, Mapa, and Tracey, JJ., concur.Johnson, J., dissents.

Footnotes

1 I Pub. Laws, 1057.

2 I Pub. Laws, 1071.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-9637             April 30, 1957

AMERICAN BIBLE SOCIETY, plaintiff-appellant, vs.CITY OF MANILA, defendant-appellee.

City Fiscal Eugenio Angeles and Juan Nabong for appellant.Assistant City Fiscal Arsenio Nañawa for appellee.

FELIX, J.:

Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the Philippines through its Philippine agency established in Manila in November, 1898, with its principal office at 636 Isaac Peral in said City. The defendant appellee is a municipal corporation with powers that are to be exercised in conformity with the provisions of Republic Act No. 409, known as the Revised Charter of the City of Manila.

In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles and/or gospel portions thereof (except during the Japanese occupation) throughout the Philippines and translating the same into several Philippine dialects. On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff that it was conducting the business of general merchandise since November, 1945, without providing itself with the necessary Mayor's permit and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three days, the corresponding permit and license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 (Annex A).

Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit and pay under protest the sum of P5,891.45, if suit was to be taken in court regarding the same (Annex B). To avoid the closing of its business as well as further fines and penalties in the premises on October 24, 1953, plaintiff paid to the defendant under protest the said permit and license fees in the aforementioned amount, giving at the same time notice to the City Treasurer that suit would be taken in court to question the legality of the ordinances under which, the said fees were being collected (Annex C), which was done on the same date by filing the complaint that gave rise to this action. In its complaint plaintiff prays that judgment be rendered declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be ordered to refund to the plaintiff the sum of P5,891.45 paid under protest, together with legal interest thereon, and the costs, plaintiff further praying for such other relief and remedy as the court may deem just equitable.

Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the Municipal Board of the City of Manila by virtue of the power granted to it by section 2444, subsection (m-2) of the Revised Administrative Code, superseded 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 praying that the complaint be dismissed, with costs against plaintiff. This answer was replied by the plaintiff reiterating the unconstitutionality of the often-repeated ordinances.

Before trial the parties submitted the following stipulation of facts:

COME NOW the parties in the above-entitled case, thru their undersigned attorneys and respectfully submit the following stipulation of facts:

1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral, Manila, Bibles, New Testaments, bible portions and bible concordance in English and other foreign languages imported by it from the United States as well as Bibles, New Testaments and bible portions in the local dialects imported and/or purchased locally; that from the fourth quarter of 1945 to the first quarter of 1953 inclusive the sales made by the plaintiff were as follows:

Quarter Amount of Sales

4th quarter 1945 P1,244.21

1st quarter 1946 2,206.85

2nd quarter 1946 1,950.38

3rd quarter 1946 2,235.99

4th quarter 1946 3,256.04

1st quarter 1947 13,241.07

2nd quarter 1947 15,774.55

3rd quarter 1947 14,654.13

4th quarter 1947 12,590.94

1st quarter 1948 11,143.90

2nd quarter 1948 14,715.26

3rd quarter 1948 38,333.83

4th quarter 1948 16,179.90

1st quarter 1949 23,975.10

2nd quarter 1949 17,802.08

3rd quarter 1949 16,640.79

4th quarter 1949 15,961.38

1st quarter 1950 18,562.46

2nd quarter 1950 21,816.32

3rd quarter 1950 25,004.55

4th quarter 1950 45,287.92

1st quarter 1951 37,841.21

2nd quarter 1951 29,103.98

3rd quarter 1951 20,181.10

4th quarter 1951 22,968.91

1st quarter 1952 23,002.65

2nd quarter 1952 17,626.96

3rd quarter 1952 17,921.01

4th quarter 1952 24,180.72

1st quarter 1953 29,516.21

2. That the parties hereby reserve the right to present evidence of other facts not herein stipulated.

WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties may present further evidence on their behalf. (Record on Appeal, pp. 15-16).

When the case was set for hearing, plaintiff proved, among other things, that it has been in existence in the Philippines since 1899, and that its parent society is in New York, United States of America; that its, contiguous real properties located at Isaac Peral are exempt from real estate taxes; and that it was never required to pay any municipal license fee or tax before the war, nor does the American Bible Society in the United States pay any license fee or sales tax for the sale of bible therein. Plaintiff further tried to 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 in order to maintain its operating cost it obtains substantial remittances from its New York office and voluntary contributions and gifts from certain churches, both in the United States and in the Philippines, which are interested in its missionary work. Regarding plaintiff's contention of lack of profit in the sale of bibles, defendant retorts that the admissions of plaintiff-appellant's lone witness who testified on cross-examination that bibles bearing the price of 70 cents each from plaintiff-appellant's New York office are sold here by plaintiff-appellant at P1.30 each; those 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 bearing the price of $11 each are sold here at P22 each, clearly show that plaintiff's contention that it never makes any profit from the sale of its bible, is evidently untenable.

After hearing the Court rendered judgment, the last part of which is as follows:

As may be seen from the repealed section (m-2) of the Revised Administrative Code and the repealing portions (o) of section 18 of Republic Act No. 409, although they seemingly differ in the way the legislative intent is expressed, yet their meaning is practically the same for the purpose of taxing the merchandise mentioned in said legal provisions, and that the taxes to be levied by said ordinances is in the nature of percentage graduated taxes (Sec. 3 of Ordinance No. 3000, as amended, and Sec. 1, Group 2, of Ordinance No. 2529, as amended by Ordinance No. 3364).

IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so holds that this case should be dismissed, as it is hereby dismissed, for lack of merits, with costs against the plaintiff.

Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the case to Us for the reason that the errors assigned to the lower Court involved only questions of law.

Appellant contends that the lower Court erred:

1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not unconstitutional;

2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under which Ordinances Nos. 2592 and 3000 were promulgated, was not repealed by Section 18 of Republic Act No. 409;

3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in order to be valid under the new Charter of the City of Manila, must first be approved by the President of the Philippines; and

4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial proportions, it cannot escape from the operation of said municipal ordinances under the cloak of religious privilege.

The issues. — As may be seen from the proceeding statement of the case, the issues involved in the present controversy may be reduced to the following: (1) whether or not the ordinances of the City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and valid; and (2) whether the provisions of said ordinances are applicable or not to the case at bar.

Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides that:

(7) No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof, and the free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religion test shall be required for the exercise of civil or political rights.

Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529 and 3000, as respectively amended, are unconstitutional and illegal in so far as its society is concerned, because they provide for religious censorship and restrain the free exercise and enjoyment of its religious profession, to wit: the distribution and sale of bibles and other religious literature to the people of the Philippines.

Before entering into a discussion of the constitutional aspect of the case, We shall first consider the provisions of the questioned ordinances in relation to their application to the sale of bibles, etc. by appellant. The records, show that by letter of May 29, 1953 (Annex A), the City Treasurer required plaintiff to secure a Mayor's permit in connection with the society's alleged business of distributing and selling bibles, etc. and to pay permit dues in the 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 permit required by Ordinance No. 3000 of the City of Manila, as amended. This Ordinance is of general application and not particularly directed against institutions like the plaintiff, and it does not contain any provisions whatever prescribing religious censorship nor restraining the free exercise and enjoyment of any religious profession. Section 1 of Ordinance No. 3000 reads as follows:

SEC. 1. PERMITS NECESSARY. — It shall be unlawful for any person or entity to conduct or engage in any of the businesses, trades, or occupations enumerated in Section 3 of this Ordinance or other businesses, trades, or occupations for which a permit is required for the proper supervision and enforcement of existing laws and ordinances governing the sanitation, security, and welfare of the public and the health of the employees engaged in the business specified in said section 3 hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY TREASURER.

The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in Section 3 of the Ordinance, and the record does not show that a permit is required therefor under

existing laws and ordinances for the proper supervision and enforcement of their provisions governing the sanitation, security and welfare of the public and the health of the employees engaged in the business of the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which reads as follows:

79. All other businesses, trades or occupations not mentioned in this Ordinance, except those upon which the City is not empowered to license or to tax P5.00

Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said business, trade or occupation.

As to the license fees that the Treasurer of the City of Manila required the society to pay from the 4th quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of P50 as compromise, Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028 prescribes the following:

SEC. 1. FEES. — Subject to the provisions of section 578 of the Revised Ordinances of the City of Manila, as amended, there shall be paid to the City Treasurer for engaging in any of the businesses or occupations below enumerated, quarterly, license fees based on gross sales or receipts realized during the preceding quarter in accordance with the rates herein prescribed: PROVIDED, HOWEVER, That a person engaged in any businesses or occupation for the first time shall pay the initial license fee based on the probable gross sales or receipts for the first quarter beginning from the date of the opening of the business as indicated herein for the corresponding business or occupation.

x x x           x x x           x x x

GROUP 2. — Retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax, such as (1) retail dealers in general merchandise; (2) retail dealers exclusively engaged in the sale of . . . books, including stationery.

x x x           x x x           x x x

As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No. 2529, as amended, are not imposed directly upon any religious institution but upon those engaged in any of the business or occupations therein enumerated, such as retail "dealers in general merchandise" which, it is alleged, cover the business or occupation of selling bibles, books, etc.

Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of said legal body, as amended by Act No. 3659, approved on December 8, 1929, empowers the Municipal Board of the City of Manila:

(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both, and (b) retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax.

For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in general merchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles . . . (e) books, including stationery, paper and office supplies, . . .: PROVIDED, HOWEVER, That the combined total tax of any debtor or manufacturer, or both, enumerated under these subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned herein, SHALL NOT BE IN EXCESS OF FIVE HUNDRED PESOS PER ANNUM.

and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were enacted in virtue of the power that said Act No. 3669 conferred upon the City of Manila. Appellant, however,

contends that said ordinances are longer in force and effect as the law under which they were promulgated has been expressly repealed by Section 102 of Republic Act No. 409 passed on June 18, 1949, known as the Revised Manila Charter.

Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly repealed the provisions of Chapter 60 of the Revised Administrative Code but in the opinion of the trial Judge, although Section 2444 (m-2) of the former Manila Charter and section 18 (o) of the new seemingly differ in the way the legislative intent was expressed, yet their meaning is practically the same for the purpose of taxing the merchandise mentioned in both legal provisions and, consequently, Ordinances Nos. 2529 and 3000, as amended, are to be considered as still in full force and effect uninterruptedly up to the present.

Often the legislature, instead of simply amending the pre-existing statute, will repeal the old statute in its entirety and by the same enactment re-enact all or certain portions of the preexisting law. Of course, the problem created by this sort of legislative action involves mainly the effect of the repeal upon rights and liabilities which accrued under the original statute. Are those rights and liabilities destroyed or preserved? The authorities are divided as to the effect of simultaneous repeals and re-enactments. Some adhere to the view that the rights and liabilities accrued under the repealed act are destroyed, since the statutes from which they sprang are actually terminated, even though for only a very short period of time. Others, and they seem to be in the majority, refuse to accept this view of the situation, and consequently maintain that all rights an liabilities which have accrued under the original statute are preserved and may be enforced, since the re-enactment neutralizes the repeal, therefore, continuing the law in force without interruption. (Crawford-Statutory Construction, Sec. 322).

Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider concept of taxation and is different from the provisions of Section 2444(m-2) that the former cannot be considered as a substantial re-enactment of the provisions of the latter. We have quoted above the provisions of section 2444(m-2) of the Revised Administrative Code and We shall now copy hereunder the provisions of Section 18, subdivision (o) of Republic Act No. 409, which reads as follows:

(o) To tax and fix the license fee on dealers in general merchandise, including importers and indentors, except those dealers who may be expressly subject to the payment of some other municipal tax under the provisions of this section.

Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail dealers. For purposes of the tax on retail dealers, general merchandise shall be classified into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each class but where commodities of different classes are sold in the same establishment, it shall not be compulsory for the owner to secure more than one license if he pays the higher or highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the license tax as such, as may be provided by ordinance.

For purposes of this section, the term "General merchandise" shall include poultry and livestock, agricultural products, fish and other allied products.

The only essential difference that We find between these two provisions that may have any bearing on the case at bar, is that, while subsection (m-2) prescribes that the combined total tax of any dealer or manufacturer, or both, enumerated under subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned therein, shall not be in excess of P500 per annum, the corresponding section 18, subsection (o) of Republic Act No. 409, does not contain any limitation as to the amount of tax or license fee that the retail dealer has to pay per annum. Hence, and in accordance with the weight of the authorities above referred to that maintain that "all rights and liabilities which have accrued under the original statute are preserved and may be enforced, since the reenactment neutralizes the repeal, therefore continuing the law in force without interruption", We hold that the questioned ordinances of the City of Manila are still in force and effect.

Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by the President of the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which reads as follows:

(ii) To tax, license and regulate any business, trade or occupation being conducted within the City of Manila, not otherwise enumerated in the preceding subsections, including percentage taxes based on gross sales or receipts, subject to the approval of the PRESIDENT, except amusement taxes.

but this requirement of the President's approval was not contained in section 2444 of the former Charter of the City of Manila under which Ordinance No. 2529 was promulgated. Anyway, as stated by appellee's counsel, the business of "retail dealers in general merchandise" is expressly enumerated in subsection (o), section 18 of Republic Act No. 409; hence, an ordinance prescribing a municipal tax on said business does not have to be approved by the President to be effective, as it is not among those referred to in said subsection (ii). Moreover, the questioned ordinances are still in force, having been promulgated by the Municipal Board of the City of Manila under the authority granted to it by law.

The question that now remains to be determined is whether said ordinances are inapplicable, invalid or unconstitutional if applied to the alleged business of distribution and sale of bibles to the people of the Philippines by a religious corporation like the American Bible Society, plaintiff herein.

With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028, appellant contends that it is unconstitutional and illegal because it restrains the free exercise and enjoyment of the religious profession and worship of appellant.

Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the freedom of religious profession and worship. "Religion has been spoken of as a profession of faith to an active power that binds and elevates man 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 they impose of reverence to His being and character, and obedience to His Will (Davis vs. Beason, 133 U.S., 342). The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any restraints of such right can only be justified like other restraints of freedom of expression on the grounds that there is a clear and present danger of any substantive evil which the State has the right to prevent". (Tañada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license fee herein involved is imposed upon appellant for its distribution and sale of bibles and other religious literature:

In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a license be obtained before a person could canvass or solicit orders for goods, paintings, pictures, wares or merchandise cannot be made to apply to members of Jehovah's Witnesses who went about from door to door distributing literature and soliciting people to "purchase" certain religious books and pamphlets, all published by the Watch Tower Bible & Tract Society. The "price" of the books was twenty-five cents each, the "price" of the pamphlets five cents each. It was shown that in making the solicitations there was a request for additional "contribution" of twenty-five cents each for the books and five cents each for the pamphlets. Lesser sum were accepted, however, and books were even donated in case interested persons were without funds.

On the above facts the Supreme Court held that it could not be said that petitioners were engaged in commercial rather than a religious venture. Their activities could not be described as embraced in the occupation of selling books and pamphlets. Then the Court continued:

"We do not mean to say that religious groups and the press are free from all financial burdens of government. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed. 660, 668, 56 S. Ct. 444. We have here something quite different, for example, from a tax on the income of one who engages in religious activities or a tax on property used or employed in connection with activities. It is one thing to impose a tax on the income or property of a preacher. It is quite another to exact a tax from him for the privilege of delivering a sermon. The tax

imposed by the City of Jeannette is a flat license tax, payment of which is a condition of the exercise of these constitutional privileges. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. . . . Those who can tax the exercise of this religious practice can make its exercise so costly as to deprive it of the resources necessary for its maintenance. Those who can tax the privilege of engaging in this form of missionary evangelism can close all its doors to all those who do not have a full purse. Spreading religious beliefs in this ancient and honorable manner would thus be denied the needy. . . .

It is contended however that the fact that the license tax can suppress or control this activity is unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license tax — a flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The power to impose a license tax on the exercise of these freedom is indeed as potent as the power of censorship which this Court has repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure to defray the expenses of policing the activities in question. It is in no way apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of press and religion and inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent vice and evil of this flat license tax."

Nor could dissemination of religious information be conditioned upon the approval of an official or manager 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 the United States itself as held in the case of Tucker vs. Texas (326 U.S. 517). In the former case the Supreme Court expressed the opinion that the right to enjoy freedom of the press and religion occupies a preferred position as against the constitutional right of property owners.

"When we balance the constitutional rights of owners of property against those of the people to enjoy freedom of press and religion, as we must here, we remain mindful of the fact that the latter occupy a preferred position. . . . In our view the circumstance that the property rights to the premises where the deprivation of property here involved, took place, were held by others than the public, is not sufficient to justify the State's permitting a corporation to govern a community of citizens so as to restrict their fundamental liberties and the enforcement of such restraint by the application of a State statute." (Tañada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 304-306).

Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, provides:

SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. — The following organizations shall not be taxed under this Title in respect to income received by them as such —

(e) Corporations or associations organized and operated exclusively for religious, charitable, . . . or educational purposes, . . .: Provided, however, That the income of whatever kind and character from any of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition made of such income, shall be liable to the tax imposed under this Code;

Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this tax and says that such exemption clearly indicates that the act of distributing and selling bibles, etc. is purely religious and does not fall under the above legal provisions.

It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in some instances a little bit higher than the actual cost of the same but this cannot mean that appellant was engaged in the business or occupation of selling said "merchandise" for profit. For this reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit before any person can engage in any of the businesses, trades or occupations enumerated therein, We do not find that it imposes any charge upon the enjoyment of a right granted by the Constitution, nor tax the exercise of religious practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427, this point was elucidated as follows:

An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or otherwise, circulars, handbooks, advertising, or literature of any kind, whether said articles are being delivered free, or whether same are being sold within the city limits of the City of Griffin, without first obtaining written permission from the city manager of the City of Griffin, shall be deemed a nuisance and punishable as an offense against the City of Griffin, does not deprive defendant of his constitutional right of the free exercise and enjoyment of religious profession and worship, even though it prohibits him from introducing and carrying out a scheme or purpose which he sees fit to claim as a part of his religious system.

It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if applied to plaintiff Society. 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.

Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from it. Without pronouncement as to costs. It is so ordered.

Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion and Endencia, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-39086 June 15, 1988

ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs.HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE, respondents.

 

PARAS, J.:

This is a petition for review on certiorari of the decision * of the defunct Court of First Instance of Abra, Branch I, dated June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented by Pedro V. Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of Bangued, Abra and Paterno Millare, defendants," the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the Court hereby declares:

That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the Provincial Treasurer of said province against the lot and building of the Abra Valley Junior College, Inc., represented by Director Pedro Borgonia located at Bangued, Abra, is valid;

That since the school is not exempt from paying taxes, it should therefore pay all back taxes in the amount of P5,140.31 and back taxes and penalties from the promulgation of this decision;

That the amount deposited by the plaintaff him the sum of P60,000.00 before the trial, be confiscated to apply for the payment of the back taxes and for the redemption of the property in question, if the amount is less than P6,000.00, the remainder must be returned to the Director of Pedro Borgonia, who represents the plaintiff herein;

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;

And finally the case is hereby ordered dismissed with costs against the plaintiff.

SO ORDERED. (Rollo, pp. 22-23)

Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot and building covered by Original

Certificate of Title No. Q-83 duly registered in the name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served upon the petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of said college lot and building, which sale was held on the same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra, offered the highest bid 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 deceased) filed through counstel a motion to dismiss the complaint.

On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972.

On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp. 106-108).

On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial and municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, petitioner, through Director Borgonia, deposited with the trial court the sum of P6,000.00 evidenced by PNB Check No. 904369.

On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. Said Stipulations reads:

STIPULATION OF FACTS

COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into the following agreed stipulation of facts:

1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is admitted; but the particular person of Mr. Armin M. Cariaga is to be substituted, however, by anyone who is actually holding the position of Provincial Treasurer of the Province of Abra;

2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings thereon located in Bangued, Abra under Original Certificate of Title No. 0-83;

3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused to be served upon the Abra Valley Junior College, Inc. a Notice of Seizure on the property of said school under Original Certificate of Title No. 0-83 for the satisfaction of real property taxes thereon, amounting to P5,140.31; the Notice of Seizure being the one attached to the complaint as Exhibit A;

4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at public auction for the satisfaction of the unpaid real property taxes thereon and the same was sold to defendant Paterno Millare who offered the highest bid of P6,000.00 and a Certificate of Sale in his favor was issued by the defendant Municipal Treasurer.

5. That all other matters not particularly and specially covered by this stipulation of facts will be the subject of evidence by the parties.

WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this stipulation of facts on the point agreed upon by the parties.

Bangued, Abra, April 12, 1973.

Sgd. Agripino Brillantes Typ AGRIPINO BRILLANTES Attorney for Plaintiff

Sgd. Loreto Roldan

Typ LORETO ROLDAN Provincial Fiscal Counsel for Defendants

Provincial Treasurer of

Abra and the Municipal Treasurer of Bangued, Abra

Sgd. Demetrio V. Pre Typ. DEMETRIO V. PRE Attorney for Defendant Paterno Millare (Rollo, pp. 17-18)

Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is recognized by the government and is offering Primary, High School and College Courses, and has a school population of more than one thousand students all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and about 120 meters from the Court of First Instance building; (c) that the elementary pupils are housed in a two-storey building across the street; (d) that the high school and college students are housed in the main building; (e) that the Director with his family is in the second floor of the main building; and (f) that the annual gross income of the school reaches more than one hundred thousand pesos.

From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether or not the lot and building in question are used exclusively for educational purposes. (Rollo, p. 20)

The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein they opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school building and school lot used for educational purposes of the Abra Valley College, Inc., are exempted from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).

Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school for residential purposes. He thus ruled for the government and rendered the assailed decision.

After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its appeal (Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant petition for review on certiorari with prayer for preliminary injunction before this Court, which petition was filed on August 17, 1974 (Rollo, p.2).

In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo, p. 58). Respondents were required to answer said petition (Rollo, p. 74).

Petitioner raised the following assignments of error:

I

THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.

II

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.

III

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES.

IV

THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)

The main issue in this case is the proper interpretation of the phrase "used exclusively for educational purposes."

Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use thereof, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and sale of subject college lot

and building, which are contrary thereto as well as to the provision of Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal basis and therefore void.

On the other hand, private respondents maintain that the college lot and building in question which were subjected to seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for commercial purposes because the ground floor of the college building is being used and rented by a commercial establishment, the Northern Marketing Corporation (See photograph attached as Annex "8" (Comment; Rollo, p. 90]).

Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption from realty taxes for "Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes ...

Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409, otherwise known as the Assessment Law, provides:

The following are exempted from real property tax under the Assessment Law:

xxx xxx xxx

(c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, scientific or educational purposes.

xxx xxx xxx

In this regard petitioner argues that the primary use of the school lot and building is the basic and controlling guide, norm and standard to determine tax exemption, and not the mere incidental use thereof.

As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court ruled that while it may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still these do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for religious, charitable and educational purposes, and as such, it is entitled to be exempted from taxation.

In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified that the term "used exclusively" considers incidental use also. Thus, the exemption from payment of land tax in favor of the convent includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes incidental use in religious functions.

The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus —

Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which

are incidental to and reasonably necessary for the accomplishment of said purposes, such as in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such as "Athletic fields" including "a firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430).

The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).

It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purpose—educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.

It will be noted however that the aforementioned lease appears to have been raised for the first time in this Court. That the matter was not taken up in the to court is really apparent in the decision of respondent Judge. No mention thereof was made in the stipulation of facts, not even in the description of the school building by the trial judge, both embodied in the decision nor as one of the issues to resolve in order to determine whether or not said properly may be exempted from payment of real estate taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even after it was raised in this Court.

Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal. Nonetheless, as an exception to the rule, this Court has held that although a factual issue is not squarely raised below, still in the interest of substantial justice, this Court is not prevented from considering a pivotal factual matter. "The Supreme Court is clothed with ample authority to review palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved.

PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner.

SO ORDERED.

Yap, C.J., Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

 

Footnotes

* Penned by the respondent Judge, Hon. Judge P. Aquino.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-39699 March 14, 1979

SAN MIGUEL CORPORATION, petitioner, vs.HON. CELSO AVELINO, Presiding Judge of the Court of First In. stance of Cebu, Branch XIII, and the City of Mandaue, respondents.

Gadioma & Colon for petitioner.

Lorenzo A. Parandiang, Jr. and Amadeo D. Seno for respondent City of Mandaue.

 

FERNANDO, J.:

It is understandable for petitioner San Miguel Corporation to expect the speedy determination of its claim that the challenged ordinance of respondent City of Mandaue 1 imposing a specific tax should be nullified. Hence its concern at the failure of respondent Judge Celso Avelino of the Court of First Instance of Cebu, Branch XIII, to grant its motion to dismiss on the ground of lack of jurisdiction a complaint for the collection of such tax filed by respondent City. The challenged order reads as follows: "Acting on the [motion to dismiss] filed by the defendant through counsel on October 11, 1974 and the [opposition] thereto filed by the plaintiff through counsel on October 17, 1974, the Court finds no justifiable reason in dismissing the Complaint at this stage of the proceedings and hereby denies said motion." 2 Offhand, it would not be easy to assail its correctness, manifesting as it does caution and care in ascertaining the principal question involved in the suit for the collection of the specific tax, which is its validity. It is undoubted that under the Constitution, even the legislative body cannot deprive this Court of its appellate jurisdiction over all cases coming from inferior courts where the constitutionality or validity of an ordinance or the legality of any tax, impost, assessment, or toll is in question. 3 Since it is likewise expressly provided in Section 43 of the Judiciary Act that the original jurisdiction over all civil actions involving the legality of any tax, impost or assessment appertains to the Court of First Instance, 4 it takes a certain degree of ingenuity to allege that the lower court was bereft of such authority. Counsel for petitioner, Attorney Demosthenes B. Gadioma, both in the petition and in his scholarly and exhaustive memorandum, did seek to impart plausibility to a suit of this character by relying not so much on the alleges ultra vires or constitutional infirmity of the ordinance but rather on the failure of respondent City to follow the procedure set fort in the Local Tax Code. 5 It was contended that there was a finding of invalidity by the then Acting Justice Secretary, at present Acting Minister of Justice, Catalino Macaraig, Jr. There is inaccuracy in such a characterization as the actual phrase used by such dignitary is that it "is of doubtful validity. 6 The argument pressed is that a suit for collection is not the appeal provided for in the last sentence of Section 47: "The decision of the Secretary of Justice shall be final and executory unless, within thirty days upon receipt thereof, the aggrieved party contents the same in a court of competent jurisdiction." 7 Respondent City disagrees. It is its submission that the suit for collection cannot be viewed other than as an appeal. The aggrieved party, here respondent City, in the suit for collection, did definitely contest the correctness of the decision of the Secretary of Justice in a court of competent jurisdiction — this, even on the assumption that there was a finding a invalidity. The statutory purpose is thus satisfied. Such an action is in accordance with the traditional and appropriate procedure to test the legality of a statute, decree, or ordinance.

This Court finds such an approach persuasive. It conforms to the authoritative principle that the question of validity is for the judiciary to decide. As far back as the leading case of Marbury v. Madison, 8 where the American Supreme Court enunciated the principle of judicial review, Chief Justice Marshall stressed: "It is emphatically the province and duty of the judicial department to say what the law is." 9 That was precisely what was done by respondent City. It has likewise in its favor the fact that even the very decision of the Acting Secretary of Justice relied upon did not squarely rule on the validity of the ordinance but only on its "doubtful character." The writs prayed for, certiorari and prohibition, cannot issue.

The facts are undisputed. Respondent City, in accordance with Presidential Decree No. 231, enacted in 1973, to take effect on January 1, 1974, the challenged ordinance, otherwise known as the Mandaue City Tax Code. The City Treasurer, on April 1, 1974, demanded from petitioner payment of the made specific tax on the total volume of beer it produced in the City of Mandaue. Petitioner, on April 8, 1974, contested the correction of said specific tax "on the ground that Section 12(e) (7) in relation to Section 12(e) (1) and (2), Mandaue City Ordinance No. 97, is illegal and void because it imposed a specific tax beyond its territorial jurisdiction. " The matter was then referred by respondent City to its City Fiscal pursuant to such Presidential Decree. Its validity was sustained. Then came the appeal to the Secretary of Justice, with the then Acting Secretary of Justice Macaraig, as noted, rendering the opinion that it is "of doubtful validity." A suit for collection was thereafter filed by the City where it squarely put in issue the validity of such ordinance, thus contesting the opinion of the Acting Secretary of Justice.

The crucial issue from the petitioner's standpoint is whether the filing of such action after such opinion was rendered may be considered "an appeal" under the Presidential Decree. Hence the motion to dismiss by petitioner, which was denied, respondent Judge finding "no justifiable reason at [that] stage of the proceedings 10 rating in this petition for certiorari and prohibition.

To repeat, the petition must fait The writs prayed for cannot be granted.

1. Tersely and bluntly put, petitioner would deny the jurisdiction of respondent Judge to pass upon the validity of a challenged ordinance in an appropriate action. To say the least, there is unorthodoxy in such an approach What immediately calls attention is its novelty. It is opposed to and is not in conformity with the accepted juridical norm that the validity of a statute, an executive order or ordinance is a matter for the judiciary to decide and that whenever in the disposition of a pending case such a question becomes unavoidable, then it is not only the power but the duty of the Court to resolve such a question. In the pending suit by respondent City, sought to be dismissed by petitioner corporation, it specifically prayed "that Ordinance No. 97, Series of 1973, of the herein plaintiff is valid, legal, and enforceable in accordance with law; ... 11 Since both under the Constitution and the Judiciary Act, respondent Judge is vested with jurisdiction to make such a declaration, it would be, at the very least, premature for the corrective power of this Tribunal to be interposed , just because he did not, "at [that] stage of the proceedings," grant -the motion to dismiss on the allegation that there was lack of jurisdiction. The authorities support squarely the procedure followed by respondent City to remove doubts as to the validity of the ordinance in question. 12 Even more in point are these two decisions with reference to the municipal power to impose specific taxes on beverages manufactured within its territorial boundaries, City of Bacolod v. Gruet 13 and City of Naga v. Court of Appeals. 14 It is worth mentioning that in the first case cited, the entity involved is petitioner corporation, then known as San Miguel Brewery, Inc., defendant and appellant Gruet being sued in his capacity as manager of its Coca-Cola Plant in Bacolod City.

2. There is this reinforcement to the conclusion reached. To so construe Section 47 would be to raise a serious constitutional question For it would in effect bar what otherwise would be a proper case cognizable by a court precisely in the exercise of the conceded power of judicial review just because the procedure contended for which is that of an "appeal" under the circumstances a term vague and ambiguous, was not followed. Petitioner may not be sufficiently aware of the implications of such a proposition. It would run counter to the well-settled doctrine that between two possible modes of constructions, the one which would not

be in conflict with what is ordained by the Constitution is to be preferred. Every intendment of the law should lean towards its validity, not its invalidity. 15 The judiciary, as noted by Justice Douglas, should 6 favor that t interpret ration of legislation which gives it the greater chance of giving the test of constitutionality. 16

3. The inherent weakness of this suit for certiorari and prohibition is likewise discernible from the fact that the then Acting Secretary of Justice Macaraig limited himself to a finding that the ordinance in question was "of doubtful validity. 17 That is far from a categorical declaration of its being repugnant to the Constitution or its being ultra vires. That betrays a realization that unless and until the judiciary speaks in no uncertain terms, the presumption of validity continues misgivings as to the likelihood of an alleged infringement of any binding norm do not suffice. There is this aphorism from Justice Malcolm "To doubt is to sustain. 18 That is merely to accord recognition to the well-settled and binding doctrine that only in a very clear case is the judiciary judged in nullifying a statute, or ordinance.

4. One last word. The decision y does not extend to any de determination by this Court as to the validity, or lack of it, of the assailed ordinance. To do so would be, at the very least, premature. That is a function for the lower court to perform.

WHEREFORE, the petition is dismissed. The of the case before respondent Judge should be conducted as speedily as circumstances permit. Costs against petitioner.

Barredo, Antonio, Aquino, Concepcion, Jr., Santos, and Abad Santos, JJ., concur.

 

#Footnotes

1 Ordinance No. 97, Section 12 (1973).

2 Petition, Annex H.

3 According to Article X, Section 5, par. (2) of the Constitution: "The Supreme Court shall have the following powers: ... (2) Review and revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of the Court may provide, final judgments and decrees in inferior courts in — (a) all cases in which the constitutionality or validity of any treaty, executive agreement, law, ordinance, or executive order or regulation is in question, (b) All cases involving the legality of any tax, impost assessment, or toll, or any penalty imposed in relation thereto." Under the 1935 Constitution, the equivalent provision is found in Article VIII, Section, Section 2, par. (1) and (2).

4 Republic Act No. 296, Section 43 (1948).

5 Presidential Decree No. 231, Section 47 (1973).

6 Petition, par. 7 and Annex E.

7 Last sentence of PD 231, Section 47.

8 1 Cranch 137 (1803).

9 Ibid, 175.

10 Petition, Annex H.

11 Petition, Annex F.

12 To speak of recent cases alone, the following may be Cited. YU King v. City of Zamboanga L-20406, Dec. 29, 1966, 18 SCRA 1241; Ormoc Sugar Co., Inc. v. Municipal Board of Ormoc City, L-24322, July 21, 1967, 20 SCRA 739; Villanueva v. City of Iloilo 1,26521, Dec. 28, 1968, 26 SCRA 578; Serafica v. Treasurer or City, L-24813, April 28, 1969, 27 SCRA 11 08; Procter and Gamble Trading Co. v. Municipality of Medina, L-29125, Jan. 31, 1972, 43 SCRA 130; City of Bacolod v. Enriquez, L-27408, July 25, 1975, 65 SCRA 381.

13 117 Phil. 181 (1963).

14 L-24954, August 14, 1968, 24 SCRA 594.

15 Cf. in re Guariña 24 Phil. 37 (1913); Radiowealth v. Agregardo do, 86 Phil. 429 (1950); Sanchez v. Lyon Construction, 87 Phil. 309 (1950); Uy v. Genato, L-37399, May 29, 1974, 57 SCRA 123.

16 Ex parte Endo 323 US 283, 300 (1944).

17 Petition, par 7 Annex E.

18 Yu Cong Eng v. Trinidad, 47 Phil. 385, 414 (1925).

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-65773-74 April 30, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX APPEALS, respondents.

Quasha, Asperilla, Ancheta, Peña, Valmonte & Marcos for respondent British Airways.

 

MELENCIO-HERRERA, J.:

Petitioner Commissioner of Internal Revenue (CIR) seeks a review on certiorari of the joint Decision of the Court of Tax Appeals (CTA) in CTA Cases Nos. 2373 and 2561, dated 26 January 1983, which set aside petitioner's assessment of deficiency income taxes against respondent British Overseas Airways Corporation (BOAC) for the fiscal years 1959 to 1967, 1968-69 to 1970-71, respectively, as well as its Resolution of 18 November, 1983 denying reconsideration.

BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United Kingdom It is engaged in the international airline business and is a member-signatory of the Interline Air Transport Association (IATA). As such it operates air transportation service and sells transportation tickets over the routes of the other airline members. During the periods covered by the disputed assessments, it is admitted that BOAC had no landing rights for traffic purposes in the Philippines, and was not granted a Certificate of public convenience and necessity to operate in the Philippines by the Civil Aeronautics Board (CAB), except for a nine-month period, partly in 1961 and partly in 1962, when it was granted a temporary landing permit by the CAB. Consequently, it did not carry passengers and/or cargo to or from the Philippines, although during the period covered by the assessments, it maintained a general sales agent in the Philippines — Wamer Barnes and Company, Ltd., and later Qantas Airways — which was responsible for selling BOAC tickets covering passengers and cargoes. 1

G.R. No. 65773 (CTA Case No. 2373, the First Case)

On 7 May 1968, petitioner Commissioner of Internal Revenue (CIR, for brevity) assessed BOAC the aggregate amount of P2,498,358.56 for deficiency income taxes covering the years 1959 to 1963. This was protested by BOAC. Subsequent investigation resulted in the issuance of a new assessment, dated 16 January 1970 for the years 1959 to 1967 in the amount of P858,307.79. BOAC paid this new assessment under protest.

On 7 October 1970, BOAC filed a claim for refund of the amount of P858,307.79, which claim was denied by the CIR on 16 February 1972. But before said denial, BOAC had already filed a petition for review with the Tax Court on 27 January 1972, assailing the assessment and praying for the refund of the amount paid.

G.R. No. 65774 (CTA Case No. 2561, the Second Case)

On 17 November 1971, BOAC was assessed deficiency income taxes, interests, and penalty for the fiscal years 1968-1969 to 1970-1971 in the aggregate amount of P549,327.43, and the additional amounts of P1,000.00 and P1,800.00 as compromise penalties for violation of Section 46 (requiring the filing of corporation returns) penalized under Section 74 of the National Internal Revenue Code (NIRC).

On 25 November 1971, BOAC requested that the assessment be countermanded and set aside. In a letter, dated 16 February 1972, however, the CIR not only denied the BOAC request for refund in the First Case but also re-issued in the Second Case the deficiency income tax assessment for P534,132.08 for the years 1969 to 1970-71 plus P1,000.00 as compromise penalty under Section 74 of the Tax Code. BOAC's request for reconsideration was denied by the CIR on 24 August 1973. This prompted BOAC to file the Second Case before the Tax Court praying that it be absolved of liability for deficiency income tax for the years 1969 to 1971.

This case was subsequently tried jointly with the First Case.

On 26 January 1983, the Tax Court rendered the assailed joint Decision reversing the CIR. The Tax Court held that the proceeds of sales of BOAC passage tickets in the Philippines by Warner Barnes and Company, Ltd., and later by Qantas Airways, during the period in question, do not constitute BOAC income from Philippine sources "since no service of carriage of passengers or freight was performed by BOAC within the Philippines" and, therefore, said income is not subject to Philippine income tax. The CTA position was that income from transportation is income from services so that the place where services are rendered determines the source. Thus, in the dispositive portion of its Decision, the Tax Court ordered petitioner to credit BOAC with the sum of P858,307.79, and to cancel the deficiency income tax assessments against BOAC in the amount of P534,132.08 for the fiscal years 1968-69 to 1970-71.

Hence, this Petition for Review on certiorari of the Decision of the Tax Court.

The Solicitor General, in representation of the CIR, has aptly defined the issues, thus:

1. Whether or not the revenue derived by private respondent British Overseas Airways Corporation (BOAC) from sales of tickets in the Philippines for air transportation, while having no landing rights here, constitute income of BOAC from Philippine sources, and, accordingly, taxable.

2. Whether or not during the fiscal years in question BOAC s a resident foreign corporation doing business in the Philippines or has an office or place of business in the Philippines.

3. In the alternative that private respondent may not be considered a resident foreign corporation but a non-resident foreign corporation, then it is liable to Philippine income tax at the rate of thirty-five per cent (35%) of its gross income received from all sources within the Philippines.

Under Section 20 of the 1977 Tax Code:

(h) the term resident foreign corporation engaged in trade or business within the Philippines or having an office or place of business therein.

(i) The term "non-resident foreign corporation" applies to a foreign corporation not engaged in trade or business within the Philippines and not having any office or place of business therein

It is our considered opinion that BOAC is a resident foreign corporation. There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. Each case

must be judged in the light of its peculiar environmental circumstances. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization. 2 "In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character. 3

BOAC, during the periods covered by the subject - assessments, maintained a general sales agent in the Philippines, That general sales agent, from 1959 to 1971, "was engaged in (1) selling and issuing tickets; (2) breaking down the whole trip into series of trips — each trip in the series corresponding to a different airline company; (3) receiving the fare from the whole trip; and (4) consequently allocating to the various airline companies on the basis of their participation in the services rendered through the mode of interline settlement as prescribed by Article VI of the Resolution No. 850 of the IATA Agreement." 4 Those activities were in exercise of the functions which are normally incident to, and are in progressive pursuit of, the purpose and object of its organization as an international air carrier. In fact, the regular sale of tickets, its main activity, is the very lifeblood of the airline business, the generation of sales being the paramount objective. There should be no doubt then that BOAC was "engaged in" business in the Philippines through a local agent during the period covered by the assessments. Accordingly, it is a resident foreign corporation subject to tax upon its total net income received in the preceding taxable year from all sources within the Philippines. 5

Sec. 24. Rates of tax on corporations. — ...

(b) Tax on foreign corporations. — ...

(2) Resident corporations. — A corporation organized, authorized, or existing under the laws of any foreign country, except a foreign fife insurance company, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable year from all sources within the Philippines. (Emphasis supplied)

Next, we address ourselves to the issue of whether or not the revenue from sales of tickets by BOAC in the Philippines constitutes income from Philippine sources and, accordingly, taxable under our income tax laws.

The Tax Code defines "gross income" thus:

"Gross income" includes gains, profits, and income derived from salaries, wages or compensation for personal service of whatever kind and in whatever form paid, or from profession, vocations, trades, business, commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interests, rents, dividends, securities, or the transactions of any business carried on for gain or profile, or gains, profits, and income derived from any source whatever (Sec. 29[3]; Emphasis supplied)

The definition is broad and comprehensive to include proceeds from sales of transport documents. "The words 'income from any source whatever' disclose a legislative policy to include all income not expressly exempted within the class of taxable income under our laws." Income means "cash received or its equivalent"; it is the amount of money coming to a person within a specific time ...; it means something distinct from principal or capital. For, while capital is a fund, income is a flow. As used in our income tax law, "income" refers to the flow of wealth. 6

The records show that the Philippine gross income of BOAC for the fiscal years 1968-69 to 1970-71 amounted to P10,428,368 .00. 7

Did such "flow of wealth" come from "sources within the Philippines",

The source of an income is the property, activity or service that produced the income. 8 For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The site of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government.

A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes the contract between the ticket-holder and the carrier. It gives rise to the obligation of the purchaser of the ticket to pay the fare and the corresponding obligation of the carrier to transport the passenger upon the terms and conditions set forth thereon. The ordinary ticket issued to members of the traveling public in general embraces within its terms all the elements to constitute it a valid contract, binding upon the parties entering into the relationship. 9

True, Section 37(a) of the Tax Code, which enumerates items of gross income from sources within the Philippines, namely: (1) interest, (21) dividends, (3) service, (4) rentals and royalties, (5) sale of real property, and (6) sale of personal property, does not mention income from the sale of tickets for international transportation. However, that does not render it less an income from sources within the Philippines. Section 37, by its language, does not intend the enumeration to be exclusive. It merely directs that the types of income listed therein be treated as income from sources within the Philippines. A cursory reading of the section will show that it does not state that it is an all-inclusive enumeration, and that no other kind of income may be so considered. " 10

BOAC, however, would impress upon this Court that income derived from transportation is income for services, with the result that the place where the services are rendered determines the source; and since BOAC's service of transportation is performed outside the Philippines, the income derived is from sources without the Philippines and, therefore, not taxable under our income tax laws. The Tax Court upholds that stand in the joint Decision under review.

The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of income taxation. Admittedly, BOAC was an off-line international airline at the time pertinent to this case. The test of taxability is the "source"; and the source of an income is that activity ... which produced the income. 11 Unquestionably, the passage documentations in these cases were sold in the Philippines and the revenue therefrom was derived from a activity regularly pursued within the Philippines. business a And even if the BOAC tickets sold covered the "transport of passengers and cargo to and from foreign cities", 12 it cannot alter the fact that income from the sale of tickets was derived from the Philippines. The word "source" conveys one essential idea, that of origin, and the origin of the income herein is the Philippines. 13

It should be pointed out, however, that the assessments upheld herein apply only to the fiscal years covered by the questioned deficiency income tax assessments in these cases, or, from 1959 to 1967, 1968-69 to 1970-71. For, pursuant to Presidential Decree No. 69, promulgated on 24 November, 1972, international carriers are now taxed as follows:

... Provided, however, That international carriers shall pay a tax of 2-½ per cent on their cross Philippine billings. (Sec. 24[b] [21, Tax Code).

Presidential Decree No. 1355, promulgated on 21 April, 1978, provided a statutory definition of the term "gross Philippine billings," thus:

... "Gross Philippine billings" includes gross revenue realized from uplifts anywhere in the world by any international carrier doing business in the Philippines of passage documents sold therein, whether for passenger, excess baggage or mail provided the cargo or mail originates from the Philippines. ...

The foregoing provision ensures that international airlines are taxed on their income from Philippine sources. The 2-½ % tax on gross Philippine billings is an income tax. If it had been intended as an excise or percentage tax it would have been place under Title V of the Tax Code covering Taxes on Business.

Lastly, we find as untenable the BOAC argument that the dismissal for lack of merit by this Court of the appeal in JAL vs. Commissioner of Internal Revenue (G.R. No. L-30041) on February 3, 1969, is res judicata to the present case. The ruling by the Tax Court in that case was to the effect that the mere sale of tickets, unaccompanied by the physical act of carriage of transportation, does not render the taxpayer therein subject to the common carrier's tax. As elucidated by the Tax Court, however, the common carrier's tax is an excise tax, being a tax on the activity of transporting, conveying or removing passengers and cargo from one place to another. It purports to tax the business of transportation. 14 Being an excise tax, the same can be levied by the State only when the acts, privileges or businesses are done or performed within the jurisdiction of the Philippines. The subject matter of the case under consideration is income tax, a direct tax on the income of persons and other entities "of whatever kind and in whatever form derived from any source." Since the two cases treat of a different subject matter, the decision in one cannot be res judicata to the other.

WHEREFORE, the appealed joint Decision of the Court of Tax Appeals is hereby SET ASIDE. Private respondent, the British Overseas Airways Corporation (BOAC), is hereby ordered to pay the amount of P534,132.08 as deficiency income tax for the fiscal years 1968-69 to 1970-71 plus 5% surcharge, and 1% monthly interest from April 16, 1972 for a period not to exceed three (3) years in accordance with the Tax Code. The BOAC claim for refund in the amount of P858,307.79 is hereby denied. Without costs.

SO ORDERED.

Paras, Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur.

Fernan, J., took no part.

Footnotes

1 Partial Stipulation of Facts, Annex "E" and Annex "4", pp. 74-77 and 87-90, Rollo.

2 The Mentholatum Co., Inc., et al. vs. Anacleto Mangaliman, et al., 72 Phil. 524 (1941); Section 1, R.A. No. 5455.

3 Pacific Micronesian Line, Inc. vs. Del Rosario and Peligon, 96 Phil. 23, 30, citing Thompson on Corporations, Vol. 8, 3rd ed., pp. 844-847 and Fisher's Philippine Law of Stock Corporation, p. 415.

4 P. 11, BOAC Memorandum; p. 261, Rollo.

5 Section 24(b), (2), Tax Code, as amended by R.A. 6110, approved on 4 August 1969.

6 Madrigal and Paternol vs. Rafferty and Concepcion, 38 Phil. 414 (1918).

7 Memorandum for Petitioner, p. 22; p. 299, Rollo.

8 Mertens, Jr., Jacob, Law on Federal Income Taxation, Vol. 8, Section 45.27; cited in Howden & Co., Ltd. vs. Collector of Internal Revenue, 13 SCRA 601 (1965).

9 14 Am Jur 2d 813.

10 British Trader's Insurance Co., Ltd. vs. Commissioner of Internal Revenue, 13 SCRA 719 (1965).

11 Howden & Co., Ltd. vs. Collector of Internal Revenue, 13 SCRA 601 (1965).

12 Partial Stipulation of Facts, paragraph 5, p. 89, Rollo.

13 Manila Gas Corporation vs. Collector of Internal Revenue. 62 Phil. 895 (1935).

14 Commissioner of Internal Revenue vs. U.S. Lines, Co., 5 SCRA 175 (1962).

Feliciano, J.

1 I.e., 1959-1969 and 1971.

2 Underscoring supplied, Republic Act No. 6110 continued the above-quoted subparagraph, except that it raised the tax rate from 30% to 30%

3 13 SCRA 601 (1965).

4 13 SCRA, at 604; underscoring supplied.

5 8 Mertens, Law of Federal Income Taxation, Section 45.27 (1957); underscoring supplied; footnotes omitted.

6 Commissioner v. Hawaiian Philippine Co., 100 F. 2d 988, 991 (9th Cir. 1939), where the Court also observed that the sugar milling services rendered by the respondent were not any less in the nature of "personal" services merely because "they were performed, in part, through the use of machinery, or because of the magnitude of the taxpayers operations." Id.

7 8 Mertens, Id., Section 45.43, which goes on the state that: "It was the intention of Congress under the 1921 law to place the taxation of transportation companies upon a sounder and more scientific basis(rather than the species of franchise tax previously imposed upon non-residents in general), and so the principle was adopted of considering income derived from transportation to be income for services, with the result that the place where the services were rendered determined the source. The result was income from sources partly within and partly without the United States." (Id) (Emphasis supplied)

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. L-52019 August 19, 1988

ILOILO BOTTLERS, INC., plaintiff-appellee, vs.CITY OF ILOILO, defendant-appellant.

Efrain B. Trenas for plaintiff-appellee.

Diosdado Garingalao for defendant-appellant.

 

CORTES, J.:

The fundamental issue in this appeal is whether the Iloilo Bottlers, Inc. which had its bottling plant in Pavia, Iloilo, but which sold softdrinks in Iloilo City, is liable under Iloilo City tax Ordinance No. 5, series of 1960, as amended, which imposes a municipal license tax on distributors of soft-drinks.

On July 12,1972, Iloilo Bottlers, Inc. filed a complaint docketed as Civil Case No. 9046 with the Court of First Instance of Iloilo praying for the recovery of the sum of P3,329.20, which amount allegedly constituted payments of municipal license taxes under Ordinance No. 5 series of 1960, as amended, that the company paid under protest.

On November 15,1972, the parties submitted a partial stipulation of facts, the material portions of which state

xxx xxx xxx

2. That plaintiff is engaged in the business of bottling softdrinks under the trade name of Pepsi Cola And 7-up and selling the same to its customers, with a bottling plant situated at Barrio Ungca Municipality of Pavia, Iloilo, Philippines and which is outside the jurisdiction of defendant;

3. That defendant enacted an ordinance on January 11, 1960 known as Ordinance No. 5, Series of 1960 which ordinance was successively amended by Ordinance No. 28, Series of 1960; Ordinance No. 15, Series of 1964; and Ordinance No. 45, Series of 1964; which provides as follows:

Section l. — Any person, firm or corporation engaged in the distribution, manufacture or bottling of coca-cola, pepsi cola, tru-orange, seven-up and other soft drinks within the jurisdiction of the City of Iloilo, shall pay a municipal license tax of ten (P0.10) centavos for every case of twenty-four bottles; PROVIDED, HOWEVER, that softdrinks sold to the public at not more than five (P0.05) centavos per bottle shall pay a tax of one and one half (P0.015) (centavos) per case of twenty four bottles.

Section 1-A—For purposes of this Ordinance, all deliveries and/or dispatches emanating or made at the plant and all goods or stocks taken out of the plant

for distribution, sale or exchange irrespective (of) where it would take place shall be covered by the operation of this Ordinance.

4. That prior to September, 1966, Santiago Syjuco Inc., owned and operated a bottling plant at Muelle Loney Street, Iloilo City, which was doing business under the name of Seven-up Bottling Company of the Philippines and bottled the soft-drinks Pepsi-Cola and 7-up; however sometime on September 14,1966, Santiago Syjuco, Inc., informed all its employees that it (was) closing its Iloilo Plant due to financial losses and in fact closed the same and later sold the plant to the plaintiff Iloilo Bottlers, Inc.

5. That thereafter, plaintiff operated the said plant by bottling the soft drinks Pepsi-Cola and 7-up; however, sometime in July 1968, plaintiff closed said bottling plant at Muelle Loney, Iloilo City, and transferred its bottling operations to its new plant in Barrio Ungca, Municipality of Pavia, Province of Iloilo, and which is outside the jurisdiction of the City of Iloilo;

6. That from the time of (the) enactment (of the ordinance), the Seven Up Bottling Company of the Philippines under Santiago Syjuco Inc., had been religiously paying the defendant City of Iloilo the above- mentioned municipal license tax due therefrom for bottler because its bottling plant was then still situated at Muelle Loney St., Iloilo City; but the plaintiff stopped paying the municipal license tax (after) October 21, 1968 (when) it transferred its plant to Barrio Ungca Municipality of Pavia, Iloilo which is outside the jurisdiction of the City of Iloilo;

7. That sometime on July 31, 1969, the defendant demanded from the plaintiff the payment of the municipal license tax under the above-mentioned ordinance, a xerox copy of the said letter is attached to the complaint as Annex "A" and made an integral part hereof by reference.

8. That plaintiff explained in a letter to the defendant that it could not anymore be liable to pay the municipal license fee because its bottling plant (was) not anymore inside the City of Iloilo, and that moreover, since it itself (sold) its own products to its (customers) directly, it could not be considered as a distributor in line with the doctrines enunciated by the Supreme Court in the cases of City of Manila vs. Bugsuk Lumber Co., L- 8255, July 11, 1957; Manila Trading & Supply Co., Inc. vs. City of Manila L-1 2156, April 29, 1959; Central Azucarera de Don Pedro vs. City of Manila et al., G.R. No. L7679, September 29,1955; Cebu Portland Cement vs. City of Manila and City Treasurer of Manila, L-1 4229,July 26,1960. A xerox copy of the said letter is attached as Annex "B" to the complaint and made an integral part hereof by reference. As a result of the said letter of the plaintiff, the defendant did not anymore press the plaintiff to pay the said municipal license tax;

9. That sometime on January 25, 1972, the defendant demanded from the plaintiff compliance with the said ordinance for 1972 in view of the fact that it was engaged in distribution of the softdrinks in the City of Iloilo, and it further demanded from the plaintiff payment of back taxes from the time it transferred its bottling plant to the Municipality of Pavia, Iloilo;

10. That the plaintiff demurred to the said demand of the defendant raising as its jurisdiction the reason that its bottling plant is situated outside the City of Iloilo and as bottler could not be considered as distributor under the said ordinance although it sells its product directly to the consumer, in line with the jurisprudence enunciated by the Supreme Court but due to insistence of the defendant, the plaintiff paid on April 20, 1972, the first quarter payment of the municipal licence tax in the sum of P3,329.20, under protest, and thereafter has been paying defendant every quarter under protest;

11. That on June l5, 1972,the defendant informed the plaintiff that it must pay all the taxes due since July, 1968 up to the last quarter of 1971, otherwise it shall be constrained to cancel the operation of the business of the plaintiff, and because of this threat, and so as not to occasion disruption of its business operation, the plaintiff under protest agreed to the payment of the back taxes, on staggered basis, which was acceded to by the defendant;

12. That as computed by the plaintiff the following are its softdrinks sold in Iloilo City since it transferred its bottling plant from the City of Iloilo to Barrio Ungca Pavia, Iloilo in July 1968, to wit:

No. of Cases sold

SEVEN-UP

PEPSI-COLA

TOTAL

TAX DUE

1968

Jul to Dec

39,340

49,060

88,400

P8,840

1969

Jan. to Dec.

81,240

87,660

168,900

16,890

1970

Jan. to Dec.

79,389

89,211

168,600

16,600

1971

Jan. to Dec.

80,670

88,480

169,150

16,915

TOTAL

280,639

314,411

595,050

P 59,505

13. That the plaintiff does not maintain any store or commercial establishment in the City of Iloilo from which it distributes its products, but by means of a fleet of delivery trucks, plaintiff distributes its products from its bottling plant at Barrio Ungca Municipality of Pavia, Iloilo, directly to its

customers in the different towns of the Province of Iloilo as well as the City of Iloilo;

14. That the plaintiff is already paying the National Government a percentage Tax of 71/t, as manufacturer's sales tax on all the softdrinks it manufactures as follows:

O.R. No. 4683995 - January, 1972 Sales P17,222.90

O.R. No. 5614767 - February " " 17,024.81

O.R. No. .5614870 - March " " 17,589.19

O.R. No. 5614891 - April " " 18,726.77

O.R. No. 5614897 - May " " 16,710.99

O.R. No. 5614935 - June " " 14,791.20

O.R. No. 5614967 - July " " 13,952.00

O.R. No. 5614973 - August " " 15,726.16

O.R. No. 56'L4999 - September " " 19,159.54

and is also paying the municipal license tax to the municipality of Pavia, Iloilo in the amount of P l0,000.00 every year, plus a municipal license tax for engaging in its business to the municipality of Pavia in its amount of P2,000.00 every year.

xxx xxx xxx

[Rollo, P. 10 (Record on Appeal, pp. 25-31)]

On the basis of the above stipulations, the court a quo rendered on January 26, 1973 a decision in favor of Iloilo Bottlers, Inc. declaring the Corporation not liable under the ordinance and directing the City of Iloilo to pay the sum of' P3,329.20. The decision was amended in an Order dated March 15, 1973, so as to include the amounts paid by the company after the filing of the complaint. The City of Iloilo appealed to the Court of Appeals which certified the case to this Court.

The tax ordinance imposes a tax on persons, firms, and corporations engaged in the business of:

1. distribution of soft-drinks

2. manufacture of soft-drinks, and

3. bottling of softdrinks within the territorial jurisdiction of the City of Iloilo.

There is no question that after it transferred its plant to Pavia, Iloilo province, Iloilo Bottlers, Inc. no longer manufactured/bottled its softdrinks within Iloilo City. Thus, it cannot be taxed as one falling under the second or the third type of business. The resolution of this case therefore hinges on whether the company may be considered engaged in the distribution of softdrinks in Iloilo City, even after it had transferred its bottling plant to Pavia, so as to be within the purview of the ordinance.

Iloilo Bottlers, Inc. disclaims liability on two grounds: First, it contends that since it is not engaged in the independent business of distributing soft-drinks, but that its activity of selling is merely an incident to, or is a necessary consequence of its main or principal business of bottling, then it is NOT liable under the city tax ordinance. Second, it claims that only manufacturers or bottlers having their plants inside the territorial jurisdiction of the city are covered by the ordinance.

The second ground is manifestly devoid of merit. It is clear from the ordinance that three types of activities are covered: (1) distribution, (2) manufacture and (3) bottling of softdrinks. A person engaged in any or all of these activities is subject to the tax.

The first ground, however, merits serious consideration.

This Court has always recognized that the right to manufacture implies the right to sell/distribute the manufactured products [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, 97 Phil. 627 (1955); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, G.R. No. L-22764, July 28, 1969, 28 SCRA 840, 843.] Hence, for tax purposes, a manufacturer does not necessarily become engaged in the separate business of selling simply because it sells the products it manufactures. In certain cases, however, a manufacturer may also be considered as engaged in the separate business of selling its products.

To determine whether an entity engaged in the principal business of manufacturing, is likewise engaged in the separate business of selling, its marketing system or sales operations must be looked into.

In several cases [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, supra; Cebu Portland Cement Co. v. City of Manila and the City Treasurer, 108 Phil. 1063 (1960); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, supra], this Court had occasion to distinguish two marketing systems:

Under the first system, the manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the company's warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage sites and delivery points of the products earlier sold at the main office. Under the second system, sales transactions are entered into and perfected at stores or warehouses maintained by the company. Any one who desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers.

Entities operating under the first system are NOT considered engaged in the separate business of selling or dealing in their products, independent of their manufacturing business. Entities operating under the second system are considered engaged in the separate business of selling.

In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which went directly to customers in the different places in lloilo province. Sales transactions with customers were entered into and sales were perfected and consummated by route salesmen. Truck sales were made independently of transactions in the main office. The delivery trucks were not used solely for the purpose of delivering softdrinks previously sold at Pavia. They served as selling units. They were what were called, until recently, "rolling stores". The delivery trucks were therefore much the same as the stores and warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls under the second category above. That is, the corporation was engaged in the separate business of selling or distributing soft-drinks, independently of its business of bottling them.

The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing, manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority [Commissioner of Internal Revenue v. British Overseas Airways Corp. and Court of Appeals, G.R. Nos. 65773-74, April 30, 1987, 149 SCRA 395, 410.] Specifically, the situs of the act of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City.

As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have no option but to declare the company liable under the tax ordinance.

With the foregoing discussion, it becomes unnecessary to discuss the other issues raised by the parties.

WHEREFORE, the appealed decision is hereby REVERSED. The complaint in Civil Case No. 9046 is ordered DISMISSED. No Costs.

SO ORDERED.

Fernan, C.J., Feliciano and Bidin, JJ., concur.

Gutierrez, Jr., J., took no part.

FIRST DIVISION

 

 

COMMISSIONER OF G.R. No. 153793

INTERNAL REVENUE,

Petitioner, Present:

Panganiban, C.J. (Chairperson),

- versus - Ynares-Santiago,

Austria-Martinez,

Callejo, Sr., and

Chico-Nazario, JJ.

JULIANE BAIER-NICKEL, as

represented by Marina Q. Guzman Promulgated:

(Attorney-in-fact)

Respondent. August 29, 2006

 

x ---------------------------------------------------------------------------------------- x

 

DECISION

 

 

YNARES-SANTIAGO, J.:

 

 

Petitioner Commissioner of Internal Revenue (CIR) appeals

from the January 18, 2002 Decision24[1] of the Court of Appeals in CA-

G.R. SP No. 59794, which granted the tax refund of respondent

Juliane Baier-Nickel and reversed the June 28, 2000 Decision25[2] of

the Court of Tax Appeals (CTA) in C.T.A. Case No. 5633. Petitioner

also assails the May 8, 2002 Resolution26[3] of the Court of Appeals

denying its motion for reconsideration.

The facts show that respondent Juliane Baier-Nickel, a non-

resident German citizen, is the President of JUBANITEX, Inc., a

domestic corporation engaged in “[m]anufacturing, marketing on

wholesale only, buying or otherwise acquiring, holding, importing

and exporting, selling and disposing embroidered textile

products.”27[4] Through JUBANITEX’s General Manager, Marina Q.

Guzman, the corporation appointed and engaged the services of

respondent as commission agent. It was agreed that respondent will

24[1] Penned by Associate Justice Salvador J. Valdez, Jr. and concurred in by Associate Justices Mercedes Gozo-Dadole and Juan Q. Enriquez, Jr; rollo, pp. 47-57.

25[2] Penned by Presiding Judge Ernesto D. Acosta, with Associate Judges Ramon O. De Veyra, concurring and Amancio Q. Saga, dissenting; rollo, pp. 78-91.

26[3] Rollo, pp. 59-61.

27[4] General Information Sheet of JUBANITEX, Inc., rollo, p. 211.

receive 10% sales commission on all sales actually concluded and

collected through her efforts.28[5]

 

In 1995, respondent received the amount of P1,707,772.64,

representing her sales commission income from which JUBANITEX

withheld the corresponding 10% withholding tax amounting to

P170,777.26, and remitted the same to the Bureau of Internal

Revenue (BIR). On October 17, 1997, respondent filed her 1995

income tax return reporting a taxable income of P1,707,772.64 and a

tax due of P170,777.26.29[6]

 

On April 14, 1998, respondent filed a claim to refund the

amount of P170,777.26 alleged to have been mistakenly withheld

and remitted by JUBANITEX to the BIR. Respondent contended that

her sales commission income is not taxable in the Philippines

because the same was a compensation for her services rendered in

Germany and therefore considered as income from sources outside

the Philippines.

 

The next day, April 15, 1998, she filed a petition for review

with the CTA contending that no action was taken by the BIR on her

28[5] Rollo, p. 100.

29[6] Exhibit “A,” Folder of Exhibits, unpaged.

claim for refund.30[7] On June 28, 2000, the CTA rendered a decision

denying her claim. It held that the commissions received by

respondent were actually her remuneration in the performance of

her duties as President of JUBANITEX and not as a mere sales agent

thereof. The income derived by respondent is therefore an income

taxable in the Philippines because JUBANITEX is a domestic

corporation.

 

On petition with the Court of Appeals, the latter reversed the

Decision of the CTA, holding that respondent received the

commissions as sales agent of JUBANITEX and not as President

thereof. And since the “source” of income means the activity or

service that produce the income, the sales commission received by

respondent is not taxable in the Philippines because it arose from the

marketing activities performed by respondent in Germany. The

dispositive portion of the appellate court’s Decision, reads:

 

WHEREFORE, premises considered, the assailed decision of the Court of Tax Appeals dated June 28, 2000 is hereby REVERSED and SET ASIDE and the respondent court is hereby directed to grant petitioner a tax refund in the amount of Php 170,777.26. 

SO ORDERED.31[8]

 

30[7] Petition for Review with the CTA, records, p. 4.

31[8] Rollo, p. 57.

Petitioner filed a motion for reconsideration but was denied.32

[9] Hence, the instant recourse.

 

Petitioner maintains that the income earned by respondent is

taxable in the Philippines because the source thereof is JUBANITEX, a

domestic corporation located in the City of Makati. It thus implied

that source of income means the physical source where the income

came from. It further argued that since respondent is the President

of JUBANITEX, any remuneration she received from said corporation

should be construed as payment of her overall managerial services to

the company and should not be interpreted as a compensation for a

distinct and separate service as a sales commission agent.

 

Respondent, on the other hand, claims that the income she

received was payment for her marketing services. She contended

that income of nonresident aliens like her is subject to tax only if the

source of the income is within the Philippines. Source, according to

respondent is the situs of the activity which produced the income.

And since the source of her income were her marketing activities in

Germany, the income she derived from said activities is not subject to

Philippine income taxation.

 

32[9] Resolution dated May 8, 2002; rollo, pp. 59-61.

The issue here is whether respondent’s sales commission

income is taxable in the Philippines.

 

Pertinent portion of the National Internal Revenue Code

(NIRC), states:

 

SEC. 25. Tax on Nonresident Alien Individual. – (A) Nonresident Alien Engaged in Trade or Business

Within the Philippines. – 

(1) In General. – A nonresident alien individual engaged in trade or business in the Philippines shall be subject to an income tax in the same manner as an individual citizen and a resident alien individual, on taxable income received from all sources within the Philippines. A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a ‘nonresident alien doing business in the Philippines,’ Section 22(G) of this Code notwithstanding. 

x x x x (B) Nonresident Alien Individual Not Engaged in Trade

or Business Within the Philippines. – There shall be levied, collected and paid for each taxable year upon the entire income received from all sources within the Philippines by every nonresident alien individual not engaged in trade or business within the Philippines x x x a tax equal to twenty-five percent (25%) of such income. x x x

 

Pursuant to the foregoing provisions of the NIRC, non-resident

aliens, whether or not engaged in trade or business, are subject to

Philippine income taxation on their income received from all sources

within the Philippines. Thus, the keyword in determining the

taxability of non-resident aliens is the income’s “source.” In

construing the meaning of “source” in Section 25 of the NIRC, resort

must be had on the origin of the provision.

 

The first Philippine income tax law enacted by the Philippine

Legislature was Act No. 2833,33[10] which took effect on January 1,

1920.34[11] Under Section 1 thereof, nonresident aliens are likewise

subject to tax on income “from all sources within the Philippine

Islands,” thus –

 

SECTION 1. (a) There shall be levied, assessed, collected, and paid annually upon the entire net income received in the preceding calendar year from all sources by every individual, a citizen or resident of the Philippine Islands, a tax of two per centum upon such income; and a like tax shall be levied, assessed, collected, and paid annually upon the entire net income received in the preceding calendar year from all sources within the Philippine Islands by every individual, a nonresident alien, including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise.

 

Act No. 2833 substantially reproduced the United States (U.S.)

Revenue Law of 1916 as amended by U.S. Revenue Law of 1917.35[12]

Being a law of American origin, the authoritative decisions of the

33[10] An Act establishing the income tax law, making other provisions relating to said tax, and amending certain sections of Act Numbered Twenty-seven hundred and eleven.

34[11] F. Dalupan, National Internal Revenue Code Annotated, 1964 ed., vol. 1, p. 25.

35[12] Id.

official charged with enforcing it in the U.S. have peculiar persuasive

force in the Philippines.36[13]

 

The Internal Revenue Code of the U.S. enumerates specific

types of income to be treated as from sources within the U.S. and

specifies when similar types of income are to be treated as from

sources outside the U.S.37[14] Under the said Code, compensation for

labor and personal services performed in the U.S., is generally treated

as income from U.S. sources; while compensation for said services

performed outside the U.S., is treated as income from sources outside

the U.S.38[15] A similar provision is found in Section 42 of our NIRC,

thus:

 

SEC. 42. x x x  (A) Gross Income From Sources Within the Philippines. x

x x x x x x  (3) Services. – Compensation for labor or personal

services performed in the Philippines; x x x x  (C) Gross Income From Sources Without the Philippines.

x x x x x x x

36[13] J. Arañas, Annotations and Jurisprudence on the National Internal Revenue Code, as Amended, 1963 ed., vol. 1, p. 34.

37[14] 34 Am Jur 2d, ¶ 30651, p. 453 (2000).

38[15] 34 Am Jur 2d, ¶ 30654, p. 453 (2000).

 (3) Compensation for labor or personal services

performed without the Philippines; 

The following discussions on sourcing of income under the

Internal Revenue Code of the U.S., are instructive:

 

The Supreme Court has said, in a definition much quoted but often debated, that income may be derived from three possible sources only: (1) capital and/or (2) labor; and/or (3) the sale of capital assets. While the three elements of this attempt at definition need not be accepted as all-inclusive, they serve as useful guides in any inquiry into whether a particular item is from “sources within the United States” and suggest an investigation into the nature and location of the activities or property which produce the income.

 If the income is from labor the place where the labor is

done should be decisive; if it is done in this country, the income should be from “sources within the United States.” If the income is from capital, the place where the capital is employed should be decisive; if it is employed in this country, the income should be from “sources within the United States.” If the income is from the sale of capital assets, the place where the sale is made should be likewise decisive.

 Much confusion will be avoided by regarding the term

“source” in this fundamental light. It is not a place, it is an activity or property. As such, it has a situs or location, and if that situs or location is within the United States the resulting income is taxable to nonresident aliens and foreign corporations.

 The intention of Congress in the 1916 and subsequent

statutes was to discard the 1909 and 1913 basis of taxing nonresident aliens and foreign corporations and to make the test of taxability the “source,” or situs of the activities or property which produce the income. The result is that, on the one hand, nonresident aliens and nonresident foreign corporations are prevented from deriving income from the United States free from tax, and, on the other hand, there is no undue imposition of a tax when the activities do not take place in, and the property producing income is not employed in, this country. Thus, if income is to be taxed, the recipient thereof must be resident within

the jurisdiction, or the property or activities out of which the income issues or is derived must be situated within the jurisdiction so that the source of the income may be said to have a situs in this country.

 The underlying theory is that the consideration for taxation

is protection of life and property and that the income rightly to be levied upon to defray the burdens of the United States Government is that income which is created by activities and property protected by this Government or obtained by persons enjoying that protection. 39[16]

 

The important factor therefore which determines the source of

income of personal services is not the residence of the payor, or the

place where the contract for service is entered into, or the place of

payment, but the place where the services were actually rendered.40

[17]

 

In Alexander Howden & Co., Ltd. v. Collector of Internal

Revenue,41[18] the Court addressed the issue on the applicable source

rule relating to reinsurance premiums paid by a local insurance

company to a foreign insurance company in respect of risks located

in the Philippines. It was held therein that the undertaking of the

foreign insurance company to indemnify the local insurance company

is the activity that produced the income. Since the activity took place

in the Philippines, the income derived therefrom is taxable in our

39[16] 12 J. Mertens, The Law of Federal Income Taxation, Section 45C:04, pp. 45C-12 to 45C-13 (1996). The 1957 edition thereof was cited in the dissenting opinion of Justice Florentino P. Feliciano in Commissioner of Internal Revenue v. British Overseas Airways Corporation, G.R. Nos. L-65773-74, April 30, 1987, 149 SCRA 395, 415-416.

40[17] 12 J. Mertens, The Law of Federal Income Taxation, Section 45C:11, p. 45C-32 (1996).

41[18] 121 Phil. 579 (1965).

jurisdiction. Citing Mertens, The Law of Federal Income Taxation, the

Court emphasized that the technical meaning of source of income is

the property, activity or service that produced the same. Thus:

 

The source of an income is the property, activity or service that produced the income. The reinsurance premiums remitted to appellants by virtue of the reinsurance contracts, accordingly, had for their source the undertaking to indemnify Commonwealth Insurance Co. against liability. Said undertaking is the activity that produced the reinsurance premiums, and the same took place in the Philippines. x x x the reinsured, the liabilities insured and the risk originally underwritten by Commonwealth Insurance Co., upon which the reinsurance premiums and indemnity were based, were all situated in the Philippines. x x x42[19]

  

In Commissioner of Internal Revenue v. British Overseas Airways

Corporation (BOAC),43[20] the issue was whether BOAC, a foreign

airline company which does not maintain any flight to and from the

Philippines is liable for Philippine income taxation in respect of sales

of air tickets in the Philippines, through a general sales agent relating

to the carriage of passengers and cargo between two points both

outside the Philippines. Ruling in the affirmative, the Court applied

the case of Alexander Howden & Co., Ltd. v. Collector of Internal

Revenue, and reiterated the rule that the source of income is that

“activity” which produced the income. It was held that the “sale of

tickets” in the Philippines is the “activity” that produced the income

and therefore BOAC should pay income tax in the Philippines because

it undertook an income producing activity in the country.

42[19] Id. at 583.

43[20] Supra note 16.

 

Both the petitioner and respondent cited the case of

Commissioner of Internal Revenue v. British Overseas Airways

Corporation in support of their arguments, but the correct

interpretation of the said case favors the theory of respondent that it

is the situs of the activity that determines whether such income is

taxable in the Philippines. The conflict between the majority and the

dissenting opinion in the said case has nothing to do with the

underlying principle of the law on sourcing of income. In fact, both

applied the case of Alexander Howden & Co., Ltd. v. Collector of

Internal Revenue. The divergence in opinion centered on whether the

sale of tickets in the Philippines is to be construed as the “activity”

that produced the income, as viewed by the majority, or merely the

physical source of the income, as ratiocinated by Justice Florentino P.

Feliciano in his dissent. The majority, through Justice Ameurfina

Melencio-Herrera, as ponente, interpreted the sale of tickets as a

business activity that gave rise to the income of BOAC. Petitioner

cannot therefore invoke said case to support its view that source of

income is the physical source of the money earned. If such was the

interpretation of the majority, the Court would have simply stated

that source of income is not the business activity of BOAC but the

place where the person or entity disbursing the income is located or

where BOAC physically received the same. But such was not the

import of the ruling of the Court. It even explained in detail the

business activity undertaken by BOAC in the Philippines to pinpoint

the taxable activity and to justify its conclusion that BOAC is subject

to Philippine income taxation. Thus –

 

BOAC, during the periods covered by the subject assessments, maintained a general sales agent in the Philippines. That general sales agent, from 1959 to 1971, “was engaged in (1) selling and issuing tickets; (2) breaking down the whole trip into series of trips — each trip in the series corresponding to a different airline company; (3) receiving the fare from the whole trip; and (4) consequently allocating to the various airline companies on the basis of their participation in the services rendered through the mode of interline settlement as prescribed by Article VI of the Resolution No. 850 of the IATA Agreement.” Those activities were in exercise of the functions which are normally incident to, and are in progressive pursuit of, the purpose and object of its organization as an international air carrier. In fact, the regular sale of tickets, its main activity, is the very lifeblood of the airline business, the generation of sales being the paramount objective. There should be no doubt then that BOAC was “engaged in” business in the Philippines through a local agent during the period covered by the assessments. x x x44[21]

 x x x x The source of an income is the property, activity or service

that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government.

 A transportation ticket is not a mere piece of paper. When

issued by a common carrier, it constitutes the contract between the ticket-holder and the carrier. It gives rise to the obligation of the purchaser of the ticket to pay the fare and the corresponding obligation of the carrier to transport the passenger upon the terms and conditions set forth thereon. The ordinary ticket issued to members of the traveling public in general embraces within its terms all the elements to constitute it a valid contract, binding upon the parties entering into the relationship.45[22]

44[21] Id. at 405-406.

45[22] Id. at 407-408.

 

The Court reiterates the rule that “source of income” relates to

the property, activity or service that produced the income. With

respect to rendition of labor or personal service, as in the instant

case, it is the place where the labor or service was performed that

determines the source of the income. There is therefore no merit in

petitioner’s interpretation which equates source of income in labor

or personal service with the residence of the payor or the place of

payment of the income.

 

Having disposed of the doctrine applicable in this case, we will

now determine whether respondent was able to establish the factual

circumstances showing that her income is exempt from Philippine

income taxation.

 

The decisive factual consideration here is not the capacity in

which respondent received the income, but the sufficiency of

evidence to prove that the services she rendered were performed in

Germany. Though not raised as an issue, the Court is clothed with

authority to address the same because the resolution thereof will

settle the vital question posed in this controversy.46[23]

 

46[23] Velarde v. Social Justice Society, G.R. No. 159357, April 28, 2004, 428 SCRA 283, 312.

The settled rule is that tax refunds are in the nature of tax

exemptions and are to be construed strictissimi juris against the

taxpayer.47[24] To those therefore, who claim a refund rest the

burden of proving that the transaction subjected to tax is actually

exempt from taxation.

 

In the instant case, the appointment letter of respondent as

agent of JUBANITEX stipulated that the activity or the service which

would entitle her to 10% commission income, are “sales actually

concluded and collected through [her] efforts.”48[25] What she

presented as evidence to prove that she performed income producing

activities abroad, were copies of documents she allegedly faxed to

JUBANITEX and bearing instructions as to the sizes of, or designs and

fabrics to be used in the finished products as well as samples of sales

orders purportedly relayed to her by clients. However, these

documents do not show whether the instructions or orders faxed

ripened into concluded or collected sales in Germany. At the very

least, these pieces of evidence show that while respondent was in

Germany, she sent instructions/orders to JUBANITEX. As to whether

these instructions/orders gave rise to consummated sales and

whether these sales were truly concluded in Germany, respondent

presented no such evidence. Neither did she establish reasonable

connection between the orders/instructions faxed and the reported

monthly sales purported to have transpired in Germany.

47[24] Calamba Steel Center, Inc. v. Commissioner of Internal Revenue, G.R. No. 151857, April 28, 2005, 457 SCRA 482, 500.

48[25] Rollo, p. 100.

 

The paucity of respondent’s evidence was even noted by Atty.

Minerva Pacheco, petitioner’s counsel at the hearing before the Court

of Tax Appeals. She pointed out that respondent presented no

contracts or orders signed by the customers in Germany to prove the

sale transactions therein.49[26] Likewise, in her Comment to the

Formal Offer of respondent’s evidence, she objected to the admission

of the faxed documents bearing instruction/orders marked as

Exhibits “R,”50[27] “V,” “W”, and “X,”51[28] for being self serving.52[29]

The concern raised by petitioner’s counsel as to the absence of

substantial evidence that would constitute proof that the sale

transactions for which respondent was paid commission actually

transpired outside the Philippines, is relevant because respondent

stayed in the Philippines for 89 days in 1995. Except for the months

of July and September 1995, respondent was in the Philippines in the

months of March, May, June, and August 1995,53[30] the same months

when she earned commission income for services allegedly

performed abroad. Furthermore, respondent presented no evidence

to prove that JUBANITEX does not sell embroidered products in the

Philippines and that her appointment as commission agent is

exclusively for Germany and other European markets.

 

49[26] TSN, November 10, 1998, pp. 49-55.

50[27] Rollo, pp. 95-99.

51[28] Folder of Exhibits, unpaged.

52[29] Records, pp. 74-75.

53[30] Respondent’s Formal Offer of Evidence, rollo, p. 202.

In sum, we find that the faxed documents presented by

respondent did not constitute substantial evidence, or that relevant

evidence that a reasonable mind might accept as adequate to support

the conclusion54[31] that it was in Germany where she performed the

income producing service which gave rise to the reported monthly

sales in the months of March and May to September of 1995. She

thus failed to discharge the burden of proving that her income was

from sources outside the Philippines and exempt from the

application of our income tax law. Hence, the claim for tax refund

should be denied.

 

The Court notes that in Commissioner of Internal Revenue v.

Baier-Nickel,55[32] a previous case for refund of income withheld

from respondent’s remunerations for services rendered abroad, the

Court in a Minute Resolution dated February 17, 2003,56[33]

sustained the ruling of the Court of Appeals that respondent is

entitled to refund the sum withheld from her sales commission

income for the year 1994. This ruling has no bearing in the instant

controversy because the subject matter thereof is the income of

respondent for the year 1994 while, the instant case deals with her

income in 1995. Otherwise, stated, res judicata has no application

here. Its elements are:   (1) there must be a final judgment or order;

(2) the court that rendered the judgment must have jurisdiction over

the subject matter and the parties; (3) it must be a judgment on the

54[31] Transglobe International, Inc. v. Court of Appeals, 361 Phil. 727, 738 (1999).

55[32] G.R. No. 156305.

56[33] It became final and executory on March 31, 2003.

merits; (4) there must be between the two cases identity of parties, of

subject matter, and of causes of action. 57[34] The instant case,

however, did not satisfy the fourth requisite because there is no

identity as to the subject matter of the previous and present case of

respondent which deals with income earned and activities performed

for different taxable years.

 

WHEREFORE, the petition is GRANTED and the January 18,

2002 Decision and May 8, 2002 Resolution of the Court of Appeals in

CA-G.R. SP No. 59794, are REVERSED and SET ASIDE. The June 28,

2000 Decision of the Court of Tax Appeals in C.T.A. Case No. 5633,

which denied respondent’s claim for refund of income tax paid for

the year 1995 is REINSTATED.

 

SO ORDERED.

 

 

CONSUELO YNARES-SANTIAGO

Associate Justice

 

 

WE CONCUR:

57[34] Barbacina v. Court of Appeals, G.R. No. 135365, August 31, 2004, 437 SCRA 300, 307.

 

 

 

ARTEMIO V. PANGANIBAN

Chief Justice

Chairperson

 

 

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice Associate Justice

 

 

 

MINITA V. CHICO-NAZARIO

Associate Justice

 

 

 

CERTIFICATION

 

 

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

 

ARTEMIO V. PANGANIBAN

Chief Justice

 

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 137002             July 27, 2006

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Court, as amended, seeking to set aside a Decision1 of the Court of Appeals dated 14 August 2004 ordering the petitioner to pay respondent Commissioner of Internal Revenue (CIR) deficiency documentary stamp tax of P690,030 for the year 1986, inclusive of surcharge and compromise penalty, plus 20% annual interest until fully paid. The Court of Appeals in its assailed Decision affirmed the Decision2 of the Court of Tax Appeals (CTA) dated 31 May 1994.

From 28 February 1986 to 8 October 1986, petitioner Bank of the Philippine Islands (BPI) sold to the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas) U.S. dollars for P1,608,541,900.00. BPI instructed, by cable, its correspondent bank in New York to transfer U.S. dollars deposited in BPI's account therein to the Federal Reserve Bank in New York for credit to the Central Bank's account therein. Thereafter, the Federal Reserve Bank sent to the Central Bank confirmation that such funds had been credited to its account and the Central Bank promptly transferred to the petitioner's account in the Philippines the corresponding amount in Philippine pesos.3

During the period starting 11 June 1985 until 9 March 1987, the Central Bank enjoyed tax exemption privileges pursuant to Resolution No. 35-85 dated 3 May 1985 of the Fiscal Incentive Review Board. However, in 1985, Presidential Decree No. 1994 -- An Act Further Amending Certain Provisions of the National Internal Revenue Code was enacted. This law amended Section 222 (now 173) of the National Internal Revenue Code (NIRC), by adding the foregoing:

[W]henever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax.

In 1988, respondent CIR ordered an investigation to be made on BPI's sale of foreign currency. As a result thereof, the CIR issued a pre-assessment notice informing BPI that in accordance with Section 195 (now Section 182)4 of the NIRC, BPI was liable for documentary stamp tax at the rate of P0.30 per P200.00 on all foreign exchange sold to the Central Bank. Total tax liability was assessed at P3,016,316.06, which consists of a documentary stamp tax liability of P2,412,812.85, a 25% surcharge of P603,203.21, and a compromise penalty of P300.00.5

BPI disputed the findings contained in the pre-assessment notice. Nevertheless, the CIR issued Assessment No. FAS-5-86-88-003022, dated 30 September 1988, which BPI received on 11 October 1988. BPI formally protested the assessment, but the protest was denied. On 10 July 1990, BPI received the final notice and demand for payment of its 1986 assessment for deficiency documentary stamp tax in the amount of P3,016,316.06. Consequently, a petition for review was filed with the CTA on 9 August 1990.6

On 31 May 1994, the CTA rendered the Decision holding BPI liable for documentary stamp tax in connection with the sale of foreign exchange to the Central Bank from the period 29 July 1986 to 8

October 1986 only, thus substantially reducing the CIR's original assessment. The dispositive portion of the said Decision reads:

WHEREFORE, premises considered, petitioner is hereby ordered to pay respondent Commissioner of Internal Revenue, the amount of P690,030 inclusive of surcharge and compromise penalty, plus 20% annual interest until fully paid pursuant to Section 249 (cc) (sic) (3) of the Tax Code.7

The CTA ruled that BPI's instructions to its correspondent bank in the U.S. to pay to the Federal Reserve Bank in New York, for the account of the Central Bank, a sum of money falls squarely within the scope of Section 51 of The Revised Documentary Stamp Tax Regulations (Regulations No. 26), dated 26 March 1924, the implementing rules to the earlier provisions on documentary stamp tax, which provides that: 8

What may be regarded as telegraphic transfer. — a local bank cables to a certain bank in a foreign country with which bank said local bank has a credit, and directs that foreign bank to pay to another bank or person in the same locality a certain sum of money, the document for and in respect such transaction will be regarded as a telegraphic transfer, taxable under the provisions of Section 1449(i) of the Administrative Code.

Nevertheless, the CTA also noted that although Presidential Decree No. 1994, the law which passes the liability on to the non-exempt party, was published in the Official Gazette issue of 2 December 1985, the same was released to the public only on 18 June 1986, as certified by the National Printing Office. Therefore, Presidential Decree No. 1994 took effect only in July 1986 or 15 days after the issue of Official Gazette where the law was actually published, that is, circulated to the public. As a result of the delay, BPI's transactions prior to the effectivity of Presidential Decree No. 1994 were not subject to documentary stamp tax. Hence, the CTA reduced the assessment from P3,016,316.06 to P690,030.00, plus 20% annual interest until fully paid pursuant to Section 249(c) of the NIRC.9

Both parties filed their respective Motions for Reconsideration, which the CTA denied in a Resolution dated 26 September 1994. BPI filed a Petition for Review with the Court of Appeals on 11 November 1994. On 14 August 1998, the Court of Appeals affirmed the Decision of the CTA. The Court of Appeals ruled that the documentary stamp tax imposed under Section 195 (now Section 182) is not limited only to foreign bills of exchange and letters of credit but also includes the orders made by telegraph or by any other means for the payment of money made by any person drawn in but payable out of the Philippines. The Court of Appeals also maintained that telegraphic transfers, such as the one BPI sent to its correspondent bank in the U.S., are proper subjects for the imposition of documentary stamp tax under Section 195 (now Section 182) and Section 51 of Revenue Regulation No. 26. The Court of Appeals likewise affirmed the CTA's Decision imposing a 20% delinquency on the reduced assessment, in accordance with Section 24(c)(3) of the NIRC and the case of Philippine Refining Company v. Court of Appeals.10

Petitioner filed a Partial Motion for Reconsideration on 9 September 1998, which the Court of Appeals denied on 29 December 1998.11

Hence this petition, wherein the petitioner raised the following issues:

I

WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING THAT SALES OF FOREIGN EXCHANGE (SPOT CASH), AS DISTINGUISHED FROM SALES OF FOREIGN BILLS OF EXCHANGE, ARE SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 182 OF THE TAX CODE

II

WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN AFFIRMING THE IMPOSITION OF A DELINQUENCY INTEREST OF 20% ON THE

REVISED DEFICIENCY STAMP ASSESSMENT DESPITE A REDUCTION THEREOF BY THE COUR T OF TAX APPEALS WHICH ERRED IN ITS ORIGINAL ASSESSMENT.12

The first issue raised by the petitioner is whether BPI is liable for documentary stamp taxes in connection with its sale of foreign exchange to the Central Bank in 1986 under Section 195 (now Section 182) of the NIRC, quoted hereunder:

Sec. 182. Stamp tax on foreign bills of exchange and letters of credit. On all foreign bills of exchange and letters of credit (including orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons) drawn in but payable out of the Philippines in a set of three or more according to the custom of merchants and bankers, there shall be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of such bill of exchange or letter of credit, or the Philippine equivalent of such face value, if expressed in foreign country.

To determine what is being taxed under this section, a discussion on the nature of the acts covered by Section 195 (now Section 182) of the NIRC is indispensable. This section imposes a documentary stamp tax on (1) foreign bills of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons. This enumeration is further limited by the qualification that they should be drawn in the Philippines and payable outside of the Philippines.

A definition of a "bill of exchange" is provided by Section 39 of Regulations No. 26, the rules governing documentary taxes promulgated by the Bureau of Internal Revenue (BIR) in 1924:

Sec. 39. Definition of "bill of exchange". The term bill of exchange denotes checks, drafts, and all other kinds of orders for the payment of money, payable at sight, or on demand or after a specific period after sight or from a stated date.

Section 126 of The Negotiable Instruments Law (Act No. 2031) reiterates that it is an "order for the payment of money" and specifies the particular requisites that make it negotiable.

Sec. 126. Bill of exchange defined. – A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at fixed or determinable future time a sum certain in money to order or to bearer.

Section 129 of the same law classifies bills of exchange as inland and foreign, the distinction is laid down by where the bills are drawn and paid. Thus, a "foreign bill of exchange" may be drawn outside the Philippines, payable outside the Philippines, or both drawn and payable outside of the Philippines.

Sec. 129. Inland and foreign bills of exchange. -- An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a foreign bill. x x x

The Code of Commerce loosely defines a "letter of credit" and provides for its essential conditions, thus:

Art. 567. Letters of credit are those issued by one merchant to another or for the purpose of attending to a commercial transaction.

Art 568. The essential conditions of letters of credit shall be:

1. To be issued in favor of a definite person and not to order.

2. To be limited to a fixed and specified amount, or to one or more undetermined amounts, but within a maximum the limits of which has to be stated exactly.

A more explicit definition of a letter of credit can be found in the commentaries:

A letter of credit is one whereby one person requests some other person to advance money or give credit to a third person, and promises that he will repay the same to the person making the advancement, or accept the bills drawn upon himself for the like amount.13

A bill of exchange and a letter of credit may differ as to their negotiability, and as to who owns the funds used for the payment at the time payment is made. However, in both bills of exchange and letters of credit, a person orders another to pay money to a third person.

The phrase "orders, by telegraph or otherwise, for the payment of money" used in reference to documentary stamp taxes may be found in an earlier documentary tax provision, Section 1449(i) of the Administrative Code of 1917, which was substantially reproduced in Section 195 (now Section 182) of the NIRC. Regulations No. 26, which provided the rules and guidelines for the documentary stamp tax imposed under the Administrative Code of 1917, contains an explanation for the phrase "orders, by telegraph or otherwise, for the payment of money":

What may be regarded as telegraphic transfer. — a local bank cables to a certain bank in a foreign country with which bank said local bank has a credit, and directs that foreign bank to pay to another bank or person in the same locality a certain sum of money, the document for and in respect such transaction will be regarded as a telegraphic transfer, taxable under the provisions of Section 1449(i) of the Administrative Code.

In this case, BPI ordered its correspondent bank in the U.S. to pay the Federal Reserve Bank in New York a sum of money, which is to be credited to the account of the Central Bank. These are the same acts described under Section 51 of Regulations No. 26, interpreting the documentary stamp tax provision in the Administrative Code of 1917, which is substantially identical to Section 195 (now Section 182) of the NIRC. These acts performed by BPI incidental to its sale of foreign exchange to the Central Bank are included among those taxed under Section 195 (now Section 182) of the NIRC.

BPI alleges that the assailed decision must be reversed since the sale between BPI and the Central Bank of foreign exchange, as distinguished from foreign bills of exchange, is not subject to the documentary stamp taxes prescribed in Section 195 (now Section 182) of the NIRC. This argument leaves much to be desired. In this case, it is not the sale of foreign exchange per se that is being taxed under Section 195 of the NIRC. This section refers to a documentary stamp tax, which is an excise upon the facilities used in the transaction of the business separate and apart from the business itself.14 It is not a tax upon the business itself which is so transacted, but it is a duty upon the facilities made use of and actually employed in the transaction of the business, and separate and apart from the business itself.15

Section 195 (now Section 182) of the NIRC covers foreign bills of exchange, letters of credit, and orders of payment for money, drawn in Philippines, but payable outside the Philippines. From this enumeration, two common elements need to be present: (1) drawing the instrument or ordering a drawee, within the Philippines; and (2) ordering that drawee to pay another person a specified amount of money outside the Philippines. What is being taxed is the facility that allows a party to draw the draft or make the order to pay within the Philippines and have the payment made in another country.

A perusal of the facts contained in the record in this case shows that BPI, while in the Philippines, ordered its correspondent bank by cable to make a payment, and that payment is to be made to the Federal Reserve Bank in New York. Thus, BPI made use of the aforementioned facility. As a result, BPI need not have sent a representative to New York, nor did the Federal Reserve Bank have to go to the Philippines to collect the funds which were to be credited to the Central Bank's account with them. The transaction was made at the shortest time possible and at the greatest convenience to the parties. The tax was laid upon this privilege or facility used by the parties in their transactions, transactions which they may effect through our courts, and which are regulated and protected by our government.

BPI further alleges that since the funds transferred to the Federal Reserve Bank were taken from BPI's account with the correspondent bank, this is not the transaction contemplated under Section 51 of Regulations No. 26. BPI argues that Section 51 of Regulations No. 26, in using the phrase "with which local bank has credit," involves transactions wherein the drawee bank pays with its own funds and excludes from the coverage of the law situations wherein the funds paid out by the correspondent bank are owned by the drawer. In the case of Republic of the Philippines v. Philippine National Bank,16 the Court equated "credit" with the term "deposits," and identified the depositor as the creditor and the bank as the debtor.

And as correctly stated by the trial court, the term "credit" in its usual meaning is a sum credited on the books of a company to a person who appears to be entitled to it. It presupposes a creditor-debtor relationship, and may be said to imply ability, by reason of property or estates, to make a promised payment. It is the correlative to debt or indebtedness, and that which is due to any person, as distinguished from that which he owes. The same is true with the term "deposits" in banks where the relationship created between the depositor and the bank is that of creditor and debtor.

By this definition of "credit," BPI's deposit account with its correspondent bank is much the same as the "credit" referred to in Section 51 of Regulations No. 26. Thus, the fact that the funds transferred to the Central Bank's account with the Federal Reserve Bank are from BPI's deposit account with the correspondent bank can only underline that the present case is the same situation described under Section 51 of Regulations No. 26.

Moreover, the fact that the funds belong to BPI and were not advanced by the correspondent bank will not remove the transaction from the coverage of Section 195 (now Section 182) of the NIRC. There are transactions covered by this section wherein funds belonging to the drawer are used for payment. A bill of exchange, when drawn in the Philippines but payable in another country, would surely be covered by this section. And in the case of a bill of exchange, the funds may belong to the drawer and need not be advanced by the drawee, as in the case of a check or a draft. In the description of a draft provided hereunder, the drawee is in possession of funds belonging to the drawer of the bill:

A draft is a form of a bill of exchange used mainly in transactions between persons physically remote from each other. It is an order made by one person, say the buyer of goods, addressed to a person having in his possession funds of such buyer ordering the addressee to pay the purchase price to the seller of the goods. Where the order is made by one bank to another, it is referred to as a bank draft.17

BPI argues that the foreign exchange sold was deposited and transferred within the U.S. and is therefore outside Philippine territory. This argument is unsubstantial. The documentary stamp tax is not imposed on the sale of foreign exchange, rather it is an excise tax on the privilege or facility which the parties used in their transaction. In the case of Allied Thread Co., Inc. v. City Mayor of Manila,18 the Court explained the scope encompassed by the power to levy an excise tax:

The tax imposition here is upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, and hence is in the nature of an excise tax.

The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in (Emphasis supplied).

In this case, the act of BPI instructing the correspondent bank to transfer the funds to the Federal Reserve Bank was performed in the Philippines. Therefore, the excise tax may be levied by the Philippine government. Section 195 (now Section 182) of the NIRC would be rendered invalid if the fact that the payment was made outside of the country can be used as a basis for nonpayment of the tax.

The second issue is whether the delinquency interest of 20% per annum, as provided under Section 249(c)(3) of the NIRC, is applicable in this case.

In the case of Philippine Refining Company v. Court of Appeals,19 this Court categorically ruled that even if an assessment was later reduced by the courts, a delinquency interest should still be imposed from the time demand was made by the CIR.

As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was the subject of the demand letter of respondent Commissioner dated April 11, 1989, should have been paid within thirty (30) days from receipt thereof. By reason of petitioner's default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified does not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00.

This doctrine is consistent with the earlier decisions of this Court justifying the imposition of additional charges and interests incident to delinquency by explaining that the nature of additional charges is compensatory and not a penalty.

The above legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the surcharge and interest at the stated rate upon any sum or sums due and unpaid after the dates prescribed in subsections (b), (c), and (d) of the Act for the payment of the amounts due. The provision therefore is mandatory in case of delinquency. This is justified because the intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest charged are not penal but compensatory in nature – they are compensation to the State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State.20

The same principle was used in Ross v. U.S.21 when the U.S. Supreme Court ruled that it was only equitable for the government to collect interest from a taxpayer who, by the government's error, received a refund which was not due him.

Even though [the] taxpayer here did not request the refund made to him, and the situation is entirely due to an error on the part of the government, taxpayer and not the government has had the use of the money during the period involved and it is not unjustly penalizing taxpayer to require him to pay compensation for this use of money.

Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed for the taxpayers' use of the funds at the time when the State should have control of said funds. Collecting such charges is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20% delinquency interest over the assessment reduced by the CTA was justified and in accordance with Section 249(c)(3) of the NIRC.

WHEREFORE, premises considered, this Court DENIES this petition and AFFIRMS the Decision of the Court of Appeals in CA-G.R. SP No. 57362 dated 14 August 1998, ordering that petitioner Bank of the Philippine Islands to pay Respondent Commissioner of Internal Revenue the deficiency documentary stamp tax in the amount of P690,030.00 inclusive of surcharge and compromise penalty, plus 20% annual interest from 7 June 1990 until fully paid. Costs against the petitioner.

SO ORDERED.

Panganiban, C.J., Ynares-Santiago, Austria-Martinez, Callejo, Sr., J.J., concur.

Footnotes

1 Penned by Associate Justice Arturo B. Buena with Associate Justice Ramon Mabutas, Jr. and Associate Justice Hilarion L. Aquino, concurring; Rollo, pp. 42-51.

2 CA rollo, pp. 52-64.

3 Rollo, p. 42

4 Sec. 182. Stamp tax on foreign bills of exchange and letters of credit. On all foreign bills of exchange and letters of credit (including orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons) drawn in but payable out of the Philippines in a set of three or more according to the custom of merchants and bankers, there shall be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of such bill of exchange or letter of credit, or the Philippine equivalent of such face value, if expressed in foreign country.

5 CA rollo, p. 53.

6 Id.

7 Id. at 63-64.

8 Id. at 54-55.

9 Id. at 60-63.

10 326 Phil. 680 (1996).

11 Rollo, p. 54.

12 Id. at 5.

13 Jose Campos, Jr. and Maria Clara Lopez-Campos, Notes and Selected Cases on Negotiable Instruments Law, Fifth Edition. Quezon City: Central Professional Books, Inc, 1994, p. 878.

14 DuPont v. U.S., 300 U.S. 150 (1937)

15 Lincoln Philippine Life Insurance Company, Inc. v. Court of Appeals, 354 Phil. 896, 904 (1998); Nicol v. Ames, 173 US 509 (1899).

16 113 Phil. 828, 830-831 (1961).

17 Supra note 13 at 3.

18 218 Phil. 308, 313-314 (1984).

19 Supra note 10 at 691.

20 Republic v. Philippine Bank of Commerce, 145 Phil. 81, 89 (1970).

21 148 F. Supp. 330 (1957), p. 333.

SECOND DIVISION

 

 

EXXONMOBIL PETROLEUM AND CHEMICAL HOLDINGS, INC. – PHILIPPINE BRANCH,

Petitioner,

- versus -

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

G.R. No. 180909

Present:

CARPIO, J., Chairperson,

NACHURA,

PERALTA,

ABAD, and

MENDOZA, JJ.

Promulgated:

January 19, 2011

 

x ---------------------------------------------------------------------------------------- x

 

D E C I S I O N

 

 

MENDOZA, J.:

 

This is a petition for review on certiorari under Rule 45 filed

by petitioner Exxonmobil Petroleum and Chemical Holdings, Inc. -

Philippine Branch (Exxon) to set aside the September 7, 2007 Decision58

of the Court of Tax Appeals En Banc (CTA-En Banc) in CTA E.B. No.

204, and its November 27, 2007 Resolution59[2] denying

petitioner’s motion for reconsideration.

 

 

THE FACTS

 

Petitioner Exxon is a foreign corporation duly organized and

existing under the laws of the State of Delaware, United States of

America.60[3] It is authorized to do business in the Philippines through its

Philippine Branch, with principal office address at the 17/F The Orient

Square, Emerald Avenue, Ortigas Center, Pasig City.61[4]

 

58[1] Rollo, pp. 62-88. Penned by Associate Justice Juanito C. Castañeda Jr., with Associate Justices Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez, concurring. Presiding Justice Ernesto D. Acosta issued a separate dissenting opinion.

59[2] Id. at 89-94.

60[3] Id. at 73.

61[4] Id.

Exxon is engaged in the business of selling petroleum products to

domestic and international carriers.62[5] In pursuit of its business, Exxon

purchased from Caltex Philippines, Inc. (Caltex) and Petron Corporation

(Petron) Jet A-1 fuel and other petroleum products, the excise taxes on

which were paid for and remitted by both Caltex and Petron.63[6] Said

taxes, however, were passed on to Exxon which ultimately shouldered the

excise taxes on the fuel and petroleum products.64[7]

 

From November 2001 to June 2002, Exxon sold a total of

28,635,841 liters of Jet A-1 fuel to international carriers, free of excise

taxes amounting to Php105,093,536.47. On various dates, it filed

administrative claims for refund with the Bureau of Internal Revenue

(BIR) amounting to Php105,093,536.47.65[9]

 

On October 30, 2003, Exxon filed a petition for review with the

CTA claiming a refund or tax credit in the amount of Php105,093,536.47,

representing the amount of excise taxes paid on Jet A-1 fuel and other

petroleum products it sold to international carriers from November 2001

to June 2002.66[11]

 

62[5] Id.

63[6] Id.

64[7] Id.

65[9] Id.

66[11] Rollo, p. 63.

Exxon and the Commissioner of Internal Revenue (CIR) filed their

Joint Stipulation of Facts and Issues on June 24, 2004, presenting a total

of fourteen (14) issues for resolution.67[12]

 

During Exxon’s preparation of evidence, the CIR filed a motion

dated January 28, 2005 to first resolve the issue of whether or not Exxon

was the proper party to ask for a refund.68[13] Exxon filed its opposition

to the motion on March 15, 2005.

 

On July 27, 2005, the CTA First Division issued a resolution69[14]

sustaining the CIR’s position and dismissing Exxon’s claim for refund.

Exxon filed a motion for reconsideration, but this was denied on July 27,

2006.70[15]

 

Exxon filed a petition for review71[16] with the CTA En Banc

assailing the July 27, 2005 Resolution of the CTA First Division which

dismissed the petition for review, and the July 27, 2006 Resolution72[17]

which affirmed the said ruling.

67[12] Id.

68[13] Id. at 64.

69[14] Id. at 138. Associate Justices Lovell R. Bautista and Caesar A. Casanova, concurring. Presiding Justice Ernesto D. Acosta issued a separate dissenting opinion.

70[15] Id. at 150.

71[16] Id. at 95.

72[17] Id. at 62-63.

 

 

RULING OF THE COURT OF TAX APPEALS EN BANC

 

 

In its Decision dated September 7, 2007, the CTA En Banc

dismissed the petition for review and affirmed the two resolutions of the

First Division dated July 27, 2005 and July 27, 2006. Exxon filed a

motion for reconsideration, but it was denied on November 27, 2007.

 

Citing Sections 130 (A)(2)73[18] and 204 (C) in relation to Section

135 (a)74[19] of the National Internal Revenue Code of 1997 (NIRC), the

CTA ruled that in consonance with its ruling in several cases,75[20] only

the taxpayer or the manufacturer of the petroleum products sold has the

73[18] SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. –

 

(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax. –

 

x x x

 

(2) Time for Filing of Return and Payment of the Tax. – Unless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production: Provided, That the tax excise on locally manufactured petroleum products and indigenous petroleum levied under Sections 148 and 151(A)(4), respectively, of this Title shall be paid within ten (10) days from the date of removal of such products for the period from January 1, 1998 to June 30, 1998; within five (5) days from the date of removal of such products for the period from July 1, 1998 to December 31, 1998; and, before removal from the place of production of such products from January 1, 1999 and thereafter: Provided, further, That the excise tax on nonmetallic mineral or mineral products, or quarry resources shall be due and payable upon removal of such products from the locality where mined or extracted, but with respect to the excise tax on locally produced or extracted metallic mineral or mineral products, the person liable shall file a return and pay the tax within fifteen (15) days after the end of the calendar quarter when such products were removed subject to such conditions as may be prescribed by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. For this purpose, the taxpayer shall file a bond in an amount which approximates the amount of excise tax due on the removals for the said quarter. The foregoing rules notwithstanding, for imported mineral or mineral products, whether metallic or nonmetallic, the excise tax due thereon shall be paid before their removal from customs custody.

 

x x x

 

74[19] SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. - Petroleum products sold to the following are exempt from excise tax:

 

(a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner;

legal personality to claim the refund of excise taxes paid on petroleum

products sold to international carriers.76[21]

 

 

The CTA stated that Section 130(A)(2) makes the manufacturer or

producer of the petroleum products directly liable for the payment of

excise taxes.77[22] Therefore, it follows that the manufacturer or producer

is the taxpayer.78[23]

 

This determination of the identity of the taxpayer designated by

law is pivotal as the NIRC provides that it is only the taxpayer who “has

the legal personality to ask for a refund in case of erroneous payment of

taxes.”79[24]

 

x x x

 

75[20] Koyo Manufacturing (Philippines) Corp. v. Commissioner of Internal Revenue. CTA E.B. No. 194, March 1, 2007; Mobil Philippines, Inc. v. Commissioner of Internal Revenue, CTA E.B. No. 110, July 26, 2006; Dunlop Slazenger Phils., Inc. v. Commissioner of Internal Revenue, CTA E.B. No. 102, May 18, 2006; Commissioner of Internal Revenue v. Silkair (Singapore) Pte. Ltd., CTA E.B. No. 67, January 5, 2006;; Commissioner of Internal Revenue v. Silkair (Singapore) Pte. Ltd., CTA E.B. No. 56, October 20, 2005; and Commissioner of Internal Revenue v. Silkair (Singapore) Pte. Ltd., CTA E.B. No. 25, May 20, 2005.

76[21] Rollo, p. 74.

77[22] Id. at 75.

78[23] Id.

79[24] Id, citing Section 204(C) of the NIRC of 1997, which reads:

 

 

Further, the excise tax imposed on manufacturers upon the removal

of petroleum products by oil companies is an indirect tax, or a tax which

is primarily paid by persons who can shift the burden upon someone

else.80[25] The CTA cited the cases of Philippine Acetylene Co., Inc. v.

Commissioner of Internal Revenue,81[26] Contex Corporation v.

Commissioner of Internal Revenue,82[27] and Commissioner of Internal

Revenue v. Philippine Long Distance Telephone Company,83[28] and

explained that with indirect taxes, “although the burden of an indirect tax

can be shifted or passed on to the purchaser of the goods, the liability for

the indirect tax remains with the manufacturer.”84[29] Moreover, “the

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may -

 

x x x

 

(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

 

x x x

 

80[25] Id. at 77, citing Maceda v. Macaraig, Jr., et. al., 274 Phil. 1060 (1991).

81[26] 127 Phil. 461 (1967).

82[27] G.R. No. 151135, July 2, 2004, 433 SCRA 577.

83[28] G.R. No. 140230, December 15, 2005, 478 SCRA 61, citing Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, supra note 27 at 470.

84[29] Rollo, p. 77.

manufacturer has the option whether or not to shift the burden of the tax

to the purchaser. When shifted, the amount added by the manufacturer

becomes a part of the price, therefore, the purchaser does not really pay

the tax per se but only the price of the commodity.”85[30]

 

Going by such logic, the CTA concluded that a refund of

erroneously paid or illegally received tax can only be made in favor of the

taxpayer, pursuant to Section 204(C) of the NIRC.86[31] As categorically

ruled in the Cebu Portland Cement87[32] and Contex88[33] cases, in the

case of indirect taxes, it is the manufacturer of the goods who is entitled

to claim any refund thereof.89[34] Therefore, it follows that the indirect

taxes paid by the manufacturers or producers of the goods cannot be

refunded to the purchasers of the goods because the purchasers are not the

taxpayers.90[35]

 

The CTA also emphasized that tax refunds are in the nature of tax

exemptions and are, thus, regarded as in derogation of sovereign authority

85[30] Id. at 78.

86[31] Id. at 80.

87[32] Cebu Portland Cement Company v. Commissioner of Internal Revenue, 134 Phil. 735 (1968).

88[33] Contex Corporation v. Commissioner of Internal Revenue, supra note 27.

89[34] Rollo, p. 79, citing Section 204(C) of the 1997 NIRC and Cebu Portland Cement Company v. Collector of Internal Revenue, 134 Phil. 735 (1968).

90[35] Id. at 81.

and construed strictissimi juris against the person or entity claiming the

exemption.91[36]

Finally, the CTA disregarded Exxon’s argument that “in effectively

holding that only petroleum products purchased directly from the

manufacturers or producers are exempt from excise taxes, the First

Division of [the CTA] sanctioned a universal amendment of existing

bilateral agreements which the Philippines have with other countries, in

violation of the basic principle of ‘pacta sunt servanda.’”92[37] The CTA

explained that the findings of fact of the First Division (that when Exxon

sold the Jet A-1 fuel to international carriers, it did so free of tax) negated

any violation of the exemption from excise tax of the petroleum products

sold to international carriers. Second, the right of international carriers to

invoke the exemption granted under Section 135(a) of the NIRC was

neither affected nor restricted in any way by the ruling of the First

Division. At the point of sale, the international carriers were free to

invoke the exemption from excise taxes of the petroleum products sold to

them. Lastly, the lawmaking body was presumed to have enacted a later

law with the knowledge of all other laws involving the same subject

matter.93[38]

 

THE ISSUES

91[36] Id.

92[37] Id. at 82.

93[38] Id.

 

Petitioner now raises the following issues in its petition for review:

 

I.

WHETHER THE ASSAILED DECISION AND RESOLUTION ERRONEOUSLY PROHIBITED PETITIONER, AS THE DISTRIBUTOR AND VENDOR OF PETROLEUM PRODUCTS TO INTERNATIONAL CARRIERS REGISTERED IN FOREIGN COUNTRIES WHICH HAVE EXISTING BILATERAL AGREEMENTS WITH THE PHILIPPINES, FROM CLAIMING A REFUND OF THE EXCISE TAXES PAID THEREON; AND

 

 

II. 

WHETHER THE ASSAILED DECISIONS ERRED IN AFFIRMING THE DISMISSAL OF PETITIONER’S CLAIM FOR REFUND BASED ON RESPONDENT’S “MOTION TO RESOLVE FIRST THE ISSUE OF WHETHER OR NOT THE PETITIONER IS THE PROPER PARTY THAT MAY ASK FOR A REFUND,” SINCE SAID MOTION IS ESSENTIALLY A MOTION TO DISMISS, WHICH SHOULD HAVE BEEN DENIED OUTRIGHT BY THE COURT OF TAX APPEALS FOR HAVING BEEN FILED OUT OF TIME.

 

RULING OF THE COURT

 

I. On respondent’s “motion to resolve first the issue of whether or not the petitioner is the proper party that may ask for a refund.”

 

For a logical resolution of the issues, the court will tackle first the

issue of whether or not the CTA erred in granting respondent’s Motion to

Resolve First the Issue of Whether or Not the Petitioner is the Proper

Party that may Ask for a Refund.94[39] In said motion, the CIR prayed

that the CTA First Division resolve ahead of the other stipulated issues

the sole issue of whether petitioner was the proper party to ask for a

refund.95[40]

 

Exxon opines that the CIR’s motion is essentially a motion to

dismiss filed out of time,96[41] as it was filed after petitioner began

presenting evidence97[42] more than a year after the filing of the

Answer.98[43] By praying that Exxon be declared as not the proper party

to ask for a refund, the CIR asked for the dismissal of the petition, as the

grant of the Motion to Resolve would bring trial to a close.99[44]

 

94[39] Id. at 204.

95[40] Id. at 205.

96[41] Id. at 397.

97[42] Id. at 396.

98[43] Id. at 397.

99[44] Id. at 396.

Moreover, Exxon states that the motion should have also complied

with the three-day notice and ten-day hearing rules provided in Rule 15 of

the Rules of Court.100[45] Since the CIR failed to set its motion for any

hearing before the filing of the Answer, the motion should have been

considered a mere scrap of paper.101[46]

 

Finally, citing Maruhom v. Commission on Elections and

Dimaporo,102[47] Exxon argues that a defendant who desires a

preliminary hearing on special and affirmative defenses must file a

motion to that effect at the time of filing of his answer.103[48]

 

The CIR, on the other hand, counters that it did not file a motion to

dismiss.104[49] Instead, the grounds for dismissal of the case were pleaded

as special and affirmative defenses in its Answer filed on December 15,

2003.105[50] Therefore, the issue of “whether or not petitioner is the

proper party to claim for a tax refund of the excise taxes allegedly passed

on by Caltex and Petron” was included as one of the issues in the Joint

Stipulation of Facts and Issues dated June 24, 2004 signed by petitioner

and respondent.106[51]

100[45] Id. at 397.

101[46] Id.

102[47] 387 Phil. 491 (2000).

103[48] Rollo, p. 399.

104[49] Id. at 279.

105[50] Id.

 

The CIR now argues that nothing in the Rules requires the

preliminary hearing to be held before the filing of an Answer.107[52]

However, a preliminary hearing cannot be held before the filing of the

Answer precisely because any ground raised as an affirmative defense is

pleaded in the Answer itself.108[53]

 

Further, the CIR contends that the case cited by petitioner,

Maruhom v. Comelec,109[54] does not apply here. In the said case, a

motion to dismiss was filed after the filing of the answer.110[55] And, the

said motion to dismiss was

106[51] Id.

107[52] Id.

108[53] Id.

109[54] Supra note 47.

110[55] Rollo, p. 280.

found to be a frivolous motion designed to prevent the early

termination of the proceedings in the election case therein.111[56] Here,

the Motion to Resolve was filed not to delay the disposition of the case,

but rather, to expedite proceedings.112[57]

 

Rule 16, Section 6 of the 1997 Rules of Civil Procedure provides:

 

SEC. 6. Pleading grounds as affirmative defenses. - If no motion to dismiss has been filed, any of the grounds for dismissal provided for in this Rule may be pleaded as an affirmative defense in the answer, and in the discretion of the court, a preliminary hearing may be had thereon as if a motion to dismiss had been filed.

 The dismissal of the complaint under this section

shall be without prejudice to the prosecution in the same or separate action of a counterclaim pleaded in the answer. (Underscoring supplied.)

 

This case is a clear cut application of the above provision. The CIR

did not file a motion to dismiss. Thus, he pleaded the grounds for

dismissal as affirmative defenses in its Answer and thereafter prayed for

the conduct of a preliminary hearing to determine whether petitioner was

the proper party to apply for the refund of excise taxes paid.

 

111[56] Id.

112[57] Id.

The determination of this question was the keystone on which the

entire case was leaning. If Exxon was not the proper party to apply for the

refund of excise taxes paid, then it would be useless to proceed with the

case. It would not make any sense to proceed to try a case when

petitioner had no standing to pursue it.

 

 

 

 

In the case of California and Hawaiian Sugar Company v. Pioneer

Insurance and Surety Corporation,113[58] the Court held that:

 

Considering that there was only one question, which may even be deemed to be the very touchstone of the whole case, the trial court had no cogent reason to deny the Motion for Preliminary Hearing. Indeed, it committed grave abuse of discretion when it denied a preliminary hearing on a simple issue of fact that could have possibly settled the entire case. Verily, where a preliminary hearing appears to suffice, there is no reason to go on to trial. One reason why dockets of trial courts are clogged is the unreasonable refusal to use a process or procedure, like a motion to dismiss, which is designed to abbreviate the resolution of a case.114[59] (Underscoring supplied.)

 

II. On whether petitioner, as the distributor and vendor of petroleum

113[58] 399 Phil. 795 (2000).

114[59] Id. at 805.

products to international carriers registered in foreign countries which have existing bilateral agreements with the Philippines, can claim a refund of the excise taxes paid thereon

 

This brings us now to the substantive issue of whether Exxon, as

the distributor and vendor of petroleum products to international carriers

registered in foreign countries which have existing bilateral agreements

with the Philippines, is the proper party to claim a tax refund for the

excise taxes paid by the manufacturers, Caltex and Petron, and passed on

to it as part of the purchase price.

 

Exxon argues that having paid the excise taxes on the petroleum

products sold to international carriers, it is a real party in interest

consistent with the rules and jurisprudence.115[60]

 

 

It reasons out that the subject of the exemption is neither the seller

nor the buyer of the petroleum products, but the products themselves, so

long as they are sold to international carriers for use in international flight

operations, or to exempt entities covered by tax treaties, conventions and

115[60] Rollo, p. 39.

other international agreements for their use or consumption, among other

conditions.116[61]

 

Thus, as the exemption granted under Section 135 attaches to the

petroleum products and not to the seller, the exemption will apply

regardless of whether the same were sold by its manufacturer or its

distributor for two reasons.117[62] First, Section 135 does not require that

to be exempt from excise tax, the products should be sold by the

manufacturer or producer.118[63] Second, the legislative intent was

precisely to make Section 135 independent from Sections 129 and 130 of

the NIRC,119[64] stemming from the fact that unlike other products subject

to excise tax, petroleum products of this nature have become subject to

preferential tax treatment by virtue of either specific international

agreements or simply of international reciprocity.120[65]

 

Respondent CIR, on the other hand, posits that Exxon is not the

proper party to seek a refund of excise taxes paid on the petroleum

products.121[66] In so arguing, the CIR states that excise taxes are indirect

taxes, the liability for payment of which falls on one person, but the

116[61] Id. at 31.

117[62] Id. at 32.

118[63] Id.

119[64] Id., citing BIR Ruling DA-038-98.

120[65] Id. at 34.

121[66] Id. at 271.

burden of payment may be shifted to another.122[67] Here, the sellers of

the petroleum products or Jet A-1 fuel subject to excise tax are Petron and

Caltex, while Exxon was the buyer to whom the burden of paying excise

tax was shifted.123[68] While the impact or burden of taxation falls on

Exxon, as the tax is shifted to it as part of the purchase price, the persons

statutorily liable to pay the tax are Petron and Caltex.124[69] As Exxon is

not the taxpayer primarily liable to pay, and not exempted from paying,

excise tax, it is not the proper party to claim for the refund of excise taxes

paid.125[70]

 

The excise tax, when passed on to the purchaser, becomes part of the purchase price.

 

Excise taxes are imposed under Title VI of the NIRC. They apply

to specific goods manufactured or produced in the Philippines for

domestic sale or consumption or for any other disposition, and to those

that are imported.126[71] In effect, these taxes are imposed when two

conditions concur: first, that the articles subject to tax belong to any of the

categories of goods enumerated in Title VI of the NIRC; and second, that

122[67] Id.

123[68] Id.

124[69] Id. at 273.

125[70] Id. at 277.

126[71] J.C. Vitug and E.D. Acosta, Tax Law and Jurisprudence, 271 (2006). See also Republic Act No. 8424 (1997), as amended, Sec. 129.

said articles are for domestic sale or consumption, excluding those that are

actually exported.127[72]

 

There are, however, certain exemptions to the coverage of excise

taxes, such as petroleum products sold to international carriers and

exempt entities or agencies. Section 135 of the NIRC provides:

 

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. - Petroleum products sold to the following are exempt from excise tax:

(a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner;

(b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use of consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and

(c) Entities which are by law exempt from direct and indirect taxes. (Underscoring supplied.)

 

Thus, under Section 135, petroleum products sold to international

carriers of foreign registry on their use or consumption outside the

Philippines are exempt from excise tax, provided that the petroleum

127[72] Id.

products sold to such international carriers shall be stored in a bonded

storage tank and may be disposed of only in accordance with the rules and

regulations to be prescribed by the Secretary of Finance, upon

recommendation of the Commissioner.128[73]

 

The confusion here stems from the fact that excise taxes are of the

nature of indirect taxes, the liability for payment of which may fall on a

person other than he who actually bears the burden of the tax.

In Commissioner of Internal Revenue v. Philippine Long Distance

Telephone Company,129[74] the Court discussed the nature of indirect

taxes as follows:

 

[I]ndirect taxes are those that are demanded, in the first instance, from, or are paid by, one person to someone else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser, as part of the goods sold or services rendered.

 

128[73] Id. at 281.

129[74] Supra note 28 at 72, citing Commissioner of Internal Revenue v. Tours Specialists, Inc., 262 Phil. 437 (1990).

 

Accordingly, the party liable for the tax can shift the burden to

another, as part of the purchase price of the goods or services. Although

the manufacturer/seller is the one who is statutorily liable for the tax, it is

the buyer who actually shoulders or bears the burden of the tax, albeit not

in the nature of a tax, but part of the purchase price or the cost of the

goods or services sold.

 

As petitioner is not the statutory taxpayer, it is not entitled to claim a refund of excise taxes paid.

 

The question we are faced with now is, if the party statutorily liable

for the tax is different from the party who bears the burden of such tax,

who is entitled to claim a refund of the tax paid?

 

Sections 129 and 130 of the NIRC provide:

 

SEC. 129. Goods subject to Excise Taxes. - Excise taxes apply to goods manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things imported. The excise tax imposed herein shall be in addition to the value-added tax imposed under Title IV.

For purposes of this Title, excise taxes herein imposed and based on weight or volume capacity or any other physical unit of measurement shall be referred to as 'specific tax' and an excise tax herein imposed and based on selling price or other specified

value of the good shall be referred to as 'ad valorem tax.'

SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. -

(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax. -

(1) Persons Liable to File a Return. - Every person liable to pay excise tax imposed under this Title shall file a separate return for each place of production setting forth, among others the description and quantity or volume of products to be removed, the applicable tax base and the amount of tax due thereon: Provided, however, That in the case of indigenous petroleum, natural gas or liquefied natural gas, the excise tax shall be paid by the first buyer, purchaser or transferee for local sale, barter or transfer, while the excise tax on exported products shall be paid by the owner, lessee, concessionaire or operator of the mining claim.

Should domestic products be removed from the place of production without the payment of the tax, the owner or person having possession thereof shall be liable for the tax due thereon.

(2) Time for Filing of Return and Payment of the Tax. - Unless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production: Provided, That the tax excise on locally manufactured petroleum products and indigenous petroleum/levied under Sections 148 and 151(A)(4), respectively, of this Title shall be paid within ten (10) days from the date of removal of such products for the period from January 1, 1998 to June 30, 1998; within five (5) days from the date of removal of such products for the period from July 1, 1998 to December 31, 1998; and, before removal from the place of production of such products from January 1, 1999 and thereafter: Provided, further, That the excise tax on nonmetallic mineral or mineral products, or quarry resources shall be due and payable upon removal of such products from the locality where mined or extracted, but with respect to the excise tax on locally produced or extracted metallic mineral or mineral products, the person liable shall file a return and pay

the tax within fifteen (15) days after the end of the calendar quarter when such products were removed subject to such conditions as may be prescribed by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. For this purpose, the taxpayer shall file a bond in an amount which approximates the amount of excise tax due on the removals for the said quarter. The foregoing rules notwithstanding, for imported mineral or mineral products, whether metallic or nonmetallic, the excise tax due thereon shall be paid before their removal from customs custody.

x x x

(Italics and underscoring supplied.)

 

As early as the 1960’s, this Court has ruled that the proper party to

question, or to seek a refund of, an indirect tax, is the statutory taxpayer,

or the person on whom the tax is imposed by law and who paid the same,

even if he shifts the burden thereof to another.130[75]

 

In Philippine Acetylene Co., Inc. v. Commissioner of Internal

Revenue,131[76] the Court held that the sales tax is imposed on the

manufacturer or producer and not on the purchaser, “except probably in a

very remote and inconsequential sense.”132[77] Discussing the “passing

on” of the sales tax to the purchaser, the Court therein cited Justice Oliver

130[75] Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, G.R. No. 173594, February 6, 2008, 544 SCRA 100, 112; J.C. Vitug and E.D. Acosta, Tax Law and Jurisprudence, 317 (2006), citing Commissioner of Internal Revenue v. American Rubber Company and Court of Tax Appeals, 124 Phil. 1471 (1966); Cebu Portland Cement Co. v. Collector of Internal Revenue, 134 Phil. 735 (1968).

131[76] Supra note 26.

132[77] Id. at 470.

Wendell Holmes’ opinion in Lash’s Products v. United States133[78]

wherein he said:

 

“The phrase ‘passed the tax on’ is inaccurate, as obviously the tax is laid and remains on the manufacturer and on him alone. The purchaser does not really pay the tax. He pays or may pay the seller more for the goods because of the seller’s obligation, but that is all. x x x The price is the sum total paid for the goods. The amount added because of the tax is paid to get the goods and for nothing else. Therefore it is part of the price x x x.”134[79]

 

Proceeding from this discussion, the Court went on to state:

 

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. x x x The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller’s obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else. 

But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on the purchaser.135[80]

 

133[78] 278 U.S. 175 (1928).

134[79] Supra note 26 at 465-466.

135[80] Id. at 470, citing 47 Harv. Ld. Rev. 860, 869 (1934).

The above case was cited in the later case of Cebu Portland Cement

Company v. Collector (now Commissioner) of Internal Revenue,136[81]

where the Court ruled that as the sales tax is imposed upon the

manufacturer or producer and not on the purchaser, “it is petitioner and

not its customers, who may ask for a refund of whatever amount it is

entitled for the percentage or sales taxes it paid before the amendment of

section 246 of the Tax Code.”137[82]

The Philippine Acetylene case was also cited in the first Silkair

(Singapore) Pte, Ltd. v. Commissioner of Internal Revenue138[83] case,

where the Court held that the proper party to question, or to seek a refund

of, an indirect tax is the statutory taxpayer, the person on whom the tax is

imposed by law and who paid the same even if he shifts the burden

thereof to another.139[84]

 

In the Silkair cases,140[85] petitioner Silkair (Singapore) Pte, Ltd.

(Silkair), filed with the BIR a written application for the refund of excise

taxes it claimed to have paid on its purchase of jet fuel from Petron. As

136[81] Supra note 32.

137[82] Id. at 743.

138[83] Supra note 75. See also Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, G.R. Nos. 171383 and 172379, November 14, 2008, 571 SCRA 141.

139[84] Id.

140[85] Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, G.R. No. 173594, February 6, 2008, 544 SCRA 100 and Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, G.R. Nos. 171383 and 172379, November 14, 2008, 571 SCRA 141.

the BIR did not act on the application, Silkair filed a Petition for Review

before the CTA.

 

In both cases, the CIR argued that the excise tax on petroleum

products is the direct liability of the manufacturer/producer, and when

added to the cost of the goods sold to the buyer, it is no longer a tax but

part of the price which the buyer has to pay to obtain the article.

In the first Silkair case, the Court ruled:

 

 

The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another . Section 130 (A) (2) of the NIRC provides that "[u]nless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production." Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore.

Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser . 141[86] (Emphasis and underscoring supplied.)

 

Citing the above case, the second Silkair case was promulgated a

few months after the first, and stated:

 

141[86]Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, supra note 75.

The issue presented is not novel. In a similar case involving the same parties, this Court has categorically ruled that "the proper party to question, or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another." The Court added that "even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser."142[87]

 

The CTA En Banc, thus, held that:

 

The determination of who is the taxpayer plays a pivotal role in claims for refund because the same law provides that it is only the taxpayer who has the legal personality to ask for a refund in case of erroneous payment of taxes. Section 204 (C) of the 1997 NIRC, [provides] in part, as follows:

 

SEC. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. – The Commissioner may –  

xxx xxx xxx  

(C)               Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been

142[87]Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, G.R. Nos. 171383 and 172379, November 14, 2008, 571 SCRA 141, 153-154.

rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return showing an overpayment shall be considered as a written claim for credit or refund. 

xxx xxx xxx 

(Emphasis shown supplied by the CTA.)143[88]

 

Therefore, as Exxon is not the party statutorily liable for payment

of excise taxes under Section 130, in relation to Section 129 of the NIRC,

it is not the proper party to claim a refund of any taxes erroneously paid.

 

There is no unilateral amendment of existing bilateral agreements of the Philippines with other countries.

 

Exxon also argues that in effectively holding that only petroleum

products purchased directly from the manufacturers or producers are

exempt from excise taxes, the CTA En Banc sanctioned a unilateral

amendment of existing bilateral agreements which the Philippines has

143[88] Rollo, pp. 75-76.

with other countries, in violation of the basic international law principle of

pacta sunt servanda.144[89] The Court does not agree.

 

 

 

 

As correctly held by the CTA En Banc:

 

One final point, petitioner’s argument “that in effectively holding that only petroleum products purchased directly from the manufacturers or producers are exempt from excise taxes, the First Division of this Court sanctioned a unilateral amendment of existing bilateral agreements which the Philippines have (sic) with other countries, in violation of the basic international principle of “pacta sunt servanda” is misplaced. First, the findings of fact of the First Division of this Court that “when petitioner sold the Jet A-1 fuel to international carriers, it did so free of tax” negates any violation of the exemption from excise tax of the petroleum products sold to international carriers insofar as this case is concerned. Secondly, the right of international carriers to invoke the exemption granted under Section 135 (a) of the 1997 NIRC has neither been affected nor restricted in any way by the ruling of the First Division of this Court. At the point of sale, the international carriers are free to invoke the exemption from excise taxes of the petroleum products sold to them. Lastly, the law-making body is presumed to have enacted a later law with the knowledge of all other laws involving the same subject matter.”145[90] (Underscoring supplied.)

144[89] Id. at 34.

145[90] Id. at 82.

 

WHEREFORE, the petition is DENIED.

 

SO ORDERED.

 

 

JOSE CATRAL MENDOZA Associate Justice

 

WE CONCUR:

 

 

 

 

ANTONIO T. CARPIO

Associate Justice

Chairperson

 

 

 

 

 

 

ANTONIO EDUARDO B. NACHURA DIOSDADO M. PERALTA Associate Justice Associate Justice    

 ROBERTO A. ABAD

Associate Justice

 

 

A T T E S T A T I O N 

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

 

 ANTONIO T. CARPIO

Associate Justice

Chairperson, Second Division

 

 

C E R T I F I C A T I O N

 

 Pursuant to Section 13, Article VIII of the Constitution and the

Division Chairperson’s Attestation, I certify that the conclusions in the

above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

 

 

 

RENATO C. CORONA

Chief Justice

 

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-26521      December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee, vs.CITY OF ILOILO, defendants-appellants.

Pelaez, Jalandoni and Jamir for plaintiff-appellees.Assistant City Fiscal Vicente P. Gengos for defendant-appellant.

CASTRO, J.:

Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons Engaged In The Business Of Operating Tenement Houses," and ordering the City to refund to the plaintiffs-appellees the sums of collected from them under the said ordinance.

On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter."

On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance 11, series of 1960, hereunder quoted in full:

AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF OPERATING TENEMENT HOUSES

Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act No. 2264, otherwise known as the Autonomy Law of Local Government, that:

Section 1. — A municipal license tax is hereby imposed on tenement houses in accordance with the schedule of payment herein provided.

Section 2. — Tenement house as contemplated in this ordinance shall mean any building or dwelling for renting space divided into separate apartments or accessorias.

Section 3. — The municipal license tax provided in Section 1 hereof shall be as follows:

I. Tenement houses:

(a) Apartment house made of strong materials P20.00 per door p.a.

(b) Apartment house made of mixed materials P10.00 per door p.a.

II Rooming house of strong materials P10.00 per door p.a.

Rooming house of mixed materials P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or dedicated to business in the following streets: J.M. Basa, Iznart, Aldeguer, Guanco and Ledesma from Plazoleto Gay to Valeria. St. P30.00 per door p.a.

IV. Tenement house partly or wholly engaged in or dedicated to business in any other street P12.00 per door p.a.

V. Tenement houses at the streets surrounding the super market as soon as said place is declared commercial P24.00 per door p.a.

Section 4. — All ordinances or parts thereof inconsistent herewith are hereby amended.

Section 5. — Any person found violating this ordinance shall be punished with a fine note exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6) months or both at the discretion of the Court.

Section 6 — This ordinance shall take effect upon approval.ENACTED, January 15, 1960.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten apartments. Each of the appellees' apartments has a door leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon City, which cities, according to him, do not impose tenement or apartment taxes.

By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property.

On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected from them under the said ordinance.

On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the same is "oppressive and unreasonable," for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates the rule of uniformity of taxation.

The issues posed in this appeal are:

1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?

2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?

3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause?

4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?

1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:

SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licences at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National Internal Revenue Code; Provided, however, That no city, municipality or municipal district may levy or impose any of the following:

(a) Residence tax;

(b) Documentary stamp tax;

(c) Taxes on the business of persons engaged in the printing and publication of any newspaper, magazine, review or bulletin appearing at regular intervals and having fixed prices for for subscription and sale, and which is not published primarily for the purpose of publishing advertisements;

(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and power;

(e) Taxes on forest products and forest concessions;

(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;

(g) Taxes on income of any kind whatsoever;

(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof;

(i) Customs duties registration, wharfage dues on wharves owned by the national government, tonnage, and all other kinds of customs fees, charges and duties;

(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and

(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies.

A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the effectivity of any ordinance within one hundred and twenty days after its passage, if, in his opinion, the tax or fee therein levied or imposed is unjust, excessive,

oppressive, or confiscatory, and when the said Secretary exercises this authority the effectivity of such ordinance shall be suspended.

In such event, the municipal board or city council in the case of cities and the municipal council or municipal district council in the case of municipalities or municipal districts may appeal the decision of the Secretary of Finance to the court during the pendency of which case the tax levied shall be considered as paid under protest.

It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad taxing authority which extends to almost "everything, excepting those which are mentioned therein," provided that the tax so levied is "for public purposes, just and uniform," and does not transgress any constitutional provision or is not repugnant to a controlling statute.2 Thus, when a tax, levied under the authority of a city or municipal ordinance, is not within the exceptions and limitations aforementioned, the same comes within the ambit of the general rule, pursuant to the rules of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti.

Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature of the tax. The appellees strongly maintain that it is a "property tax" or "real estate tax,"3 and not a "tax on persons engaged in any occupation or business or exercising privileges," or a license tax, or a privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license tax on persons engaged in the business of operating tenement houses," while section 1 thereof states that a "municipal license tax is hereby imposed on tenement houses." It is the phraseology of section 1 on which the appellees base their contention that the tax involved is a real estate tax which, according to them, makes the ordinance ultra vires as it imposes a levy "in excess of the one per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158."5.

It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax. Obviously, the appellees confuse the tax with the real estate tax within the meaning of the Assessment Law,6 which, although not applicable to the City of Iloilo, has counterpart provisions in the Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted,8 and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor.9 The tax is usually single or indivisible, although the land and building or improvements erected thereon are assessed separately, except when the land and building or improvements belong to separate owners.10 It is a fixed proportion11 of the assessed value of the property taxed, and requires, therefore, the intervention of assessors.12 It is collected or payable at appointed times,13 and it constitutes a superior lien on and is enforceable against the property14 subject to such taxation, and not by imprisonment of the owner.

The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax on the land on which the tenement houses are erected, although both land and tenement houses may belong to the same owner. The tax is not a fixed proportion of the assessed value of the tenement houses, and does not require the intervention of assessors or appraisers. It is not payable at a designated time or date, and is not enforceable against the tenement houses either by sale or distraint. Clearly, therefore, the tax in question is not a real estate tax.

"The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court looks less to its words and more to the context, subject-matter, consequence and effect. Accordingly, what is within the spirit is within the ordinance although it is not within the letter thereof, while that which is in the letter, although not within the spirit, is not within the ordinance."15 It is within neither the letter nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise the subject-matter would have been not merely tenement houses. On the contrary, it is plain from the context of the ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a form of business or calling. The ordinance, in both its title and body, particularly sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself, means an "imposition or exaction on the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a privilege."16.

"The character of a tax is not to be fixed by any isolated words that may beemployed in the statute creating it, but such words must be taken in the connection in which they are used and the true character is to be deduced from the nature and essence of the subject."17 The subject-matter of the ordinance is tenement houses whose nature and essence are expressly set forth in section 2 which defines a tenement house as "any building or dwelling for renting space divided into separate apartments or accessorias." The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959, adopted the definition of a tenement house18 as "any house or building, or portion thereof, which is rented, leased, or hired out to be occupied, or is occupied, as the home or residence of three families or more living independently of each other and doing their cooking in the premises or by more than two families upon any floor, so living and cooking, but having a common right in the halls, stairways, yards, water-closets, or privies, or some of them." Tenement houses, being necessarily offered for rent or lease by their very nature and essence, therefore constitute a distinct form of business or calling, similar to the hotel or motel business, or the operation of lodging houses or boarding houses. This is precisely one of the reasons why this Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva, et al., supra, declared Ordinance 86 ultra vires, because, although the municipal board of Iloilo City is empowered, under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and regulate hotels, restaurants, refreshment parlors, cafes, lodging houses, boarding houses, livery garages, public warehouses, pawnshops, theaters, cinematographs," tenement houses, which constitute a different business enterprise,19 are not mentioned in the aforestated section of the City Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:.

"And it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter, the exercise of such power cannot be assumed and hence the ordinance in question is ultra vires insofar as it taxes a tenement house such as those belonging to defendants." .

The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment tax. Called by either name, it is not among the exceptions listed in section 2 of the Local Autonomy Act. On the other hand, the imposition by the ordinance of a license tax on persons engaged in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act which provides that chartered cities have the authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges within their respective territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." .

2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that," because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides the tenement tax under the said ordinance." Obviously, what the trial court refers to as "income taxes" are the fixed taxes on business and occupation provided for in section 182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged in "leasing or renting property, whether on their account as principals or as owners of rental property or properties," are considered "real estate dealers" and are taxed according to the amount of their annual income.20.

While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the argument against double taxation may not be invoked. The same tax may be imposed by the national government as well as by the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political subdivision thereof.21.

The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-settled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. The State may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on that calling, the imposition of the latter kind of tax being in no sensea double tax.22.

"In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax."23 It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the sametaxing authority, are not of the same kind or character.

At all events, there is no constitutional prohibition against double taxation in the Philippines.24 It is something not favored, but is permissible, provided some other constitutional requirement is not thereby violated, such as the requirement that taxes must be uniform."25.

3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both, if the owner or owners of the tenement buildings divided into apartments do not pay the tenement or apartment tax fixed in said ordinance," but also unconstitutional as it subjects the owners of tenement houses to criminal prosecution for non-payment of an obligation which is purely sum of money." The lower court apparently had in mind, when it made the above ruling, the provision of the Constitution that "no person shall be imprisoned for a debt or non-payment of a poll tax."26 It is elementary, however, that "a tax is not a debt in the sense of an obligation incurred by contract, express or implied, and therefore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is not, in conflict with that prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may be engaged.28 Therefore, the tax in question is not oppressive in the manner the lower court puts it. On the other hand, the charter of Iloilo City29 empowers its municipal board to "fix penalties for violations of ordinances, which shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court overruled the pronouncement of the lower court declaring illegal and void an ordinance imposing an occupation tax on persons exercising various professions in the City of Manilabecause it imposed a penalty of fine and imprisonment for its violation.30.

4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.

"... because while the owners of the other buildings only pay real estate tax and income taxes the ordinance imposes aside from these two taxes an apartment or tenement tax. It should be noted that in the assessment of real estate tax all parts of the building or buildings are included so that the corresponding real estate tax could be properly imposed. If aside from the real estate tax the owner or owners of the tenement buildings should pay apartment taxes as required in the ordinance then it will violate the rule of uniformity of taxation.".

Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses, while citizens of other cities, where their councils do not enact a similar tax ordinance, are permitted to escape such imposition." .

It is our view that both assertions are undeserving of extended attention. This Court has already ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority."31 The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time.32 So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished.33 The plaintiffs-appellees, as owners of tenement houses in the City of Iloilo, have not shown that the tax burden is not equally or uniformly distributed

among them, to overthrow the presumption that tax statutes are intended to operate uniformly and equally.34.

5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L-12695, supra, as ultra vires, the decision in that case should be accorded the effect of res judicata in the present case or should constitute estoppel by judgment. To dispose of this contention, it suffices to say that there is no identity of subject-matter in that case andthis case because the subject-matter in L-12695 was an ordinance which dealt not only with tenement houses but also warehouses, and the said ordinance was enacted pursuant to the provisions of the City charter, while the ordinance in the case at bar was enacted pursuant to the provisions of the Local Autonomy Act. There is likewise no identity of cause of action in the two cases because the main issue in L-12695 was whether the City of Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of 1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore was not available for consideration in the decision in L-12695 which was promulgated on March 23, 1959. Moreover, under the provisions of section 2 of the Local Autonomy Act, local governments may now tax any taxable subject-matter or object not included in the enumeration of matters removed from the taxing power of local governments.Prior to the enactment of the Local Autonomy Act the taxes that could be legally levied by local governments were only those specifically authorized by law, and their power to tax was construed in strictissimi juris. 35.

ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the complaint is hereby dismissed. No pronouncement as to costs..

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,Fernando and Capistrano, JJ., concur..

Footnotes

1 The record discloses that the delay caused in the lower court was due to the loss of the original record while the same was in the possession of the late Judge Perfecto Querubin. The record was later reconstituted under Judge Ramon Blanco..

2 Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, L-20125, July 20, 1965, per Concepcion, J.: .

"Neither the plaintiff nor the lower court maintains that the subject matter of the ordinance in question comes under any of the foregoing exceptions. Hence, under the rule - "expressio unius est exclusio alterius", the ordinance should be deemed to come within the purview of the general rule. Indeed, the sponsor of the bill, which upon its passage became Republic Act No. 2264, explicitly informed the House of Representatives when he urged the same to approve it, that, under its provisions, local governments would be "able to do everything, excepting those things which are mentioned therein." ..." .

C.N. Hodges vs. The Mun. Board of the City of Iloilo, et al., L-18276, Jan. 12, 1967, per Castro, J.: .

"... Heretofore, we have announced the doctrine that the grant of the power to tax to chartered cities under section 2 of the Local Autonomy Act is sufficiently plenary to cover "everything, excepting those which are mentioned therein," subject only to the limitation that the tax so levied is for "public purposes, just and uniform" (Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, G.R. No. L-20125, July 20, 1965). There is no showing, and we do not believe it is possible to show, that the tax levied, called by any name - percentage tax or sales tax - comes under any of the specific exceptions listed in Section 2 of the Local Autonomy Act. Not being excepted, it

must be regarded as coming within the purview of the general rule. As the maxim goes, "Exceptio firmat regulum in casibus non excepti." Since its public purpose, justness and uniformity of application are not disputed, the tax so levied must be sustained as valid." (Re: Ordinance imposing a tax on sales or real estate property situated in the City of Iloilo, of 1/2% of 1% of the contract price or consideration.).

Ormoc Sugar Co., Inc. vs. Mun. Board of Ormoc City, et al., L-24322, July 21, 1967, per Fernando, J.: .

"In a number of decisions starting from City of Bacolod v. Gruet, L-18290, Jan. 31, 1963, to Hodges vs. Mun. Board, L-18276, Jan. 12, 1967, such broad taxing authority has been implemented and vitalized by this Court.

"... The question before this Court is one of power. From and after June 19, 1959, when the Local Autonomy Act was enacted, the sphere of autonomy of a chartered city in the enactment of taxing measures has been considerably enlarged.

"... In the absence of a clear and specific showing that there was a transgression of a constitutional provision or repugnancy to a controlling statute, an objection of such a generalized character deserves but scant sympathy from this Court. Considering the indubitable policy expressly set forth in the Local Autonomy Act, the invocation of such a talismanic formula as "restraint of trade" without more no longer suffices, assuming it ever did, to nullify a taxing ordinance, otherwise valid." [Re: Ordinance imposing tax on all productions of centrifugal sugar (B-sugar) locally sold or sold within the Phil., at P.20 per picul, etc.].

3 "Taxes on property are taxes assessed on all property or on all property of a certain class located within a certain territory on a specified date in proportion to its value, or in accordance with some other reasonable method of apportionment, the obligation to pay which is absolute and unavoidable and it is not based upon any voluntary action of the person assessed. A property tax is ordinarily measured by the amount of property owned by the taxpayer on a given day, and not on the total amount owned by him during the year. It is ordinarily assessed at stated periods determined in advance, and collected at appointed times, and its payment is usually enforced by sale of the property taxed, and, occassionally, by imprisonment of the person assessed." (51 Am. Jur. 57) .

"A "real estate tax" is a tax in rem against realty without personal liability therefor on part of owner thereof, and a judgment recovered in proceedings for enforcement of real estate tax is one in rem against the realty without personal liability against the owner." (36 Words and Phrases, 286, citing Land O'Lakes Dairy Co. vs. Wadena County, 39 N. W. 2d. 164, 171, 229 Minn. 263).

4 "The term "license tax" or "license fee" implies an imposition or exaction on the right to use or dispose of a property, to pursue a business, occupation, or calling, or to exercise a privilege." (33 Am. Jur. 325-v26) .

"The term "excise tax" is synonymous with "privilege tax", and the two are often used interchangeably, and whether a tax is characterized in the statute imposing it as a privilege tax or an excise tax is merely a choice of synonymous words, for an excise tax is a privilege tax." (51 Am. Jur. 62, citing Bank of Commerce & T. Co. vs. Senter, 149 Tenn. 569, 260 SW 144) .

"Thus, it is said that an excise tax is a charge imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation." (51 Am. Jur. 61) .

5 "SEC. 38. Annual tax and penalties. Extension and remission of the tax. -- An annual tax of one per centum on the assessed value of all real estate in the city subject to taxation shall be levied by the city treasurer..." .

6 Commonwealth Act No. 470 -- "SECTION 1. Title of this Act. - This Act shall be known as the Assessment Law. `.

`SEC. 2. Incidence of real property tax. -- Except in chartered cities, there shall be levied, assessed, and collected an annual ad valorem tax on real property, including land, buildings, machinery and other improvements not hereinafter specially exempted.".

7 Com. Act 158, sections 28 to 53.

8 Com. Act 158, sec. 29.

9 51 Am. Jur. 53: "An ad valorem property tax is invariably based upon ownership of property, and is payable regardless of whether the property is used or not, although of course the value may vary in accordance with such factor." .

10 "Real estate, for purposes of taxation, includes all land within the district by which the tax is levied, and all rights and interests in such land, and all buildings and other structures affixed to the land, even though as between the landlord and the tenant they are the property of the tenant and may be removed by him at the termination of the lease." (51 Am. Jur. 438) Sec. 31 of Com. Act 158 provides: "When it shall appear that there are separate owners of the land and the improvements thereon, a separate assessment of the property of each shall be made." .

11 Sec. 38 of Com. Act 158 provides: "An annual tax of one per centum on the assessed value of all real estate in the city subject to taxation shall be levied by the city treasurer." .

12 Secs. 28 to 34, Com. Act 158.

13 Sec. 38 of Com. Act 158 provides: "All taxes on real estate for any year shall be due and payable on the first day of January and from this date such taxes together with all penalties accruing thereto shall constitute a lien on the property subject to such taxation." .

14 Sec. 38 of Com. Act 158 provides: "Such lien shall be superior to all other liens, mortgages or incumbrances of any kind whatsoever, and shall be enforceable against the property whether in the possession of the delinquent or any subsequent owner, and can only be removed by the payment of the tax and penalty.".

15 62 C.J.S. 845; Manila Race Horse Trainers Assn. vs. De la Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60.

16 51 Am. Jur. 59-60; 33 Am. Jur. 325-326..

17 51 Am. Jur. 56, citing Eyre v. Jacob, 14 Gratt (Va.) 422; 73 Am. Dec. 367.

18 Webster's New International Dictionary, 2nd Ed., p. 2601.

19 City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959: "As may be seen from the definition of each establishment hereunder quoted, a tenement house is different from hotel, lodging house, or boarding house. These are different business enterprises. They have been established for different purposes.

20 National Internal Revenue Code: .

"SEC. 182. Fixed taxes. -- On business ...; (3) Other fixed taxes. -- The following fixed taxes shall be collected as follows, the amount stated being for the whole year, when not otherwise specified: .

      XXX      XXX      XXX

"(s) Stockbrokers, dealers in securities, real estate brokers, real estate dealers, commercial brokers, customs brokers, and immigration brokers, one hundred and fifty pesos: Provided, however, That in the case of real estate dealers, the annual fixed tax to be collected shall be as follows: .

"One hundred and fifty pesos, if the annual income from buying, selling, exchanging, leasing, or renting property (whether on their own account as principals or as owners of rental property or properties) is four thousand pesos or more but not exceeding ten thousand pesos; .

"Three hundred pesos, if such annual income exceeds ten thousand pesos but does not exceed thirty thousand pesos; and .

"Five hundred pesos, if such annual income exceeds thirty thousand pesos."

21 Punsalan, et al. vs. Mun. Board of the City of Manila, et al., L-4817, May 26, 1954, 95 Phil. 46, per Reyes, J.: In this case the Supreme Court upheld the validity of Ordinance 3398 of the City of Manila, approved on July 25, 1950, imposing a municipal occupation tax on persons exercising various professions (lawyers, medical practitioners, public accountants, dental surgeons, pharmacists, etc.), in the city and penalizes non-payment of the tax by a fine of not more than P200.00 or by imprisonment of not more than 6 months, or by both such fine and imprisonment in the discretion of the court, although section 201 [now sec. 182(B)] of the National Internal Revenue Code requires the payment of taxes on occupation or professional taxes. Said Justice Reyes: "The argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing obnoxious in the requirement thatlicense fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivision thereof. (51 Am. Jur., 341.)" .

A month after the promulgation of the above decision, Congress passed Rep. Act 1166, approved on June 18, 1954, providing as follows: "Any provisions of existing laws, city charters and ordinances, executive orders and regulations, or parts thereof, to the contrary notwithstanding, every professional legally authorized to practice his profession, who has paid the corresponding annual privilege tax on professions required by Sec. 182 of the NIRC, Com. Act No. 466,shall be entitled to practice the profession for which he has been duly qualified under the law, in all parts of the Philippines without being subject to any other tax, charge, license or fee for the practice of such profession; Provided, however, That they have paid to the office concerned the registration fees required in their respective professions." .

22 People vs. Santiago Mendaros, et al., L-6975, May 27, 1955, 97 Phil. 958-959, per Bautista Angelo, J. Appeal from the decision of the CFI of Zambales. Defendants-appellees were convicted by the JP Court of Palauig, Zambales, and sentenced to pay a fine of P5.00, for failure to pay the occupation tax imposed by a municipal ordinance on owners of fishponds on lands of private ownership. The Supreme Court, in sustaining the validity of the ordinance, held:.

"The ground on which the trial court declared the municipal ordinance invalid would seem to be that, since the land on which the fishpond is situated is already subject to land tax, it would be unfair and discriminatory to levy another tax on the owner of the fishpond because that would amount to double taxation. This view is erroneous because it is a well-settled rule that a license tax may be levied upon a business or

occupation although the land or property used therein is subject to property tax. It was also held that "the state may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on the pursuit of that calling." The imposition of this kind of tax is in no sense called a double tax." .

Veronica Sanchez vs. The Collector of Internal Revenue, L-7521, Oct. 18, 1955, 97 Phil. 687, per Reyes, J.B.L., J.

"Considering that appellant constructed her four-door "accessoria" purposely for rent or profit; that she has been continuously leasing the same to third persons since its construction in 1947; that she manages her property herself; and that said leased holding appears to be her main source of livelihood, she is engaged in the leasing of real estate, and is a real estate dealer as defined in section 194(s) [now, Sec. 182(A)(3)(s)] of the Internal Revenue Code, as amended by Rep. Act No. 42.

"Appellant argues that she is already paying real estate taxes on her property, as well as income tax on the income derived therefrom, so that to further subject its rentals to the "real estate dealers" tax amounts to double taxation. This argument has already been rejected by this Court in the case of People vs. Mendaros et al., L-6975, promulgated May 27, 1955, wherein we held that it is a well-settled rule that license tax may be levied upon a business or occupation although the land or property used therein is subject to property tax, and that"the state may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on the pursuit of that calling", the imposition of the latter kind of tax being in no sense a double tax." ".

23 84 C.J.S. 131-132.

24 Manufacturers' Life Insurance Co. vs. Meer, L-2910, June 29, 1951; City of Manila vs. Interisland Gas Service, L-8799, Aug 31, 1956; Commissioner of Internal Revenue vs. Hawaiian-Philippine Co., L-16315, May 30, 1964; Pepsi-Cola Bottling Co. of the Philippines vs. City of Butuan, et al., L-22814, Aug. 28, 1968.

Pepsi-Cola Bottling Co. vs. City of Butuan, supra: .

"The second and last objections are manifestly devoid of merit. Indeed -- independently of whether or not the tax in question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on which we need not and do not express any opinion -- double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as part thereof, the injunction against double taxation found in the Constitution of the United States and some States of the Union. Then, again, the general principle against delegation of legislative powers, in consequence of the theory of separation of powers is subject to one well-established exception, namely; legislative powers may be delegated to local governments - to which said theory does not apply - in respect of matters of local concern." .

25 84 C.J.S. 133-134; "Double taxation, although not favored, is permissible in the absence of express or implied constitutional prohibition.

"Double taxation should not be permitted unless the legislature has authority to impose it. However, since the taxing power is exclusively a legislative function, and since, except as it is limited or restrained by constitutional provisions, it is absolute and unlimited, it is generally held that there is nothing, in the abscence of any express or implied constitutional prohibition against double taxation, to prevent the imposition of more than one tax on property within the jurisdiction, as the power to tax twice is as ample as the power to tax once. In such case whether or not there should be double taxation is a matter within the discretion of the legislature.

"In some states where double taxation is not expressly prohibited, it is held that double taxation is permissible, or not invalid or unconstitutional, or necessarily unlawful, provided some other constitutional requirement is not thereby violated, as a requirement that taxes must be equal and uniform." .

The Constitution of the Philippines, Art. VI, sec. 22 (1) provides: "The rule of taxation shall be uniform." .

26 Art. III, sec. 1, par. 12, Constitution.

27 51 Am. Jur. 860-861, citing Cousins v. State, 50 Ala. 113, 20 Am. Rep. 290; Rosenbloom v. State, 64 Neb. 342, 89 NW 1053, 57 LRA 922; Voelkel v. Cincinnati, 112 Ohio St. 374, 147 NE 754, 40 ALR 73 (holding the provisions of an ordinance making the non-payment of an excise tax levied in pursuance of such ordinance a misdemeanor punishable by fine not in violation of the constitutional prohibition against the imprisonment of any person for "debt in a civil action, or mesne or final process"); Ex parte Mann, 39 Tex. Crim. Rep. 491, 46 SW 828,73 Am. St. Rep. 961.

26 R.C.L. 25-26: "It is generally considered that a tax is not a debt, and that the municipality to which the tax is payable is not a creditor of the person assessed. A debt is a sum of money due by certain and express agreement. It originates in, and is founded upon, contract express or implied. Taxes, on the other hand, do not rest upon contract, express or implied. They are obligations imposed upon citizens to pay the expenses of government. They are forced contributions, and in no way dependent upon the will or contract, express or implied, of the persons taxed." .

28 51 Am. Jur. 66-67; "Capitation or poll taxes are taxes of a fixed amount upon all persons, or upon all the persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may be engaged. Taxes of a specified amount upon each person performing a certain act or engaging in a certain business or profession are not, however, poll taxes." .

29 Com. Act No. 158 (An Act Establishing a Form of Government for the City of Iloilo), section 21: "Except as otherwise provided by law, and subject to the conditions and limitations thereof, the Municipal Board shall have the following legislative powers: .

"(aa) ... and to fix penalties for the violation of ordinances which shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment, for each offense." .

30 "To begin with the defendants' appeal, we find that the lower court was in error in saying that the imposition of the penalty provided for in the ordinance was without the authority of law. The last paragraph (kk) of the very section that authorizes the enactment of the ordinance (section 18 of the Manila Charter) in express terms also empowers the Municipal Board to "fix penalties for the violation of ordinances which not exceed to [sic] two hundred pesos fine or six months' imprisonment, or both such fine and imprisonment, for a single offense." Hence, the pronouncement below that the ordinance in question is illegal and void because it imposes a penalty not authorized by law is clearly without legal basis." .

31 51 Am. Jur. 203, citing Re Page, 60 Kan. 842, 59 P 478, 47 LRA 68: "Taxes are uniform and equal when imposed upon all property of the same character within the taxing authority." Manila Race Horse Trainers Assn., Inc. vs. De la Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60: "In the case of Eastern Theatrical Co., Inc. vs. Alfonso, [L-1104, May 31, 1949], 46 O.G. Supp. to No. 11, p. 303, it was said that there is equality and uniformity in taxation if all articles or kinds of property of the same class are taxed at the same rate. Thus, it was held in that case, that "the fact that some places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is no argument at all against

equality and uniformity of the tax imposition." Applying this criterion to the present case, there would be discrimination if some boarding stables of the class used for the same number of horses were not taxed or were made to pay less or more than others." Tan Kim Kee vs. Court of Tax Appeals, et al., L-18080, April 22, 1963, per Reyes, J.B.L., J.: "The rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class.".

32 Am. Jur. 203: "153. Uniformity of Operation Throughout Tax Unit. — One requirement with respect to taxation imposed by provisions relating to equality and uniformity, which has been introduced into some state constitutions in express language, is that taxation must be uniform throughout the political unit by or with respect to which the tax is levied. This means, for example, that a tax for a state purpose must be uniform and equal throughout the state, a tax for a county purpose must be uniform and equal throughout the county, anda tax for a city, village, or township purpose must be uniform and equal throughout the city, village, or township. It does not mean, however, that the taxes levied by or with respect to the various political subdivisions or taxing districts of the state must be at the same rate, or, as one court has graphically put it, that a man in one county shall pay the same rate of taxation for all purposes that is paid by a man in an adjoining county. Nor does the rule require that taxes for the same purposes shall be imposed in different territorial subdivisions at the same time. It has also been said in this connection that the omission to tax any particular individual who may be liable does not render the whole tax illegal or void."

33 84 C.J.S. 77: "Equality in taxation is accomplished when the burden of the tax falls equally and impartially on all the persons and property subject to it [State ex rel. Haggart v. Nichols, 265 N.W. 859, 66 N.D. 355], so that no higher rate or greater levy in proportion to value is imposed on one person or species of property than on others similarly situated or of like character."

84 C.J.S. 79: "The rule of uniformity in taxation applies to property of like kind and character and similarly situated, and a tax, in order to be uniform, must operate alike on all persons, things, or property, similarly situated. So the requirement is complied with when the tax is levied equally and uniformly on all subjects of the same class and kind and is violated if particular kinds, species or items of property are selected to bear the whole burden of the tax, while others, which should be equally subjected to it, are left untaxed."

34 84 C.J.S. 81: "There is a presumption the at tax statutes are intended to operate uniformly and equally [Alaska Consol. Canneries v. Territory of Alaska, C.C.A. Alaska, 16 F. 2d. 256], and a liberal construction will be indulged in order to accomplish fair and equal taxation of all property within the state."

35 Medina vs. City of Baguio, L-4060, Aug. 29, 1952; Wa Wa Yu vs. City of Lipa, L-9167, Sept. 27, 1956; Saldana vs. City of Iloilo, 55 O.G. 10267, and the cases cited therein.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

 

G.R. No. 104151 March 10, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.COURT OF APPEALS, ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION and COURT OF TAX APPEALS, respondents.

G.R No. 105563 March 10, 1995

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner, vs.COURT OF APPEALS COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

 

REGALADO, J.:

Before us for joint adjudication are two petitions for review on certiorari separately filed by the Commissioner of Internal Revenue in G.R. No. 104151, and by Atlas Consolidated Mining and Development Corporation in G.R. No. 105563, which respectively seek the aside of the judgments of respondent Court of Appeals in CA-G.R. SP No. 25945 promulgated on February 12, 1992 1 and in CA-G.R. SP No. 26087 promulgated on May 22, 1992. 2

Atlas Consolidated Mining and Development Corporation (herein also referred to as ACMDC) is a domestic corporation which owns and operates a mining concession at Toledo City, Cebu, the products of which are exported to Japan and other foreign countries. On April 9, 1980, the Commissioner of Internal Revenue (also Commissioner, for brevity), acting on the basis of the report of the examiners of the Bureau of Internal Revenue (BIR), caused the service of an assessment notice and demand for payment of the amount of P12,391,070.51 representing deficiency ad valorem percentage and fixed taxes, including increments, for the taxable year 1975 against ACMDC. 3

Likewise, on the basis. of the BIR examiner's report in another investigation separately conducted, the Commissioner had

another assessment notice, with a demand for payment of the amount of P13,531,466.80 representing the 1976 deficiency ad valorem and business taxes with P5,000.00 compromise penalty, served on ACMDC on September 23, 1980. 4

ACMDC protested both assessments but the same were denied, hence it filed two separate petitions for review in the Court of Tax Appeals (also, tax court) where they were docketed as C.T.A. Cases Nos. 3467 and 3825. These two cases, being substantially identical in most respects except for the taxable periods and the amounts involved, were eventually consolidated.

On May 31, 1991, the Court of Tax Appeals rendered a consolidated decision holding, inter alia, that ACMDC was not liable for deficiency ad valorem taxes on copper and silver for 1975 and 1976 in the respective amounts of P11,276,540.79 and P12,882,760.80 thereby effectively sustaining the theory of ACMDC that in computing the ad valorem tax on copper mineral, the refining and smelting charges should be deducted, in addition to freight and insurance charges, from the London Metal Exchange (LME) price of manufactured copper.

However, the tax court held ACMDC liable for the amount of P1,572,637.48, exclusive of interest, consisting of 25% surcharge for late payment of the ad valorem tax and late filing of notice of removal of silver, gold and pyrite extracted during certain periods, and for alleged deficiency manufacturer's sales tax and contractor's tax.

The particulars of the reduced amount of said tax obligation is enumerated in detail in the dispositive portion of the questioned judgment of the tax court, thus:

WHEREFORE, petitioner should and is hereby ORDERED to pay the total amount of the following:

a) P297,900.39 as 25% surcharge on silver extracted during the period November 1, 1974 to December 31, 1975.

b) P161,027.53 as 25% surcharge on silver extracted for the taxable year 1976.

c) P315,027.30 as 25% surcharge on gold extracted during the period November 1, 1974 to December 31, 1975.

d) P260,180.55 as 25% surcharge on gold during the taxable year 1976.

e) P53,585.30 as 25% surcharge on pyrite extracted during the period November 1, 1974 to December 31, 1975.

f) P53,283.69 as 25% surcharge on pyrite extracted during the taxable year 1976.

g) P316,117.53 as deficiency manufacturer's sales tax and surcharge during the taxable year 1975; plus 14% interest from January 21, 1976 until fully paid as provided under Section 183 of P.D. No. 69.

h) P23,631.44 as deficiency contractor's tax and surcharge on the lease of personal property during the taxable year 1975; plus 14% interest from January 21, 1976 until fully paid as provided under Section 183 of P.D. 69.

i) P91,883.75 as deficiency contractor's tax and surcharge on the lease of personal property during the taxable year 1976, plus 14% interest from April 21, 1976 until fully paid as provided under. Section 183 of P.D. No. 69.

With costs against petitioner. 5

As a consequence, both parties elevated their respective contentions to respondent Court of Appeals in two separate petitions for review. The petition filed by the Commissioner, which was docketed as CA-G.R. SP No. 25945, questioned the portion of the judgment of the tax court deleting the ad valorem tax on copper and silver, while the appeal filed by ACMDC and docketed as CA-G.R. SP No. 26087 assailed that part of the decision ordering it to pay P1,572,637.48 representing alleged deficiency assessment.

On February 12, 1992, judgment was rendered by respondent Court of Appeals in CA-G.R. SP No. 25945, dismissing the petition and affirming the tax court's decision on the manner of computing the ad valorem tax. 6 Hence, the Commissioner of Internal Revenue filed a petition before- us in G.R. No. 104151, raising the sole issue of whether or not, in computing the ad valorem tax on copper, charges for smelting and refining should also be deducted, in addition to freight and insurance costs, from the price of copper concentrates.

On May 22, 1992, judgment was likewise rendered by the same respondent court in CA-G.R. SP No. 26087, modifying the

judgment of the tax court and further reducing the tax liability of ACMDC by deleting therefrom the following items:

(1) the award under paragraph (a) of P297,900.39 as 25% surcharge on silver extracted during the period November 1, 1974 to December 31, 1975;

(2) the award under paragraph (c) thereof of P315,027.30 as 25% surcharge on gold extracted during the period November 1, 1974 to December 31, 1975; and

(3) the award under paragraph (e) thereof of P53,585.30 as 24% (sic, 25%) surcharge on pyrite extracted during the period November 1, 1974 to December 31, 1975. 7

Still not satisfied with the said judgment which had reduced its tax liability to P906,124.49, as a final recourse ACMDC came to this Court on a petition for review on certiorari in G.R. No. 105563, claiming that it is not liable at all for any deficiency tax assessments for 1975 and 1976. In our resolution of September 1, 1993, G.R. No. 104151 was ordered consolidated with G.R. No. 105563. 8

I. G.R No. 104151

The Commissioner of Internal Revenue claims that the Court of Appeals and the tax court erred in allowing the deduction of refining and smelting charges from the price of copper concentrates. It is the contention of the Commissioner that the actual market value of the mineral products should be the gross sales realized from copper concentrates, deducting therefrom mining, milling, refining, transporting, handling, marketing or any other expenses. He submits that the phrase "or any other expenses" includes smelting and refining charges and that the law allows deductions for actual cost of ocean freight and insurance only in instances where the minerals or mineral products are sold or consigned abroad by the lessees or owner of the mine under C.I.F. terms, hence it is error to allow smelting and refining charges as deductions.

We are not persuaded by his postulation and find the arguments adduced in support thereof untenable.

The pertinent provisions of the National Internal Revenue Code (tax code, for facility) at the time material to this controversy, read as follows:

Sec. 243. Ad valorem taxes on output of mineral lands not covered by lease. — There is hereby imposed on the actual market value of the annual gross output of the minerals mineral products extracted or produced from all mineral lands not covered by lease, an ad valorem tax in the amount of two per centum of the value of the output except gold which shall pay one and one-half per centum.

Before the minerals or mineral products are removed from the mines, the Commissioner of Internal Revenue or his representatives shall first be notified of such removal on a form prescribed for the purpose. (As amended by Rep. Act No. 6110.)

Sec. 246. Definitions of the terms "gross output," "minerals" and "mineral products." — Disposition of royalties and ad valorem taxes. The term "gross output" shall be interpreted as the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity without any deduction from mining, milling, refining, transporting, handling, marketing, or any other expenses: Provided, however, That if the minerals or mineral products are sold or consigned. abroad by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted. The output of any group of contiguous mining claim shall not be subdivided. The word "minerals" shall mean all inorganic substances found in nature whether in solid, liquid, gaseous, or any intermediate state. The term "mineral products" shall mean things produced by the lessee, concessionaire or owner of mineral lands, at least eighty per cent of which things must be minerals extracted by such lessee, concessionaire, or owner of mineral lands. Ten per centum of the royalties and ad valorem taxes herein provided shall accrue to the municipality and ten per centum to the province where the-mines are situated, and eighty per centum to the National Treasury. (As amended by Rep. Acts Nos. 834, 1299, and by Rep. Act No. 1510, approved June 16, 1956)."

To rephrase, under the aforequoted provisions, the ad valorem tax of 2% is imposed on the actual market value of the annual gross output of the minerals or mineral products extracted or produced from all mineral lands not covered by lease. In computing the tax, the term "gross output" shall be the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity, without any deduction for mining, milling, refining, transporting, handling, marketing or any other expenses. If the minerals or mineral products are sold or consigned abroad by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted.

In other words, the assessment shall be based, not upon the cost of production or extraction of said minerals or mineral products, but on the price which the same — before or without undergoing a process of manufacture — would command in the ordinary course of business. 9

In the instant case, the allowance by the tax court of smelting and refining charges as deductions is not contrary to the above-mentioned provisions of the tax code which ostensibly prohibit any form of deduction except freight and insurance charges. A review of the records will show that it was the London Metal Exchange price on wire bar which was used as tax base by ACMDC for purposes of the 2% ad valorem tax on copper concentrates since there was no available market price quotation in the commodity exchange or markets of the world for copper concentrates nor was there any market quotation locally obtainable. 10 Hence, the charges for smelting and refining were assessed not on the basis of the price of the copper extracted at the mine site which is prohibited by law, but on the basis of the actual market value of the manufactured copper which in this case is the price quoted for copper wire bar by the London Metal Exchange.

The issue of whether the ad valorem tax should be based upon the value of the finished product, or the value upon extraction of the raw materials or minerals used in the manufacture of said finished products, has been passed upon by us in several cases wherein we held that the ad valorem tax is to be computed on the basis of the market value of the mineral in its condition at the time of such removal and before it undergoes a chemical change through manufacturing process, as distinguished from a purely physical process which does not necessarily involve the change or transformation of the raw material into a composite distinct product. 11

Thus, in the case of Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, 12 this Court ruled:

. . . ad valorem tax is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth, the government's right to exact the said impost springing from the Regalian theory of State ownership of its natural resources.

. . . While cement is composed of 80% minerals, it is not merely an admixture or blending of raw materials, as lime, silica, shale and others. It is the result of a definite the crushing of minerals, grinding, mixing, calcining, cooling, adding of retarder or raw gypsum. In short, before cement reaches its saleable form, the minerals had already undergone a chemical change through manufacturing process, This could not have been the state of mineral products' that the law contemplates for purposes of imposing the ad valorem tax. . . . this tax is imposed on the privilege of extracting or severing the minerals from the mines. To our minds, therefore the inclusion of the term mineral products is intended to comprehend cases where the mined or quarried elements may not be usable in its original state without application of simple treatments . . .

which process does not necessarily involve the change or transformation of the raw materials into a composite, distinct product. . . . While the selling price of cement may reflect the actual market value of cement, said selling price cannot be taken as the market value also of the minerals composing the cement. And it was not the cement that was mined, only the minerals composing the finished product.

This view was subsequently affirmed in the resolution of the Court denying the motion for reconsideration of its aforesaid decision, 13 reiterated that the pertinent part of which reiterated that —

. . . the ad valorem tax in question should be based on the actual market value of the quarried minerals used in producing cement, . . . the law intended to impose the ad valorem tax upon the market value of the component mineral products in their original state before processing into cement. . . . the law does not impose a tax on cement qua cement, but on mineral products at least 80% of which must be minerals extracted by the lessee, concessionaire or owner of mineral lands.

The Court did not, and could not, rule that cement is a manufactured product subject to sales tax, for the reason that such liability had never been litigated by the parties. What it did declare is that, while cement is a mineral product, it is no longer in the state or condition contemplated by the law; hence the market value of the cement could not be the basis for computing the ad valorem tax, since the ad valorem tax is a severance tax i.e., a charge upon the privilege of severing or extracting minerals from the earth, (Dec. p. 4) and is due and payable upon removal of the mineral product from its bed or mine (Tax Code s. 245).

Therefore, the imposable ad valorem tax should be based on the selling price of the quarried minerals, which is its actual market value, and not on the price of the manufactured product. If the market value chosen for the reckoning is the value of the manufactured. or finished product, as in the case at bar, then all expenses of processing or manufacturing should be deducted in order to approximate as closely as is humanly possible the actual market value of the raw mineral at the mine site.

It was copper ore that was extracted by ACMDC from its mine site which, through a simple physical process of removing impurities therefrom, was converted into copper concentrate In turn, this copper concentrate underwent the process of smelting and refining, and the finished product is called copper cathode or copper wire bar.

The copper wire bar is the manufactured copper. It is not the mineral extracted from the mine site nor can it be considered a mineral product since it has undergone a manufacturing process, to wit:

I. The physical process involved in the production of copper concentrate are the following (p. 19, BIR records; Exh. ‘H’, p. 43, Folder I of Exhibits.)

A Mining Process —

(1) Blasting — The ore body is broken up by blasting.

(2) Loading — The ore averaging about 1/2 percent copper is loaded into ore trucks by electric shovels.

(3) Hauling — The trucks of ore are hauled to the mill.

B Milling Process —

(1) Crushing — The ore is crushed to pieces the size of peanuts.

(2) Grinding — The crushed ore is ground to powder form.

(3) Concentrating — The mineral bearing particles in the powdered ore are concentrated.

The ores or rocks, transported by conveyors, are crushed repeatedly by steel balls into size of peanuts, when they are ground and pulverized. The powder is fed into concentrators where it is mixed with water and other reagents. This is known in the industry as a flotation phase. The copper-bearing materials float while the non-copper materials in the rock sink. The material that floats is scooped and dried and piled. This is known as copper concentrate. The material at the bottom is waste, and is known in the industry as tailings. In Toledo City, tailings are disposed of through metal pipes from the flotation mills to the open sea. Copper concentrate of petitioner contains 28-31% copper. The concentrate is loaded in ocean vessels and shipped to Mitsubishi Metal Corporation mills in Japan, where the smelting, refining and fabricating processes are done. (Memorandum of petitioner, p. 71, CTA records.)

II. The chemical or manufacturing process in the production of wire bar is as follows: (Exh. 'H', p. 43, Folder I of exhibits.)

A. Smelting —

(1) Drying — The copper concentrates (averaging about 30 percent copper) are dried.

1. Flash Furnace — The dried concentrate is smelted autogenously and a matte containing 65 percent is produced.

2. Converter — The matte is converted to blister copper with a purity of about 99 per cent.

B. Refining —

(1) Casting Wheel — Blister copper is treated in an anode furnace where. copper requiring further treatment is sent to the casting wheel to produce cathode copper.

(2) Electrolytic Refining — Anode copper is further refined by electrolytic refining to produce cathode copper.

C. Fabricating —

(1) Rolling — Fire refined or electroly-tic copper-and/or brass (a mixture Of copper and zinc) is made into tubes, sheets, rods and wire.

(2) Extruding — Sheet tubes, rods and wire are further fabricated into the copper articles in everyday use.

The records show that cathodes, with purity of 99.985% are cast or fabricated into various shapes, depending on their industrial destination. Cathodes are metal sheets of copper 1 meter x 1 meter x 16-16 millimeter thick and 160 kilograms in weight, although this thickness is not uniform for all the sheets. Cathodes sheets are not suitable for direct fabrication, hence, are further fabricated into the desired shape, like wire bar, billets and cakes. (p. 1, deposition, London,) Wire bars are rectangular pieces, 100 millimeter x 100 millimeter x 1.37 meters long and weigh some 125 kilos. They are suited for copper wires and copper rods. Billets are fabricated into tubes and heavy electric sections. Cakes are in the form of thick sheets and strips. (pp. 13, 18-21, deposition, Japan, Exhs. "C" & "G", Japan, pp. 1-2, deposition, London, see pp. 70-72, CTA records.) 14

Significantly, the finding that copper wire bar is a product of a manufacturing process finds support in the definition of a "manufacturer" in Section 194 (x) of the aforesaid tax code which provides:

"Manufacturer" includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured product in such a manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any such raw material or manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials: or products of the same or different kinds and in such manner that the finished product of such process or manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption.

Moreover, it is also worth noting at this point that the decision of the tax court was based on its previous ruling in the case of Atlas Consolidated Mining and Development Corporation vs.

Commissioner of Internal Revenue, 15 dated January 23, 1981, which we quote with approval:

. . . The controlling law is clear and specific; it should therefore be applied as Since the mineral or mineral product removed from its bed or mine at Toledo City by petitioner is copper concentrate as admitted by respondent himself, not copper wire bar, the actual market value of such copper concentrate in its condition at the time of such removal without any deduction from mining, milling, refining, transporting, handling, marketing, or any other expenses should be the basis of the 2% ad valorem tax.

The conclusion reached is rendered clearer when it is taken into consideration that the ad valorem tax is a severance tax, a charge upon the privilege of severing or extracting minerals from the earth, and is due and payable upon removal of the mineral product from its bed or mine, the tax being computed on the basis of the market value of the mineral in its condition at the time of such removal and before its being substantially changed by chemical or manufacturing (as distinguished from purely physical) processing. (Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, supra.) Copper wire bars, as discussed above,, have already undergone chemical or manufacturing processing in Japan, they are not extracted or produced from the earth by petitioner in its mine site at Toledo City. Since the ad valorem tax is computed on the basis of the actual market value of the mineral in its condition at the time of its removal from the earth, which in this case is copper concentrate, there is no basis therefore for an assertion that such tax should be measured on the basis of the London Metal Exchange price quotation of the manufactured wire bars without any deduction of smelting and refining charges.

In resume:

1. The mineral or mineral product of petitioner the extraction or severance from the soil. of which the ad valorem tax is directed is copper concentrate.

2. The ad valorem tax is computed on the basis of the actual market value of the copper concentrate in its condition at the time of removal from the earth and before substantially changed by chemical or manufacturing process without any deduction milling, refining, from mining, transporting, handling, marketing, or any other expenses. However, since the copper concentrate is sold abroad by petitioner under C.I.F. terms, the actual cost of ocean freight and insurance is deductible.

3. There being no market price quotation of copper concentrate locally or in the commodity exchanges or markets of the world, the London Metal Exchange price quotation of copper wire bar, which is used by petitioner and Mitsubishi Metal Corporation as reference to determine the selling price of copper concentrate, may likewise be employed in this case as reference point in ascertaining the actual market value of copper concentrate for ad valorem tax purposes. By deducting from the London Metal Exchange price quotation of

copper wire bar all charges and costs incurred after the copper concentrate has been shipped from Toledo City to the time the same has been manufactured into wire bar, namely, smelting, electrolytic refining and fabricating, the remainder represents to a reasonable degree the actual market value of the copper concentrate in its condition at the time of extraction or removal from its bed in Toledo City for the purposes of the ad valorem tax.

The Commissioner of Internal Revenue argues that the ruling in the case above stated is not binding, considering that the incumbent Commissioner of Internal Revenue is not bound by decisions or rulings of his predecessor when he finds that a different construction of the law should be adopted, invoking therefor the doctrine enunciated in Hilado vs. Collector of internal Revenue, et a1, 16 This trenches on specious reasoning. What was involved in the Hilado case was a previous ruling of a former Commissioner of Internal Revenue. In the case at bar, the Commissioner based his findings on a previous decision rendered by the Court of Tax Appeals itself.

The Court of Tax Appeals is not a mere superior administrative agency or tribunal but is a part of the judicial system of the Philippines. 17 It was created by Congress pursuant to Republic Act No. 1125, effective June 16, 1954, as a centralized court specializing in tax cases. It is a regular court vested with exclusive appellate jurisdiction over cases arising under the National Internal Revenue Code, the Tariff and Customs Code, and the Assessment Law. 18

Although only the decisions of the Supreme Court establish jurisprudence or doctrines in this jurisdiction, nonetheless the decisions of subordinate courts have a persuasive effect and may serve as judicial guides. It is even possible that such a conclusion or pronouncement can be raised to the status of a doctrine if, after it has been subjected to test in the crucible of analysis and revision the Supreme Court should find that it has merits and qualities sufficient for its consecration as a rule of jurisprudence. 19

Furthermore, as a matter of practice and principle, the Supreme 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 on its part. 20

II. G.R. No. 105563

The petition herein raises the following issues for resolution:

A. Whether or not petitioner is liable for payment, of the 25% surcharge for alleged late filing of notice of removal/late payment of the ad valorem tax on silver, gold and pyrite extracted during the taxable year 1976.

B. Whether or not petitioner is liable for payment of the manufacturer' s sales tax and surcharge during the taxable year 1975, plus interest, on grinding steel balls borrowed by its competitor; and

C. 'Whether or not petitioner is liable for payment of the contractor's tax and surcharge on the alleged lease of personal property during the taxable years 1975 and 1976 plus interest. 21

A. Surcharge on Silver, Gold and Pyrite

ACMDC argues that the Court of Appeals erred in holding it liable to pay 25% surcharge on silver, gold and pyrite extracted by it during tax year 1976.

Sec. 245 of the then tax code states:

Sec. 245. Time and manner of payment of royalties or ad valorem taxes. — The royalties or ad valorem taxes as the case may be, shall be due and payable upon the removal of the mineral products from the locality where mined. However, the output of the mine may be removed from such locality without the pre-payment of such royalties or ad valorem taxes if the lessee, owner, or operator shall file a bond in the form and amount and with such sureties as the Commissioner of Internal Revenue may require,. conditioned upon the payment of such royalties or ad valorem taxes, in which case it shall be the duty of every lessee, owner, or operator of a mine to make a true and complete return in duplicate under oath setting forth the quantity and the actual market value of the output of his mine removed during each calendar quarter and pay the royalties or ad valorem taxes due thereon within twenty days after the close of said quarter.

In case the royalties or ad valorem taxes are not paid within the period prescribed above, there shall be added thereto a surcharge of twenty-five per centum. Where a false or fraudulent return is made, there shall be added to the royalties or ad valorem taxes a surcharge of fifty per centum of their amount. The surcharge So, added: shall be collected in the same manner and as part of the royalties or ad valorem taxes, as the case may be.

Under the aforesaid provision, the payment of the ad valorem tax shall be made upon removal of the mineral products from the mine site or if payment cannot be made, by filing a bond in the form and amount to be approved by the Commissioner conditioned upon the payment of the said tax.

In the instant case, the records show that the payment of the ad valorem tax on gold, silver and pyrite was belatedly made. ACMDC, however, maintains that it should not be required to pay the 25% surcharge because the correct quantity of gold and silver could be determined only after the copper concentrates had gone through the process of smelting and refining in Japan while the amount of pyrite cannot be determined until after the flotation process separating the copper mineral from the waste material was finished.

Prefatorily, it must not be lost sight of that bad faith is ; not essential for the imposition of the 25% surcharge for late payment of the ad valorem tax. Hence,

MISSING PAGE 19Q. Now, what do you do with the result of your analysis?

A. These are tabulated and then averaged out to represent one shipment.

Q. Will you tell this Honorable Court whether in that laboratory testing you physically separate the gold, you physically separate the silver and you physically separate the copper content of that 40 to 50 kilos?

A. No, no, we analyze this in one sample. This sample is analyzed for gold, silver, and copper, but there is no recovery made.

Q. You mean there is no physical separation?

A. No, no physical separation.

Q. So these three minerals — copper, gold and silver — are in that same powder that you have tested?

A Yes, it is in the same powder.

Q. Now how do you reflect the results of the testing?

A. You mean in analysis?

Q. In the analysis, yes.

A. Copper is reported in percent.

Q. Percentage?

A. Yes.

Q. How about gold?

A. Gold and silver part is represented as grams per dmt or parts per million.

Q. Based on the results of your data gathered in the laboratory?

A. Yes.

Q. Now where do you submit the results of the laboratory testing?

A When a shipment is made we prepare a certificate of analysis signed by me and then which (sic) is sent to Manila.

Q. Now, as far as you know in connection with your duty do you know what Manila what do you say, Manila, ACMDC?

A. Makati.

Q. Makati. What does Makati ACMDC do with your assay report?

A. As far as I know it is used as the basis for the payment of ad valorem tax. 24

The above-quoted testimony accordingly supports these findings of the tax court in its decision in this case:

We see it (sic) that even if the silver and gold cannot as yet be physically separated from the copper concentrate until the process of smelting and refining was completed, the estimated commercial quantity of the silver and gold could have been determined in much the same way that petitioner is able to estimate the commercial quantity of copper during the assay. If, as stated by petitioner, it is able to estimate the grade of the copper ore, and it has determined the grade not only of the copper but also those of the gold and silver during the assay (Petitioner's Memorandum, p. 207, Record), ergo, the estimated commercial quantity of the silver and gold subject to ad valorem tax could have also been determined and provisionally paid as for copper. 25

The other allegation of ACMDC is that there was no removal of pyrite from the mine site because the pyrite was delivered to its

sister company, Atlas Fertilizer Corporation, whose plant is located inside the mineral concession of ACMDC in Sangi, Toledo City. ACMDC, however, is already barred by estoppel in pais from putting that matter in issue.

An ad valorem tax on pyrite for the same tax year was already declared and paid by ACMDC. In fact, that payment was used as the basis for computing the 25% surcharge. It was only when ACMDC was assessed for the 25% surcharge that said issue was raised by it. Also, the evidence shows that deliveries of pyrite were not exclusively made to its sister company, Atlas Fertilizer Corporation. There were shipments of pyrite to other companies located outside of its mine site, in addition to those delivered to its aforesaid sister company. 26

B. Manufacturer's Tax and Contractor's Tax

The manufacturer's tax is imposed under Section 186 of the tax code then in force which provides:

Sec. 186. Percentage tax on sales of other articles. — There shall be levied, assessed and collected once only on every original sale, barter, exchange, or similar transaction either for nominal or valuable consideration, intended to transfer ownership of, or title to, the articles not enumerated in sections one hundred and eighty-four-A, one hundred and eighty five, one hundred and eighty-five-A, one hundred eighty-five-B, and one hundred eighty-six-B, a tax equivalent to seven per centum of the gross selling price or gross value in money of the articles so sold, bartered, exchanged, or transferred, such tax to be paid by the manufacturer or producer: Provided, That where the articles subject to tax under this Section are manufactured out of materials likewise subject to tax under this section and section one hundred eighty-nine, the total cost of such materials, as duly established, shall be deductible from the gross selling price or gross value in money of such manufactured articles. (As amended by Rep. Act No. 6110 and by Pres. Decree No. 69.)

On the other hand, the contractor's tax is provided for under Section 191 of the same code, paragraph 17 of which declares that lessors of personal property shall be subject to a contractor's tax of 3% of the gross receipts.

Sections 186 and 191 fall under Title V of the tax code, entitled "Privilege Taxes on Business and Occupation." These "privilege taxes on business" are taxes imposed upon the privilege of engaging in business. They are essentially excise taxes. 27 To be held liable for the payment of a privilege tax, the person or entity must be engaged in business, as shown by the fact that

the drafters of the tax code had purposely grouped said provisions under the general heading adverted to above.

"To engage" is to embark on a business or to employ oneself therein. The word "engaged" connotes more than a single act or a single transaction; it involves some continuity of action. "To engage in business" is uniformly construed as signifying an employment or occupation which occupies one's time, attention, and labor for the purpose of a livelihood or profit. The expressions "engage in business," "carrying on business" or "doing business" do not have different meanings, but separately or connectedly convey the idea of progression, continuity, or sustained activity. "Engaged in business" means occupied or employed in business; carrying on business" does not mean the performance of a single disconnected act, but means conducting, prosecuting, and continuing business by performing progressively all the acts normally incident thereto; while "doing business" conveys the idea of business being done, not from time to time, but all the time. 28

The foregoing notwithstanding, it has likewise been ruled that one act may be sufficient to constitute carrying on a business according to the intent with which the act is done. A single sale of liquor by one who intends to continue selling is sufficient to render him liable for "engaging in or carrying on" the business of a liquor dealer. 29

There may be a business without any sequence of acts, for if an isolated transaction, which if repeated would be a transaction in a business, is proved to have been undertaken with the intent that it should be the first of several transactions, that is, with the intent of carrying on a business, then it is a first transaction in an existing business. 30

Thus, where the end sought is to make a profit, the act constitutes "doing- business." This is not without basis. The term "business," as used in the law imposing a license tax on business, trades, and so forth, ordinarily means business in the trade or commercial sense only, carried on with a view to profit or livelihood; 31 It is thus restricted to activities or affairs where profit is the purpose, or livelihood is the motive. Since the term "business" is being used without any qualification in our aforesaid tax code, it should therefore be therefore be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood. 32

In the case at bar, ACMDC claims exemptions from the payment of manufacturer's tax. It asserts that it is not engaged in the business of selling grinding steel balls, but it only produces grinding steel balls solely for its own use or consumption, However, it admits having lent its grinding steel balls to other entities but only in very isolated cases.

After a careful review of the records and on the basis of the legal concept of "engaging in business" hereinbefore discussed, we are inclined to agree with ACMDC that it should not and cannot be held liable for the payment of the manufacturer's tax.

First, under the tax code then in force, the 7% manufacturer's sales tax is imposed on the manufacturer for every original sale, barter, exchange and other similar transaction intended to transfer ownership of articles. As hereinbefore quoted, and we repeat the same for facility of reference, the term "manufacturer" is defined in the tax code as including "every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured product in such manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any such raw material or manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process or manufacture can be put to a special use or uses to which such raw materials or manufactured or partially manufactured products in their original condition could not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption. 33

Thus, a manufacturer, in order to be subjected to the necessity of paying the percentage tax imposed by Section 186 of the tax code, must be 'engaged' in the sale, barter or exchange of; personal property. Under a statute which imposes a tax on persons engaged in the sale, barter or exchange of

merchandise, a person must be occupied or employed in the sale, barter or exchange of personal property. A person can hardly be considered as occupied or employed in the sale, barter or exchange of personal property when he has made one purchase and sale only. 34

Second, it cannot be legally asserted, for purposes of this particular assessment only, that ACMDC was engaged in the business of selling grinding steel balls on the basis of the isolated transaction entered into by it in 1975. There is no showing that said transaction was undertaken by ACMDC with a view to gaining profit. therefrom and with the intent of carrying on a business therein. On the contrary, what is clear for us is that the sale was more of an accommodation to the other mining companies, and that ACMDC was subsequently replaced by other suppliers shortly thereafter.

This finding is strengthened by the investigation report, dated March 11, 1980, of the B.I.R. Investigation Team itself which found that —

ACMDC has a foundry shop located at Sangi, Toledo City, and manufactures grinding steel balls for use in its ball mills in pulverizing the minerals before they go to the concentrators, For the grinding steel balls manufactured by ACMDC and used in its operation, we found it not subject to any business tax. But there were times in 1975 when other mining companies were short of grinding steel balls and ACMDC supplied them with these materials manufactured in its foundry shop. According to the informant, these were merely accommodations and they were replaced by the other suppliers. 35

At most, whatever profit ACMDC may have realized from that single transaction was just incidental to its primordial purpose of accommodating other mining companies. Well-settled is the rule that anything done as a mere incident to, or as a necessary consequence of, the principal business is not ordinarily taxed as an independent business in itself. 36 Where a person or corporation is engaged in a distinct business and, as a feature thereof, in an activity merely incidental which serves no other person or business, the incidental and restricted activity is not considered as intended to be separately taxed. 37

In fine, on this particular aspect, we are consequently of the considered opinion and so hold that ACMDC was not a manufacturer subject to the percentage tax imposed by Section 186 of the tax code.

The same conclusion; however, cannot be made with respect to the contractor's tax being imposed on ACMDC. It cannot validly claim that the leasing out of its personal properties was merely an isolated transaction. Its book of accounts shows that several distinct payments were made for the use of its personal properties such as its plane, motor boat and dump truck. 38 The series of transactions engaged in by ACMDC for the lease of its aforesaid properties could also be deduced from the fact that for the tax years 1975 and 1976 there were profits earned and reported therefor. It received a rental income of P630,171.56 for tax year 39 and P2,450,218.62 for tax year 1976. 40

Considering that there was a series of transactions involved, plus the fact that there was an apparent and protracted intention to profit from such activities, it can be safely concluded that ACMDC was habitually engaged in the leasing out of its plane, motor boat and dump truck, and is perforce subject to the contractor's tax.

The allegation of ACMDC that it did not realize any profit from the leasing out of its said personal properties, since its income therefrom covered only the costs of operation such as salaries and fuel, is not supported by any documentary or substantial evidence. We are not, therefore, convinced by such disavowal.

Assessments are prima facie presumed correct and made in good faith. Contrary to the theory of ACMDC, it is the taxpayer and not the Bureau of Internal Revenue who has the duty of proving otherwise. It is an elementary rule that in the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. All presumptions are in favor of tax assessments. 41 Verily, failure to present proof of error in assessments will justify judicial affirmance of said assessment. 42

Finally, we deem it opportune to emphasize the oft-repeated rule that tax statutes are to receive a reasonable construction with a view to carrying out their purposes and intent. 43 They should not be construed as to permit the taxpayer to easily evade the payment of the tax. 44 On this note, and under the confluence of the weighty. considerations and authorities earlier discussed, the challenged assessment against ACMDC for contractor's tax must be upheld.

WHEREFORE, the impugned judgment of respondent Court of Appeals in CA-G.R. SP No. 25945, subject of the present petition in G.R. No. 104151 is hereby AFFIRMED; and its assailed judgment in CA-G.R SP No. 26087 is hereby MODIFIED by exempting Atlas Consolidated Mining and Development Corporation, petitioner in G.R. No. 105563 of this Court, from the payment of manufacturer's sales tax, surcharge and interest during the taxable year 1975.

SO ORDERED.

Narvasa, C.J., Bidin, Puno and Mendoza, JJ., concur.

Footnotes

1 Penned by Justice Luis C. Victor, with Justices Santiago M. Kapunan and Segundino G. Chua concurring (Third Division).

2 Per Justice Nathanael P. de Pano, Jr., with the concurrence of Justices Jesus M. Elbinias and Angelina S. Gutierrez (Eleventh Division).

3 Original Record, C.T.A. Case No. 3465, 21-22.

4 Id., C.T.A. Case No. 3828, 222.

5 Rollo, G.R. No. 105563, 80-82.

6 Id., G.R. No. 104151, 46-50,

7 Id., G.R. No. 105563 57-58.

8 Id., Id., 163.

9 Republic Cement Corporation vs. Commissioner of Internal Revenue, et al., L-20660, June 13, 1968, 23 SCRA 967.

10 Memorandum dated April 11, 1978 of Renato L. Manalili, Supervising Revenue Examiner II; Original Record, C.T.A. No. 3467, Folder IV, 117-118.

11 See Cebu Portland Cement Co. vs. Commissioner of Internal Revenue (Resolution on Motion for Reconsideration), L-18649, December 29, 1967, 21 SCRA 1425; Republic Cement Corporation vs. Commissioner of Internal Revenue, supra, Fn. 9.

12 L-18649, February 27,.1965, 13 SCRA 333.

13 Supra, Fn. 11.

14 Decision, C.T.A. Case No. 2842, citing p. 19, BIR Records; Exh. "H" p. 43, Folder I of Exhibits, Original Record, C.T.A. Case No. 3467, 99-102.

15 C.T.A. Case No. 2842, ante.

16 100 Phil. 288 (1956).

17 See Ursal, etc. vs. Court of Tax Appeals, et a1., 101 Phil. 209 (1957).

18 Collector of Internal Revenue vs. Yuseco, et al., L-12518, October 28, 1961, 3 SCRA 313; Auyong Hian vs. Court of Tax Appeals, et al, L-25181, January 11, 1967, 19 SCRA 10.

19 Paras, E., Civil Code of the Philippines Annotated Vol. 1, Twelfth Edition, 58-59, citing Vda. de Miranda, et al. vs. Imperial, et 77 Phil. 1066 (1947).

20 Luzon Stevedoring Corporation vs. Court of Tax Appeals, et al., L-30232, July 29, 1988, 163 SCRA 647.

21 Rollo, G.R. No. 105563, 16.

24 TSN, November 26, 1985, Direct Examination of Francisco Antonio, 16-18.

25 Rollo, G.R. No. 105563, 70.

26 Folder I, BIR Record, as cited in the decision in C.T.A Cases Nos. 3467 and 3825, 14; Rollo, G.R. No. 105563, 73.

27 Matic, T., Taxation in the Philippines, 1973 ed., 332.

28 Alejandro, J., The Law on Taxation, 1966, 489-490, citing Imperial vs. Collector of Internal Revenue, L-7924, September 30, 1955.

29 Abel vs. State, 8 So. 760, 80 Ala. 631, 633.

30 In re Griffin, 60 L.J.Q.B. 235, 237, cited in 9 C.J., Business, 1103.

31 Cuzner vs. California Club, 155 Gal. 303.

32 Collector of Internal Revenue vs. Manila Lodge No. 761 of the Benevolent and Protective Order of Elks, et al., 105 Phil. 983 (1959); Collector of Internal Revenue vs. Sweeney, et al., 106 Phil. 59 (1959); see also Collector of Internal Revenue vs. Club Filipino, Inc. de Cebu, L-12719, May 31, 1962, 5 SCRA 321, and cases cited therein.

33 Sec. 194 (x), National Internal Revenue Code.

34 Whitaker vs. Rafferty, etc., 38 Phil. 08 (1918); Boada vs. Posadas, etc., 58 Phil. 184 (1933); Imperial vs. Collector of Internal Revenue, 97 Phil. 992, 1002, unpub., (1955).

35 BIR Records, Folder III, 306.

36 Smith, Bell & Co. vs. Municipality of Zamboanga, et al., 55 Phil. 466 (1930); Standard-Vacuum Oil Co. vs. M.D. Antigua, etc., at al., 96 Phil. 909 (1955); City of Manila vs. Fortune Enterprises, Inc., 108 Phil. 1058 (1960).

37 Standard-Vacuum Oil Company vs. M.D. Antigua, etc., et al., supra, citing Craig vs. Ballard & Ballard Co., 196 So. 238.

38 BIR Records, Folder III, 295.

39 BIR Records, Folder III, 306.

40 Original Record, C.T.A. Case No. 3825, 213.

41 Interprovincial Autobus Co., Inc. vs. Collector of Internal Revenue, 98 Phil. 290 (1956); Sy Po vs. Court of Tax Appeals, et al., G.R. No. 81446, August 18, 1988, 164 SCRA 524; Dayrit, et al. vs. Crui, et al., L-39910, September 26, 1988, 165 SCRA 571.

42 Aban, 1B., Law of Basic Taxation in the Philippines, 1994 ed., 109, citing Delta Motors Co. vs. Commissioner of Internal Revenue, C.T.A; Case No. 3782, May 21, 1986.

43 51 Am. Jur., Legislative Intention, 361.

44 Carbon Steel Co. vs. Lewellyn, 251 U.S. 501.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-4376             May 22, 1953

ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-appellants, vs.THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY MAYOR, all of the City of Manila, respondents-appellees.

Teotimo A. Roja for appellants.City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for appellees.

BAUTISTA ANGELO, J.:

This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by the Municipal Board of the City of Manila on March 24, 1950.

The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of said association, also a public service operator of the trucks in said City, challenge the validity of said ordinance on the ground that (1) while it levies a so-called property tax it is in reality a license tax which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance offends against the rule of uniformity of taxation; and (3) it constitutes double taxation.

The respondents, represented by the city fiscal, contend on their part that the challenged ordinance imposes a property tax which is within the power of the City of Manila to impose under its Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question does not violate the rule of uniformity of taxation, nor does it constitute double taxation.

The issues having been joined, the Court of First Instance of Manila sustained the validity of the ordinance and dismissed the petition. Hence this appeal.

The disputed ordinance was passed by the Municipal Board of the City of Manila under the authority conferred by section 18 (p) of Republic Act No. 409. Said section confers upon the municipal board the power "to tax motor and other vehicles operating within the City of Manila the provisions of any existing law to the contrary notwithstanding." It is contended that this power is broad enough to confer upon the City of Manila the power to enact an ordinance imposing the property tax on motor vehicles operating within the city limits.

In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the municipal corporation to impose tax on motor vehicles operating in any highway in the Philippines. The pertinent provisions are contained in section 70 (b) which provide in part:

No further fees than those fixed in this Act shall be exacted or demanded by any public highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the operation of any motor vehicle by the owner thereof: Provided, however, That nothing in this Act shall be construed to exempt any motor vehicle from the payment of any lawful and equitable insular, local or municipal property tax imposed thereupon. . . .

Note that under the above section no fees may be exacted or demanded for the operation of any motor vehicle other than those therein provided, the only exception being that which refers to the property tax which may be imposed by a municipal corporation. This provision is all-inclusive in that sense that it applies to all motor vehicles. In this sense, this provision should be construed as limiting the broad grant of power conferred upon the City of Manila by its Charter to impose taxes. When section 18 of said Charter provides that the City of Manila can impose a tax on motor vehicles operating within its limit, it can only refers to property tax as a different interpretation would make it repugnant to the Motor Vehicle Law.

Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance Levying a Property Tax on All Motor Vehicles Operating Within the City of Manila", and that in its section 1 it provides that the tax should be 1 per cent ad valorem per annum. It also provides that the proceeds of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be expended exclusively for the repair, maintenance and improvement of its streets and bridges." Considering the wording used in the ordinance in the light in the purpose for which the tax is created, can we consider the tax thus imposed as property tax, as claimed by respondents?

While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule should not be taken in its absolute sense if the nature and purpose of the tax as gathered from the context show that it is in effect an excise or a license tax. Thus, it has been held that "If a tax is in its nature an excise, it does not become a property tax because it is proportioned in amount to the value of the property used in connection with the occupation, privilege or act which is taxed. Every excise necessarily must finally fall upon and be paid by property and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be considered an excise." (26 R. C. L., 35-36.) It has also been held that

The character of the tax as a property tax or a license or occupation tax must be determined by its incidents, and from the natural and legal effect of the language employed in the act or ordinance, and not by the name by which it is described, or by the mode adopted in fixing its amount. If it is clearly a property tax, it will be so regarded, even though nominally and in form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons on account of their business, it will be construed as a license or occupation tax, even though it is graduated according to the property used in such business, or on the gross receipts of the business. (37 C.J., 172)

The ordinance in question falls under the foregoing rules. While it refers to property tax and it is fixed ad valorem yet we cannot reject the idea that it is merely levied on motor vehicles operating within the City of Manila with the main purpose of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. This is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act, municipal corporation already participate in the distribution of the proceeds that are raised for the same purpose of repairing, maintaining and improving bridges and public highway (section 73 of the Motor Vehicle Law). This prohibition is intended to prevent duplication in the imposition of fees for the same purpose. It is for this reason that we believe that the ordinance in question merely imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above adverted to.

It is also our opinion that the ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. The distinction is important if we note that the ordinance intends to burden with the tax only those registered in the City of Manila as may be inferred from the word "operating" used therein. The word "operating" denotes a connotation which is akin to a registration, for under the Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration fees. There is no pretense that the ordinance equally applies to motor vehicles who come to Manila for a temporary stay or for short errands, and it cannot be denied that they contribute in no small degree to the deterioration of the streets and public highway. The fact that they are benefited by their use they should also be made to

share the corresponding burden. And yet such is not the case. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and void.

Paras, C.J., Bengzon and Tuason, JJ., concur.Montemayor, Reyes, Jugo and Labrador, JJ., concur in the result.

EN BANC

[G.R. No. L-9167.  September 27, 1956.]

WE WA YU, Plaintiff-Appellee, vs. CITY OF LIPA, Defendant-Appellant.

 

D E C I S I O N

BAUTISTA ANGELO, J.:

Plaintiff is the owner and manager of a gasoline station located in the City of Lipa where gasoline, kerosene, oil and the like are sold. He paid under protest to the city treasurer during the period from October 24, 1952 to September 30, 1953 the aggregate sum P733.84 as taxes levied under Ordinance No. 457-A, as amended by Ordinance No. 462, imposing one-tenth (1/10) centavo per liter on the sale of gasoline and one-half (1/2) centavo per liter on the sale of alcohol, gas, or petroleum that may be made in any store or establishment within the city. To recover the amount pain on the ground that the two ordinances are ultra vires, he brought the present action in the Court of First Instance of Batangas. The City of Lipa put up the defense that the ordinances are valid because they were enacted pursuant to the power granted to it by its Charter, Republic Act No. 162.

The parties submitted a joint motion for judgment on the pleadings, and on May 27, 1954, the court rendered judgment declaring the ordinances ultra vires and ordering Defendant to reimburse to Plaintiff the amount of P733.84 and such other fees as Plaintiff may have paid after the filing of the complaint. Defendant took the case directly to this Court.

Ordinance No. 457-A, as amended by Ordinance No. 462, of the City of Lipa, provides in section 1 as follows:chanroblesvirtuallawlibrary

“SECTION 1. — There is hereby imposed a tax of one tenth (1/10) centavo per liter on the sale of gasoline and one-half (1/2) centavo per liter on the sale of alcohol, gas, petroleum, or all of any kindered type of combustible liquid made in any store or establishment by any person or entity within the City of Lipa.”

The above ordinances were enacted pursuant to section 15, paragraph (p), of Republic Act No. 162, otherwise known as Charter of the City of Lipa, which reads: chanroblesvirtuallawlibrary

“SEC. 15.  General powers and duties of the Board. — Except as otherwise provided by law, and subject to the conditions and limitations thereof, the Municipal Board shall have the following legislative powers:chanroblesvirtuallawlibrary

(p)  To tax, fix the license fee for, regulate the business and fix the location of, match factories, blacksmith shops, foundries, steam boilers, lumber yards, shipyards, the storage and sale of gunpowder, tar, pitch, resin, coal, oil, gasoline, benzine, turpentine, hemp, cotton, nitroglycerine, petroleum, or any of the products thereof, and of all other highly combustible or explosive materials, and other establishments likely to endanger the public safety or give rise to conflagrations or explosions, and, subject to the rules and regulations issued by the Director of Health in accordance with law, tanneries, renderies, tallow chandleries, embalmers, and scrap factories.”

It is clear from the above that the City of Lipa is given the power and authority (1) to tax, (2) to fix the license fee for, (3) to regulate the business, and (4) to fix the location of  cralaw the storage and sale of oil, gasoline and the like. In other words, it is given the power to tax, fix the license fee for, or regulate the business affecting match factories, blacksmith shops, foundries, steam boilers, lumber yards, shipyards, the storage and the sale of oil, gasoline, petroleum and the like. It does not possess the power to impose a tax on specific articles which may take the form of specific tax. In order that such power may be exercised, the grant must be clear. It cannot be implied for the reason that a municipal corporation, unlike a sovereign state, does not possess inherent power of taxation.

It is settled that a municipal corporation, unlike a sovereign state, is clothed with no statute must plainly show an intent to confer that power or the municipality cannot assume it. And the power when granted is to be construed strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power must be resolved against the municipality. Inferences, implications, deductions — all these — have no place in the interpretation of the taxing power of a municipal cooperations. [Icard vs. City Council of Baguio and the City of Baguio, 48 Off. Gaz., (Supp. 11) 320; chan roblesvirtualawlibraryMedina, et al. vs. City of Baguio, 48 Off, Gaz., No. 11, 4769].

The question now to be determined is: chanroblesvirtuallawlibrary Do the ordinances impose merely a tax on the business of selling and storing oil, gasoline, or petroleum, or a specific tax on the article therein enumerated?

We are inclined to uphold the latter view for the reason that the tax which they seek to collect is imposed by “some standard of weight or measurement” and not regardless of it. Thus, the tax imposed is 1/10 centavo per liter on the sale of gasoline and 1/2 centavo per liter on the sale of alcohol, gas, or petroleum. And it has been held that “A tax which imposes ‘a specific sum by the head or number, or some standard of weight or measurement, and which requires no assessment beyond a listing and classification of the objects to be taxed”, is a specific tax (61 C.J., 74). It is the sense that the tax on manufactured oils and other fuels is imposed by the National Internal Revenue Code (section 142, Commonwealth Act No. 466, as amended by section 11, Republic Act No. 56). The tax is considered a specific tax if the amount is imposed per liter of volume capacity.” It is therefore plain that the enactment of the ordinances in question is ultra vires.

There is a marked parallelism between the case of Medina, et al. vs. City of Baguio, supra and the present case. In the Medina case we said: chanroblesvirtuallawlibrary

“An examination of section 2553 (c), of the Revised Administration Code, as amended, will reveal that the power given to the City of Baguio to tax, to license and to regulate only refers to the business of the taxpayer and not to the articles used in said business. This is clearly inferred from a reading of said section and from the concluding sentence appearing therein, to wit, ‘and such other businesses, trades and occupations as may be established or practised in the City.’ One reason for this undoubtedly is the fact that under section 142 of the Internal Revenue Code (Commonwealth Act No. 466, as amended by the Republic Act No. 39), most of the products mentioned in the charter, particularly gasoline and oil, are already specifically taxed, and under section 361 of said code, the City of Baguio gets a share of 20 per cent of the amount of specific tax collected. At any rate, the charter of the City of Baguio does not show plainly an intent to confer that power upon the City of Baguio and, following the rule already adverted to, this doubt or ambiguity must be resolved against the city. An indication of the legislative intent on this matter is Commonwealth Act No. 472 which confers general authority upon municipal councils to levy taxes, subject to certain limitations, wherein it was specifically provided that the general authority so conferred shall not include ‘percentage taxes and taxes on specified articles.’ In other words, the power to levy a percentage tax or a specified tax has been expressly withheld. It is, therefore, our considered opinion that Ordinance No. 100 is ultra vires and has no force and effect.”

Wherefore, the decision appealed from is affirmed, without pronouncement as to costs.

Paras, C.J. Padilla, Montemayor, Labrador, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concur.

 

RESOLUTION

February 25, 1957

 

In G.R. No. L-9167, We Wa Yu vs. City of Lipa, acting in the motion for reconsideration filed by Appellant, the Court adopted the following resolution:chanroblesvirtuallawlibrary

Considering that on June 14, 1956 Congress enacted Republic Act No. 1435 providing in section 4 that Municipal boards of councils may, notwithstanding the provisions of sections one hundred and forty-two and one hundred and forty-five of the National Internal Revenue Code, as hereinabove amended, levy an additional tax of not exceeding twenty-five per cent of the rates fixed in said sections, on manufactured oils sold or distributed within the limits of the city of municipality”;

Considering that the tax imposed by the ordinances in question does not go beyond the limit of twenty-five per cent of the rates prescribed in section 142 and 145 of the National Internal Revenue Code;

Considering that revenue acts, retroactively applied, are not open to the objection that they infringe upon the due process of law clause of the Constitution (Republic of the Philippines vs. Angelina Oasan, et al., supra, p. 934);

The decision of this Court dated September 27, 1956 is hereby modified by reversing the decision appealed from and dismissing the case, without costs.

EN BANC

G.R. No. L-46720 June 28, 1940

WELLS FARGO BANK & UNION TRUST COMPANY, Petitioner-Appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, Respondent-Appellee.

De Witt, Perkins and Ponce Enrile for appellant.Office of the Solicitor-General Ozaeta and Assistant Solicitor-General Concepcion for appellee.Ross, Lawrence, Selph and Carrascoso, James Madison Ross and Federico Agrava as amici curiæ.

MORAN, J.: chanrobles virtual law library

An appeal from a declaratory judgment rendered by the Court of First Instance of Manila. chanroblesvirtualawlibrary chanrobles virtual law library

Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles, California, the place of her alleged last residence and domicile. Among the properties she left her one-half conjugal share in 70,000 shares of stock in the Benguet Consolidated Mining Company, an anonymous partnership ( sociedad anonima), organized and existing under the laws of the Philippines, with is principal office in the City of Manila. She left a will which was duly admitted to probate in California where her estate was administered and settled. Petitioner-appellant, Wells Fargo Bank & Union Trust Company, was duly appointed trustee of the created by the said will. The Federal and State of California's inheritance taxes due on said shares have been duly paid. Respondent Collector of Internal Revenue sought to subject anew the aforesaid shares of stock to the Philippine inheritance tax, to which petitioner-appellant objected. Wherefore, a petition for a declaratory judgment was filed in the lower court, with the statement that, "if it should be held by a final declaratory judgment that the transfer of the aforesaid shares of stock is legally subject to the Philippine inheritance tax, the petitioner will pay such tax, interest and penalties (saving error in computation) without protest and will not file to recover the same; and the petitioner believes and t herefore alleges that it should be held that such transfer is not subject to said tax, the respondent will not proceed to assess and collect the same." The Court of First Instance of Manila rendered judgment, holding that the transmission by will of the said 35,000 shares of stock is subject to Philippine inheritance tax. Hence, this appeal by the petitioner. chanroblesvirtualawlibrary chanrobles virtual law library

Petitioner concedes (1) that the Philippine inheritance tax is not a tax property, but upon transmission by inheritance (Lorenzo vs. Posadas, 35 Off. Gaz., 2393, 2395), and (2) that as to real and tangible personal property of a non-resident decedent, located in the Philippines, the Philippine inheritance tax may be imposed upon their transmission by death, for the self-evident reason that, being a property situated in this country, its transfer is, in some way, defendant, for its effectiveness, upon Philippine laws. It is contended, however, that, as to intangibles, like the shares of stock in question, their situs is in the domicile of the owner thereof, and, therefore, their transmission by death necessarily takes place under his domiciliary laws.chanroblesvirtualawlibrary chanrobles virtual law library

Section 1536 of the Administrative Code, as amended, provides that every transmission by virtue of inheritance of any share issued by any corporation of sociedad anonima organized or constituted in the Philippines, is subject to the tax therein provided. This provision has already been applied to shares of stock in a domestic corporation which were owned by a British subject residing and domiciled in Great Britain. (Knowles vs. Yatco, G. R. No. 42967. See also Gibbs vs. Government of P. I., G. R. No. 35694.) Petitioner, however, invokes the rule laid down by the United States Supreme Court in four cases (Farmers Loan & Trust Company vs. Minnesota, 280 U.S. 204; 74 Law. ed., 371; Baldwin vs. Missouri, 281 U.S., 586; 74 Law. ed., 1056, Beidler vs. South Carolina Tax Commission 282 U. S., 1; 75 Law. ed., 131; First National Bank of Boston vs. Maine, 284 U. S., 312; 52 S. Ct., 174, 76 Law. ed., 313; 77 A. L. R., 1401), to the effect that an inheritance tax can be imposed with respect to intangibles only by the State where the decedent was domiciled at the time of his death, and that, under the due-process clause, the State in which a corporation has been incorporated has no power to impose such tax if the shares of stock in such corporation are owned by a non-resident decedent. It is to be observed, however, that in a later case (Burnet vs. Brooks, 288 U. S., 378; 77 Law. ed., 844), the United States Supreme Court upheld the authority of the Federal Government to impose an inheritance tax on the

transmission, by death of a non-resident, of stock in a domestic (America) corporation, irrespective of the situs of the corresponding certificates of stock. But it is contended that the doctrine in the foregoing case is not applicable, because the due-process clause is directed at the State and not at the Federal Government, and that the federal or national power of the United States is to be determined in relation to other countries and their subjects by applying the principles of jurisdiction recognized in international relations. Be that as it may, the truth is that the due-process clause is "directed at the protection of the individual and he is entitled to its immunity as much against the state as against the national government." (Curry vs. McCanless, 307 U. S., 357, 370; 83 Law. ed., 1339, 1349.) Indeed, the rule laid down in the four cases relied upon by the appellant was predicated on a proper regard for the relation of the states of the American Union, which requires that property should be taxed in only one state and that jurisdiction to tax is restricted accordingly. In other words, the application to the states of the due-process rule springs from a proper distribution of their powers and spheres of activity as ordained by the United States Constitution, and such distribution is enforced and protected by not allowing one state to reach out and tax property in another. And these considerations do not apply to the Philippines. Our status rests upon a wholly distinct basis and no analogy, however remote, cam be suggested in the relation of one state of the Union with another or with the United States. The status of the Philippines has been aptly defined as one which, though a part of the United States in the international sense, is, nevertheless, foreign thereto in a domestic sense. (Downes vs. Bidwell, 182 U. S., 244, 341.)chanrobles virtual law library

At any rate, we see nothing of consequence in drawing any distinct between the operation and effect of the due-process clause as it applies to the individual states and to the national government of the United States. The question here involved is essentially not one of due-process, but of the power of the Philippine Government to tax. If that power be conceded, the guaranty of due process cannot certainly be invoked to frustrate it, unless the law involved is challenged, which is not, on considerations repugnant to such guaranty of due process of that of the equal protection of the laws, as, when the law is alleged to be arbitrary, oppressive or discriminatory. chanroblesvirtualawlibrary chanrobles virtual law library

Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax, and that such situs is in the domicile of the decedent at the time of his death. But this rule has, of late, been relaxed. The maxim mobilia sequuntur personam, upon which the rule rests, has been described as a mere "fiction of law having its origin in consideration of general convenience and public policy, and cannot be applied to limit or control the right of the state to tax property within its jurisdiction" (State Board of Assessors vs. Comptoir National D'Escompte, 191 U. S., 388, 403, 404), and must "yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so result in inescapable and patent injustice." (Safe Deposit & Trust Co. vs. Virginia, 280 U. S., 83, 91-92) There is thus a marked shift from artificial postulates of law, formulated for reasons of convenience, to the actualities of each case. chanroblesvirtualawlibrary chanrobles virtual law library

An examination of the adjudged cases will disclose that the relaxation of the original rule rests on either of two fundamental considerations: (1) upon the recognition of the inherent power of each government to tax persons, properties and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that as o intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto. It is on the basis of the first consideration that the case of Burnet vs. Brooks, supra, was decided by the Federal Supreme Court, sustaining the power of the Government to impose an inheritance tax upon transmission, by death of a non-resident, of shares of stock in a domestic (America) corporation, regardless of the situs of their corresponding certificates; and on the basis of the second consideration, the case of Cury vs. McCanless, supra.chanroblesvirtualawlibrary chanrobles virtual law library

In Burnet vs. Brooks, the court, in disposing of the argument that the imposition of the federal estate tax is precluded by the due-process clause of the Fifth Amendment, held:

The point, being solely one of jurisdiction to tax, involves none of the other consideration raised by confiscatory or arbitrary legislation inconsistent with the fundamental conceptions of justice which are embodied in the due-process clause for the protection of life, liberty, and property of all persons - citizens and friendly aliens alike. Russian Volunteer Fleet vs. United States, 282 U. S., 481, 489; 75 Law ed., 473, 476; 41 S. Ct., 229; Nicholas vs. Coolidge, 274 U. S., 531; 542, 71 Law ed., 1184, 1192; 47 S. Ct., 710; 52 A. L. R., 1081; Heiner vs. Donnon, 285 U.S., 312, 326; 76 Law ed., 772, 779; 52 S.

Ct., 358. If in the instant case the Federal Government had jurisdiction to impose the tax, there is manifestly no ground for assailing it. Knowlton vs. Moore, 178 U.S., 41, 109; 44 Law. ed., 969, 996; 20 S. Ct., 747; MaGray vs. United States, 195 U.S., 27, 61; 49 Law. ed., 78; 97; 24 S. Ct., 769; 1 Ann. Cas., 561; Flint vs. Stone Tracy Co., 220 U.S., 107, 153, 154; 55 Law. ed., 389, 414, 415; 31 S. Ct., 342; Ann. Cas., 1912B, 1312; Brushaber vs. Union p. R. Co., 240 U.S., 1, 24; 60 Law. ed., 493, 504; 36 S. Ct., 236; L. R. A., 1917 D; 414, Ann. Cas, 1917B, 713; United States vs. Doremus, 249 U. S., 86, 93; 63 Law. ed., 439, 496; 39 S. Ct., 214. (Emphasis ours.)

And, in sustaining the power of the Federal Government to tax properties within its borders, wherever its owner may have been domiciled at the time of his death, the court ruled:

. . . There does not appear, a priori, to be anything contrary to the principles of international law, or hurtful to the polity of nations, in a State's taxing property physically situated within its borders, wherever its owner may have been domiciled at the time of his death. . . . chanroblesvirtualawlibrary chanrobles virtual law library

As jurisdiction may exist in more than one government, that is, jurisdiction based on distinct grounds - the citizenship of the owner, his domicile, the source of income, the situs of the property - efforts have been made to preclude multiple taxation through the negotiation of appropriate international conventions. These endeavors, however, have proceeded upon express or implied recognition, and not in denial, of the sovereign taxing power as exerted by governments in the exercise of jurisdiction upon any one of these grounds. . . . ( See pages 396-397; 399.)

In Curry vs. McCanless, supra, the court, in deciding the question of whether the States of Alabama and Tennessee may each constitutionally impose death taxes upon the transfer of an interest in intangibles held in trust by an Alabama trustee but passing under the will of a beneficiary decedent domiciles in Tennessee, sustained the power of each State to impose the tax. In arriving at this conclusion, the court made the following observations:

In cases where the owner of intangibles confines his activity to the place of his domicile it has been found convenient to substitute a rule for a reason, cf. New York ex rel., Cohn vs. Graves, 300 U.S., 308, 313; 81 Law. ed., 666, 670; 57 S. Ct., 466; 108 A. L. R., 721; First Bank Stock Corp. vs. Minnesota, 301 U. S., 234, 241; 81 Law. ed., 1061, 1065; 57 S. Ct., 677; 113 A. L. R., 228, by saying that his intangibles are taxed at their situs and not elsewhere, or perhaps less artificially, by invoking the maxim mobilia sequuntur personam. Blodgett vs. Silberman, 277 U.S., 1; 72 Law. ed., 749; S. Ct., 410, supra; Baldwin vs. Missouri, 281 U. S., 568; 74 Law. ed., 1056; 50 S. Ct., 436; 72 A. L. R., 1303, supra, which means only that it is the identify owner at his domicile which gives jurisdiction to tax. But when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another state, in such a way as to bring his person or properly within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains, and the rule even workable substitute for the reasons may exist in any particular case to support the constitutional power of each state concerned to tax. Whether we regard the right of a state to tax as founded on power over the object taxed, as declared by Chief Justice Marshall in McCulloch vs. Maryland, 4 Wheat., 316; 4 Law. ed., 579, supra, through dominion over tangibles or over persons whose relationships are source of intangibles rights, or on the benefit and protection conferred by the taxing sovereignty, or both, it is undeniable that the state of domicile is not deprived, by the taxpayer's activities elsewhere, of its constitutional jurisdiction to tax, and consequently that there are many circumstances in which more than one state may have jurisdiction to impose a tax and measure it by some or all of the taxpayer's intangibles. Shares or corporate stock be taxed at the domicile of the shareholder and also at that of the corporation which the taxing state has created and controls; and income may be taxed both by the state where it is earned and by the state of the recipient's domicile. protection, benefit, and power over the subject matter are not confined to either state. . . .(p. 1347-1349.)chanrobles virtual law library

. . . We find it impossible to say that taxation of intangibles can be reduced in every case to the mere mechanical operation of locating at a single place, and there taxing, every legal interest growing out of all the complex legal relationships which may be entered into between persons. This is the case because in point of actuality those interests may be too diverse in their relationships to various taxing jurisdictions to admit of unitary treatment without discarding modes of taxation long accepted and

applied before the Fourteen Amendment was adopted, and still recognized by this Court as valid. (P. 1351.)

We need not belabor the doctrines of the foregoing cases. We believe, and so hold, that the issue here involved is controlled by those doctrines. In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. And besides, the certificates of stock have remained in this country up to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the Benguet Consolidated Mining Company, to whom they have been delivered and indorsed in blank. This indorsement gave Syrena McKee the right to vote the certificates at the general meetings of the stockholders, to collect dividends, and dispose of the shares in the manner she may deem fit, without prejudice to her liability to the owner for violation of instructions. For all practical purposes, then, Syrena McKee had the legal title to the certificates of stock held in trust for the true owner thereof. In other words, the owner residing in California has extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld.chanroblesvirtualawlibrary chanrobles virtual law library

Judgment is affirmed, with costs against petitioner-appellant.

Avance�a, C.J., Imperial, Diaz and Concepcion, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 76778 June 6, 1990

FRANCISCO I. CHAVEZ, petitioner, vs.JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity as Acting Municipal Treasurer of the Municipality of Las Piñas, respondents, REALTY OWNERS ASSOCIATION OF THE PHILIPPINES, INC., petitioner-intervenor.

Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and Oppression (Bonifacio) for petitioner.

Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners Association.

 

MEDIALDEA, J.:

The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986, which We quote in full, as follows (78 O.G. 5861):

EXECUTIVE ORDER No. 73

PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE, AS AMENDED

WHEREAS, the collection of real property taxes is still based on the 1978 revision of property values;

WHEREAS, the latest general revision of real property assessments completed in 1984 has rendered the 1978 revised values obsolete;

WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an additional source of revenue;

WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the rising cost of rendering effective services to the people;

NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do hereby order:

SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real property tax collection.

SEC. 2. The Minister of Finance shall promulgate the necessary rules and regulations to implement this Executive Order.

SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed.

SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof inconsistent with this Executive Order are hereby repealed or modified accordingly.

SEC. 5. This Executive Order shall take effect immediately.

On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of Executive Order No. 73 until June 30, 1987.

The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of land. He alleges the following: that Executive Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987 thereby mandating an excessive increase in real property taxes by 100% to 400% on improvements, and up to 100% on land; that any increase in the value of real property brought about by the revision of real property values and assessments would necessarily lead to a proportionate increase in real property taxes; that sheer oppression is the result of increasing real property taxes at a period of time when harsh economic conditions prevail; and that the increase in the market values of real property as reflected in the schedule of values was brought about only by inflation and economic recession.

The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national association of owners-lessors, joins Chavez in his petition to declare unconstitutional Executive Order No. 73, but additionally alleges the following: that Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional one percent (1%) tax on all property owners to raise funds for education, as real property tax is admittedly a local tax for local governments; that the General Revision of Assessments does not meet the requirements of due process as regards publication, notice of hearing, opportunity to be heard and insofar as it authorizes "replacement cost" of buildings (improvements) which is not provided in Presidential Decree No. 464, but only in an administrative regulation of the Department of Finance; and that the Joint Local Assessment/Treasury Regulations No. 2-86 2 is even more oppressive and unconstitutional as it imposes successive increase of 150% over the 1986 tax.

The Office of the Solicitor General argues against the petition.

The petition is not impressed with merit.

Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73 insofar as the revision of the assessments and the effectivity thereof are concerned. It should be emphasized that Executive Order No. 73 merely directs, in Section 1 thereof, that:

SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real property tax collection. (emphasis supplied)

The general revision of assessments completed in 1984 is based on Section 21 of Presidential Decree No. 464 which provides, as follows:

SEC. 21. General Revision of Assessments. — Beginning with the assessor shall make a calendar year 1978, the provincial or city general revision of real property assessments in the province or city to take effect January 1, 1979, and once every five years thereafter: Provided; however, That if property

values in a province or city, or in any municipality, have greatly changed since the last general revision, the provincial or city assesor may, with the approval of the Secretary of Finance or upon bis direction, undertake a general revision of assessments in the province or city, or in any municipality before the fifth year from the effectivity of the last general revision.

Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should be challenged as constitutionally infirm. However, Chavez failed to raise any objection against said decree. It was ROAP which questioned the constitutionality thereof. Furthermore, Presidential Decree No. 464 furnishes the procedure by which a tax assessment may be questioned:

SEC. 30. Local Board of Assessment Appeals. — Any owner who is not satisfied with the action of the provincial or city assessor in the assessment of his property may, within sixty days from the date of receipt by him of the written notice of assessment as provided in this Code, appeal to the Board of Assessment Appeals of the province or city, by filing with it a petition under oath using the form prescribed for the purpose, together with copies of the tax declarations and such affidavit or documents submitted in support of the appeal.

xxx xxx xxx

SEC. 34. Action by the Local Board of assessment Appeals. — The Local Board of Assessment Appeals shall decide the appeal within one hundred and twenty days from the date of receipt of such appeal. The decision rendered must be based on substantial evidence presented at the hearing or at least contained in the record and disclosed to the parties or such relevant evidence as a reasonable mind might accept as adequate to support the conclusion.

In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum. The proceedings of the Board shall be conducted solely for the purpose of ascertaining the truth without-necessarily adhering to technical rules applicable in judicial proceedings.

The Secretary of the Board shall furnish the property owner and the Provincial or City Assessor with a copy each of the decision of the Board. In case the provincial or city assessor concurs in the revision or the assessment, it shall be his duty to notify the property owner of such fact using the form prescribed for the purpose. The owner or administrator of the property or the assessor who is not satisfied with the decision of the Board of Assessment Appeals, may, within thirty days after receipt of the decision of the local Board, appeal to the Central Board of Assessment Appeals by filing his appeal under oath with the Secretary of the proper provincial or city Board of Assessment Appeals using the prescribed form stating therein the grounds and the reasons for the appeal, and attaching thereto any evidence pertinent to the case. A copy of the appeal should be also furnished the Central Board of Assessment Appeals, through its Chairman, by the appellant.

Within ten (10) days from receipt of the appeal, the Secretary of the Board of Assessment Appeals concerned shall forward the same and all papers related thereto, to the Central Board of Assessment Appeals through the Chairman thereof.

xxx xxx xxx

SEC. 36. Scope of Powers and Functions. — The Central Board of Assessment Appeals shall have jurisdiction over appealed assessment cases decided by the Local Board of Assessment Appeals. The said Board shall decide cases brought on appeal within twelve (12) months from the date of receipt, which decision shall become final and executory after the lapse of fifteen (15) days from the date of receipt of a copy of the decision by the appellant.

In the exercise of its appellate jurisdiction, the Central Board of Assessment Appeals, or upon express authority, the Hearing Commissioner, shall have the power to summon witnesses, administer oaths, take depositions, and issue subpoenas and subpoenas duces tecum.

The Central Board of assessment Appeals shall adopt and promulgate rules of procedure relative to the conduct of its business.

Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any owner who doubts the assessment of his property, may appeal to the Local Board of Assessment Appeals. In case the, owner or administrator of the property or the assessor is not satisfied with the decision of the Local Board of Assessment Appeals, he may, within thirty days from the receipt of the decision, appeal to the Central Board of Assessment Appeals. The decision of the Central Board of Assessment Appeals shall become final and executory after the lapse of fifteen days from the date of receipt of the decision.

Chavez argues further that the unreasonable increase in real property taxes brought about by Executive Order No. 73 amounts to a confiscation of property repugnant to the constitutional guarantee of due process, invoking the cases of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849) and Sison v. Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654).

The reliance on these two cases is certainly misplaced because the due process requirement called for therein applies to the "power to tax." Executive Order No. 73 does not impose new taxes nor increase taxes.

Indeed, the government recognized the financial burden to the taxpayers that will result from an increase in real property taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985, deferring the implementation of the increase in real property taxes resulting from the revised real property assessments, from January 1, 1985 to January 1, 1988. Section 5 thereof is quoted herein as follows:

SEC. 5. The increase in real property taxes resulting from the revised real property assessments as provided for under Section 21 of Presidential Decree No. 464, as amended by Presidential Decree No. 1621, shall be collected beginning January 1, 1988 instead of January 1, 1985 in order to enable the Ministry of Finance and the Ministry of Local Government to establish the new systems of tax collection and assessment provided herein and in order to alleviate the condition of the people, including real property owners, as a result of temporary economic difficulties. (emphasis supplied)

The issuance of Executive Order No. 73 which changed the date of implementation of the increase in real property taxes from January 1, 1988 to January 1, 1987 and therefore repealed Executive Order No. 1019, also finds ample justification in its "whereas' clauses, as follows:

WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take effect on January 1, 1988 instead of

January 1, 1985, thus depriving the local government units of an additional source of revenue;

WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the rising cost of rendering effective services to the people; (emphasis supplied)

xxx xxx xxx

The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not proper to be resolved in the present petition. As stated at the outset, the issue here is limited to the constitutionality of Executive Order No. 73. Intervention is not an independent proceeding, but an ancillary and supplemental one which, in the nature of things, unless otherwise provided for by legislation (or Rules of Court), must be in subordination to the main proceeding, and it may be laid down as a general rule that an intervention is limited to the field of litigation open to the original parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67 Phil. 279).

We agree with the observation of the Office of the Solicitor General that without Executive Order No. 73, the basis for collection of real property taxes will still be the 1978 revision of property values. Certainly, to continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations.

ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and Regalado, JJ., concur.

Padilla, J., took no part.

Griño-Aquino, J., is on leave.

 

Footnotes

1 He filed the instant petition before he was appointed to his present position as Solicitor General.

2 The Joint Local Assessment/Treasury Regulations No. 2-86 issued on December 12, 1986 implements Executive Order No. 73.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 148191               November 25, 2003

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.SOLIDBANK CORPORATION, respondent.

D E C I S I O N

PANGANIBAN, J.:

Under the Tax Code, the earnings of banks from "passive" income are subject to a twenty percent final withholding tax (20% FWT). This tax is withheld at source and is thus not actually and physically received by the banks, because it is paid directly to the government by the entities from which the banks derived the income. Apart from the 20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which is imposed by the Tax Code on their gross receipts, including the "passive" income.

Since the 20% FWT is constructively received by the banks and forms part of their gross receipts or earnings, it follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the government on their behalf, in satisfaction of their withholding taxes. That they do not actually receive the amount does not alter the fact that it is remitted for their benefit in satisfaction of their tax obligations.

Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20 percent portion of the "passive" income of banks would actually be paid to the banks and then remitted by them to the government in payment of their income tax. The institution of the withholding tax system does not alter the fact that the 20 percent portion of their "passive" income constitutes part of their actual earnings, except that it is paid directly to the government on their behalf in satisfaction of the 20 percent final income tax due on their "passive" incomes.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to annul the July 18, 2000 Decision2 and the May 8, 2001 Resolution3 of the Court of Appeals4 (CA) in CA-GR SP No. 54599. The decretal portion of the assailed Decision reads as follows:

"WHEREFORE, we AFFIRM in toto the assailed decision and resolution of the Court of Tax Appeals."5

The challenged Resolution denied petitioner’s Motion for Reconsideration.

The Facts

Quoting petitioner, the CA6 summarized the facts of this case as follows:

"For the calendar year 1995, [respondent] seasonably filed its Quarterly Percentage Tax Returns reflecting gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total amount of P1,474,691,693.44 with corresponding gross receipts tax payments in the sum of P73,734,584.60, broken down as follows:

Period Covered Gross Receipts Gross Receipts Tax

January to March 1994 P 188,406,061.95 P 9,420,303.10

April to June 1994 370,913,832.70 18,545,691.63

July to September 1994 481,501,838.98 24,075,091.95

October to December 1994 433,869,959.81 21,693,497.98

Total P 1,474,691,693.44 P 73,734,584.60

"[Respondent] alleges that the total gross receipts in the amount of P1,474,691,693.44 included the sum of P350,807,875.15 representing gross receipts from passive income which was already subjected to 20% final withholding tax.

"On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue[,] wherein it was held that the 20% final withholding tax on [a] bank’s interest income should not form part of its taxable gross receipts for purposes of computing the gross receipts tax.

"On June 19, 1997, on the strength of the aforementioned decision, [respondent] filed with the Bureau of Internal Revenue [BIR] a letter-request for the refund or issuance of [a] tax credit certificate in the aggregate amount of P3,508,078.75, representing allegedly overpaid gross receipts tax for the year 1995, computed as follows:

Gross Receipts Subjected to the Final Tax

Derived from Passive [Income] P 350,807,875.15

Multiply by Final Tax rate 20%

20% Final Tax Withheld at Source P 70,161,575.03

Multiply by [Gross Receipts Tax] rate 5%

Overpaid [Gross Receipts Tax] P 3,508,078.75

"Without waiting for an action from the [petitioner], [respondent] on the same day filed [a] petition for review [with the Court of Tax Appeals] in order to toll the running of the two-year prescriptive period to judicially claim for the refund of [any] overpaid internal revenue tax[,] pursuant to Section 230 [now 229] of the Tax Code [also ‘National Internal Revenue Code’] x x x.

x x x           x x x          x x x

"After trial on the merits, the [Court of Tax Appeals], on August 6, 1999, rendered its decision ordering x x x petitioner to refund in favor of x x x respondent the reduced amount of P1,555,749.65 as overpaid [gross receipts tax] for the year 1995. The legal issue x x x was resolved by the [Court of Tax Appeals], with Hon. Amancio Q. Saga dissenting, on the strength of its earlier pronouncement in x x x Asian Bank Corporation vs. Commissioner of Internal Revenue x x x, wherein it was held that the 20% [final withholding tax] on [a] bank’s interest income should not form part of its taxable gross receipts for purposes of computing the [gross receipts tax]."7

Ruling of the CA

The CA held that the 20% FWT on a bank’s interest income did not form part of the taxable gross receipts in computing the 5% GRT, because the FWT was not actually received by the bank but was

directly remitted to the government. The appellate court curtly said that while the Tax Code "does not specifically state any exemption, x x x the statute must receive a sensible construction such as will give effect to the legislative intention, and so as to avoid an unjust or absurd conclusion."8

Hence, this appeal.9

Issue

Petitioner raises this lone issue for our consideration:

"Whether or not the 20% final withholding tax on [a] bank’s interest income forms part of the taxable gross receipts in computing the 5% gross receipts tax."10

The Court’s Ruling

The Petition is meritorious.

Sole Issue:

Whether the 20% FWT Forms Partof the Taxable Gross Receipts

Petitioner claims that although the 20% FWT on respondent’s interest income was not actually received by respondent because it was remitted directly to the government, the fact that the amount redounded to the bank’s benefit makes it part of the taxable gross receipts in computing the 5% GRT. Respondent, on the other hand, maintains that the CA correctly ruled otherwise.

We agree with petitioner. In fact, the same issue has been raised recently in China Banking Corporation v. CA,11 where this Court held that the amount of interest income withheld in payment of the 20% FWT forms part of gross receipts in computing for the GRT on banks.

The FWT and the GRT:

Two Different Taxes

The 5% GRT is imposed by Section 11912 of the Tax Code,13 which provides:

"SEC. 119. Tax on banks and non-bank financial intermediaries. – There shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with the following schedule:

"(a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived.

Short-term maturity not in excess of two (2) years……………………5%

Medium-term maturity – over two (2) years

but not exceeding four (4) years………………………………….…...3%

Long-term maturity:

(i) Over four (4) years but not exceeding

seven (7) years……………………………………………1%

(ii) Over seven (7) years………………………………….….0%

"(b) On dividends……………………………….……..0%

"(c) On royalties, rentals of property, real or personal, profits from exchange and all other items treated as gross income under Section 2814 of this Code………....................................................................5%

Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction as short, medium or long term and the correct rate of tax shall be applied accordingly.

"Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar banking activities."

The 5% GRT15 is included under "Title V. Other Percentage Taxes" of the Tax Code and is not subject to withholding. The banks and non-bank financial intermediaries liable therefor shall, under Section 125(a)(1),16 file quarterly returns on the amount of gross receipts and pay the taxes due thereon within twenty (20)17 days after the end of each taxable quarter.

The 20% FWT,18 on the other hand, falls under Section 24(e)(1)19 of "Title II. Tax on Income." It is a tax on passive income, deducted and withheld at source by the payor-corporation and/or person as withholding agent pursuant to Section 50,20 and paid in the same manner and subject to the same conditions as provided for in Section 51.21

A perusal of these provisions clearly shows that two types of taxes are involved in the present controversy: (1) the GRT, which is a percentage tax; and (2) the FWT, which is an income tax. As a bank, petitioner is covered by both taxes.

A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services.22 It is not subject to withholding.

An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable year.23 It is subject to withholding.

In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed; the payor, a separate entity, acts as no more than an agent of the government for the collection of the tax in order to ensure its payment. Obviously, this amount that is used to settle the tax liability is deemed sourced from the proceeds constitutive of the tax base.24 These proceeds are either actual or constructive. Both parties herein agree that there is no actual receipt by the bank of the amount withheld. What needs to be determined is if there is constructive receipt thereof. Since the payee -- not the payor -- is the real taxpayer, the rule on constructive receipt can be easily rationalized, if not made clearly manifest.25

Constructive ReceiptVersus Actual Receipt

Applying Section 7 of Revenue Regulations (RR) No. 17-84,26 petitioner contends that there is constructive receipt of the interest on deposits and yield on deposit substitutes.27 Respondent, however, claims that even if there is, it is Section 4(e) of RR 12-8028 that nevertheless governs the situation.

Section 7 of RR 17-84 states:

"SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes. –

‘(a) The interest earned on Philippine Currency bank deposits and yield from deposit substitutes subjected to the withholding taxes in accordance with these regulations need not be included in the gross income in computing the depositor’s/investor’s income tax liability in accordance with the provision of Section 29(b),29 (c)30 and (d) of the National Internal Revenue Code, as amended.

‘(b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes declared for purposes of imposing the withholding taxes in accordance with these regulations shall be allowed as interest expense deductible for purposes of computing taxable net income of the payor.

‘(c) If the recipient of the above-mentioned items of income are financial institutions, the same shall be included as part of the tax base upon which the gross receipt[s] tax is imposed.’"

Section 4(e) of RR 12-80, on the other hand, states that the tax rates to be imposed on the gross receipts of banks, non-bank financial intermediaries, financing companies, and other non-bank financial intermediaries not performing quasi-banking activities shall be based on all items of income actually received. This provision reads:

"SEC. 4. x x x x x x x x x

"(e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other non-bank financial intermediaries not performing quasi-banking activities. – The rates of tax to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received. Mere accrual shall not be considered, but once payment is received on such accrual or in cases of prepayment, then the amount actually received shall be included in the tax base of such financial institutions, as provided hereunder x x x."

Respondent argues that the above-quoted provision is plain and clear: since there is no actual receipt, the FWT is not to be included in the tax base for computing the GRT. There is supposedly no pecuniary benefit or advantage accruing to the bank from the FWT, because the income is subjected to a tax burden immediately upon receipt through the withholding process. Moreover, the earlier RR 12-80 covered matters not falling under the later RR 17-84.31

We are not persuaded.

By analogy, we apply to the receipt of income the rules on actual and constructive possession provided in Articles 531 and 532 of our Civil Code.

Under Article 531:32

"Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to the action of our will, or by the proper acts and legal formalities established for acquiring such right."

Article 532 states:

"Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent, or by any person without any power whatever; but in the last case, the possession shall not be considered as acquired until the person in whose name the act of possession was executed has ratified the same, without prejudice to the juridical consequences of negotiorum gestio in a proper case."33

The last means of acquiring possession under Article 531 refers to juridical acts -- the acquisition of possession by sufficient title – to which the law gives the force of acts of possession.34 Respondent argues that only items of income actually received should be included in its gross receipts. It claims that since the amount had already been withheld at source, it did not have actual receipt thereof.

We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is through the proper acts and legal formalities established therefor. The withholding process is one such act. There may not be actual receipt of the income withheld; however, as provided for in Article 532, possession by any person without any power whatsoever shall be considered as acquired when ratified by the person in whose name the act of possession is executed.

In our withholding tax system, possession is acquired by the payor as the withholding agent of the government, because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt. The processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are subjected to FWT are indeed -- for legal purposes -- tantamount to delivery, receipt or remittance.35 Besides, respondent itself admits that its income is subjected to a tax burden immediately upon "receipt," although it claims that it derives no pecuniary benefit or advantage through the withholding process. There being constructive receipt of such income -- part of which is withheld -- RR 17-84 applies, and that income is included as part of the tax base upon which the GRT is imposed.

RR 12-80 Superseded by RR 17-84

We now come to the effect of the revenue regulations on interest income constructively received.

In general, rules and regulations issued by administrative or executive officers pursuant to the procedure or authority conferred by law upon the administrative agency have the force and effect, or partake of the nature, of a statute.36 The reason is that statutes express the policies, purposes, objectives, remedies and sanctions intended by the legislature in general terms. The details and manner of carrying them out are oftentimes left to the administrative agency entrusted with their enforcement.

In the present case, it is the finance secretary who promulgates the revenue regulations, upon recommendation of the BIR commissioner. These regulations are the consequences of a delegated power to issue legal provisions that have the effect of law.37

A revenue regulation is binding on the courts as long as the procedure fixed for its promulgation is followed. Even if the courts may not be in agreement with its stated policy or innate wisdom, it is nonetheless valid, provided that its scope is within the statutory authority or standard granted by the legislature.38 Specifically, the regulation must (1) be germane to the object and purpose of the law;39 (2) not contradict, but conform to, the standards the law prescribes;40 and (3) be issued for the sole purpose of carrying into effect the general provisions of our tax laws.41

In the present case, there is no question about the regularity in the performance of official duty. What needs to be determined is whether RR 12-80 has been repealed by RR 17-84.

A repeal may be express or implied. It is express when there is a declaration in a regulation -- usually in its repealing clause -- that another regulation, identified by its number or title, is repealed. All others are implied repeals.42 An example of the latter is a general provision that predicates the intended repeal on a substantial conflict between the existing and the prior regulations.43

As stated in Section 11 of RR 17-84, all regulations, rules, orders or portions thereof that are inconsistent with the provisions of the said RR are thereby repealed. This declaration proceeds on the premise that RR 17-84 clearly reveals such an intention on the part of the Department of Finance. Otherwise, later RRs are to be construed as a continuation of, and not a substitute for, earlier RRs; and will continue to speak, so far as the subject matter is the same, from the time of the first promulgation.44

There are two well-settled categories of implied repeals: (1) in case the provisions are in irreconcilable conflict, the later regulation, to the extent of the conflict, constitutes an implied repeal of an earlier one; and (2) if the later regulation covers the whole subject of an earlier one and is clearly intended as a substitute, it will similarly operate as a repeal of the earlier one.45 There is no implied repeal of an earlier RR by the mere fact that its subject matter is related to a later RR, which may simply be a cumulation or continuation of the earlier one.46

Where a part of an earlier regulation embracing the same subject as a later one may not be enforced without nullifying the pertinent provision of the latter, the earlier regulation is deemed impliedly amended or modified to the extent of the repugnancy.47 The unaffected provisions or portions of the earlier regulation remain in force, while its omitted portions are deemed repealed.48 An exception therein that is amended by its subsequent elimination shall now cease to be so and instead be included within the scope of the general rule.49

Section 4(e) of the earlier RR 12-80 provides that only items of income actually received shall be included in the tax base for computing the GRT, but Section 7(c) of the later RR 17-84 makes no such distinction and provides that all interests earned shall be included. The exception having been eliminated, the clear intent is that the later RR 17-84 includes the exception within the scope of the general rule.

Repeals by implication are not favored and will not be indulged, unless it is manifest that the administrative agency intended them. As a regulation is presumed to have been made with deliberation and full knowledge of all existing rules on the subject, it may reasonably be concluded that its promulgation was not intended to interfere with or abrogate any earlier rule relating to the same subject, unless it is either repugnant to or fully inclusive of the subject matter of an earlier one, or unless the reason for the earlier one is "beyond peradventure removed."50 Every effort must be exerted to make all regulations stand -- and a later rule will not operate as a repeal of an earlier one, if by any reasonable construction, the two can be reconciled.51

RR 12-80 imposes the GRT only on all items of income actually received, as opposed to their mere accrual, while RR 17-84 includes all interest income in computing the GRT. RR 12-80 is superseded by the later rule, because Section 4(e) thereof is not restated in RR 17-84. Clearly therefore, as petitioner correctly states, this particular provision was impliedly repealed when the later regulations took effect.52

Reconciling the Two Regulations

Granting that the two regulations can be reconciled, respondent’s reliance on Section 4(e) of RR 12-80 is misplaced and deceptive. The "accrual" referred to therein should not be equated with the determination of the amount to be used as tax base in computing the GRT. Such accrual merely refers to an accounting method that recognizes income as earned although not received, and expenses as incurred although not yet paid.

Accrual should not be confused with the concept of constructive possession or receipt as earlier discussed. Petitioner correctly points out that income that is merely accrued -- earned, but not yet received -- does not form part of the taxable gross receipts; income that has been received, albeit constructively, does.53

The word "actually," used confusingly in Section 4(e), will be clearer if removed entirely. Besides, if actually is that important, accrual should have been eliminated for being a mere surplusage. The inclusion of accrual stresses the fact that Section 4(e) does not distinguish between actual and constructive receipt. It merely focuses on the method of accounting known as the accrual system.

Under this system, income is accrued or earned in the year in which the taxpayer’s right thereto becomes fixed and definite, even though it may not be actually received until a later year; while a deduction for a liability is to be accrued or incurred and taken when the liability becomes fixed and certain, even though it may not be actually paid until later.54

Under any system of accounting, no duty or liability to pay an income tax upon a transaction arises until the taxable year in which the event constituting the condition precedent occurs.55 The liability to pay a tax may thus arise at a certain time and the tax paid within another given time.56

In reconciling these two regulations, the earlier one includes in the tax base for GRT all income, whether actually or constructively received, while the later one includes specifically interest income. In computing the income tax liability, the only exception cited in the later regulations is the exclusion

from gross income of interest income, which is already subjected to withholding. This exception, however, refers to a different tax altogether. To extend mischievously such exception to the GRT will certainly lead to results not contemplated by the legislators and the administrative body promulgating the regulations.

Manila Jockey ClubInapplicable

In Commissioner of Internal Revenue v. Manila Jockey Club,57 we held that the term "gross receipts" shall not include money which, although delivered, has been especially earmarked by law or regulation for some person other than the taxpayer.58

To begin, we have to nuance the definition of gross receipts59 to determine what it is exactly. In this regard, we note that US cases have persuasive effect in our jurisdiction, because Philippine income tax law is patterned after its US counterpart.60

"‘[G]ross receipts’ with respect to any period means the sum of: (a) The total amount received or accrued during such period from the sale, exchange, or other disposition of x x x other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business, and (b) The gross income, attributable to a trade or business, regularly carried on by the taxpayer, received or accrued during such period x x x."61

"x x x [B]y gross earnings from operations x x x was intended all operations xxx including incidental, subordinate, and subsidiary operations, as well as principal operations."62

"When we speak of the ‘gross earnings’ of a person or corporation, we mean the entire earnings or receipts of such person or corporation from the business or operations to which we refer."63

From these cases, "gross receipts"64 refer to the total, as opposed to the net, income.65 These are therefore the total receipts before any deduction66 for the expenses of management.67 Webster’s New International Dictionary, in fact, defines gross as "whole or entire."

Statutes taxing the gross "receipts," "earnings," or "income" of particular corporations are found in many jurisdictions.68 Tax thereon is generally held to be within the power of a state to impose; or constitutional, unless it interferes with interstate commerce or violates the requirement as to uniformity of taxation.69

Moreover, we have emphasized that the BIR has consistently ruled that "gross receipts" does not admit of any deduction.70 Following the principle of legislative approval by reenactment,71 this interpretation has been adopted by the legislature throughout the various reenactments of then Section 119 of the Tax Code.72

Given that a tax is imposed upon total receipts and not upon net earnings,73 shall the income withheld be included in the tax base upon which such tax is imposed? In other words, shall interest income constructively received still be included in the tax base for computing the GRT?

We rule in the affirmative.

Manila Jockey Club does not apply to this case. Earmarking is not the same as withholding. Amounts earmarked do not form part of gross receipts, because, although delivered or received, these are by law or regulation reserved for some person other than the taxpayer. On the contrary, amounts withheld form part of gross receipts, because these are in constructive possession and not subject to any reservation, the withholding agent being merely a conduit in the collection process.

The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys amounts that never became the property of the race track.74 Unlike these amounts, the interest income that had been

withheld for the government became property of the financial institutions upon constructive possession thereof. Possession was indeed acquired, since it was ratified by the financial institutions in whose name the act of possession had been executed. The money indeed belonged to the taxpayers; merely holding it in trust was not enough.75

The government subsequently becomes the owner of the money when the financial institutions pay the FWT to extinguish their obligation to the government. As this Court has held before, this is the consideration for the transfer of ownership of the FWT from these institutions to the government.76 It is ownership that determines whether interest income forms part of taxable gross receipts.77 Being originally owned by these financial institutions as part of their interest income, the FWT should form part of their taxable gross receipts.

Besides, these amounts withheld are in payment of an income tax liability, which is different from a percentage tax liability. Commissioner of Internal Revenue v. Tours Specialists, Inc. aptly held thus:78

"x x x [G]ross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer’s benefit; and it is not necessary that there must be a law or regulation which would exempt such monies and receipts within the meaning of gross receipts under the Tax Code."79

In the construction and interpretation of tax statutes and of statutes in general, the primary consideration is to ascertain and give effect to the intention of the legislature.80 We ought to impute to the lawmaking body the intent to obey the constitutional mandate, as long as its enactments fairly admit of such construction.81 In fact, "x x x no tax can be levied without express authority of law, but the statutes are to receive a reasonable construction with a view to carrying out their purpose and intent."82

Looking again into Sections 24(e)(1) and 119 of the Tax Code, we find that the first imposes an income tax; the second, a percentage tax. The legislature clearly intended two different taxes. The FWT is a tax on passive income, while the GRT is on business.83 The withholding of one is not equivalent to the payment of the other.

Non-Exemption of FWT from GRT:

Neither Unjust nor Absurd

Taxing the people and their property is essential to the very existence of government. Certainly, one of the highest attributes of sovereignty is the power of taxation,84 which may legitimately be exercised on the objects to which it is applicable to the utmost extent as the government may choose.85 Being an incident of sovereignty, such power is coextensive with that to which it is an incident.86 The interest on deposits and yield on deposit substitutes of financial institutions, on the one hand, and their business as such, on the other, are the two objects over which the State has chosen to extend its sovereign power. Those not so chosen are, upon the soundest principles, exempt from taxation.87

While courts will not enlarge by construction the government’s power of taxation,88 neither will they place upon tax laws so loose a construction as to permit evasions, merely on the basis of fanciful and insubstantial distinctions.89 When the legislature imposes a tax on income and another on business, the imposition must be respected. The Tax Code should be so construed, if need be, as to avoid empty declarations or possibilities of crafty tax evasion schemes. We have consistently ruled thus:

"x x x [I]t is upon taxation that the [g]overnment chiefly relies to obtain the means to carry on its operations, and it is of the utmost importance that the modes adopted to enforce the collection of the taxes levied should be summary and interfered with as little as possible. x x x."90

"Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange the operations of government, and thereby cause serious detriment to the public."91

"No government could exist if all litigants were permitted to delay the collection of its taxes."92

A taxing act will be construed, and the intent and meaning of the legislature ascertained, from its language.93 Its clarity and implied intent must exist to uphold the taxes as against a taxpayer in whose favor doubts will be resolved.94 No such doubts exist with respect to the Tax Code, because the income and percentage taxes we have cited earlier have been imposed in clear and express language for that purpose.95

This Court has steadfastly adhered to the doctrine that its first and fundamental duty is the application of the law according to its express terms -- construction and interpretation being called for only when such literal application is impossible or inadequate without them.96 In Quijano v. Development Bank of the Philippines,97 we stressed as follows:

"No process of interpretation or construction need be resorted to where a provision of law peremptorily calls for application." 98

A literal application of any part of a statute is to be rejected if it will operate unjustly, lead to absurd results, or contradict the evident meaning of the statute taken as a whole.99 Unlike the CA, we find that the literal application of the aforesaid sections of the Tax Code and its implementing regulations does not operate unjustly or contradict the evident meaning of the statute taken as a whole. Neither does it lead to absurd results. Indeed, our courts are not to give words meanings that would lead to absurd or unreasonable consequences.100 We have repeatedly held thus:

"x x x [S]tatutes should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an unjust or an absurd conclusion."101

"While it is true that the contemporaneous construction placed upon a statute by executive officers whose duty is to enforce it should be given great weight by the courts, still if such construction is so erroneous, x x x the same must be declared as null and void."102

It does not even matter that the CTA, like in China Banking Corporation,103 relied erroneously on Manila Jockey Club. Under our tax system, the CTA acts as a highly specialized body specifically created for the purpose of reviewing tax cases.104 Because of its recognized expertise, its findings of fact will ordinarily not be reviewed, absent any showing of gross error or abuse on its part.105 Such findings are binding on the Court and, absent strong reasons for us to delve into facts, only questions of law are open for determination.106

Respondent claims that it is entitled to a refund on the basis of excess GRT payments. We disagree.

Tax refunds are in the nature of tax exemptions.107 Such exemptions are strictly construed against the taxpayer, being highly disfavored108 and almost said "to be odious to the law." Hence, those who claim to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. They must be able to point to some positive provision, not merely a vague implication,109 of the law creating that right.110

The right of taxation will not be surrendered, except in words too plain to be mistaken.1âwphi1 The reason is that the State cannot strip itself of this highest attribute of sovereignty -- its most essential power of taxation -- by vague or ambiguous language. Since tax refunds are in the nature of tax exemptions, these are deemed to be "in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption."111

No less than our 1987 Constitution provides for the mechanism for granting tax exemptions.112 They certainly cannot be granted by implication or mere administrative regulation. Thus, when an exemption is claimed, it must indubitably be shown to exist, for every presumption is against it,113 and a well-founded doubt is fatal to the claim.114 In the instant case, respondent has not been able to satisfactorily show that its FWT on interest income is exempt from the GRT. Like China Banking Corporation, its argument creates a tax exemption where none exists.115

No exemptions are normally allowed when a GRT is imposed. It is precisely designed to maintain simplicity in the tax collection effort of the government and to assure its steady source of revenue even during an economic slump.116

No Double Taxation

We have repeatedly said that the two taxes, subject of this litigation, are different from each other. The basis of their imposition may be the same, but their natures are different, thus leading us to a final point. Is there double taxation?

The Court finds none.

Double taxation means taxing the same property twice when it should be taxed only once; that is, "x x x taxing the same person twice by the same jurisdiction for the same thing."117 It is obnoxious when the taxpayer is taxed twice, when it should be but once.118 Otherwise described as "direct duplicate taxation,"119 the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same kind or character.120

First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the passive income generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege of engaging in the business of banking.

A tax based on receipts is a tax on business rather than on the property; hence, it is an excise121 rather than a property tax.122 It is not an income tax, unlike the FWT. In fact, we have already held that one can be taxed for engaging in business and further taxed differently for the income derived therefrom.123 Akin to our ruling in Velilla v. Posadas,124 these two taxes are entirely distinct and are assessed under different provisions.

Second, although both taxes are national in scope because they are imposed by the same taxing authority -- the national government under the Tax Code -- and operate within the same Philippine jurisdiction for the same purpose of raising revenues, the taxing periods they affect are different. The FWT is deducted and withheld as soon as the income is earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned.

Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding, while the GRT is a percentage tax not subject to withholding.

In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the same jurisdiction, for the same purpose, in different taxing periods, some of the property in the territory.125 Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is clearly not double taxation.

WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals are hereby REVERSED and SET ASIDE. No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

Footnotes

1 Rollo, pp. 8-19.

2 Id., pp. 21-29.

3 Id., p. 31.

4 Sixth Division. Penned by Justice Ma. Alicia Austria-Martinez (Division chairman and now a member of this Court) and concurred in by Justices Portia Aliño-Hormachuelos and Elvi John S. Asuncion (members).

5 Assailed Decision, p. 8; rollo, p. 28.

6 Words in brackets [ ] supplied. In its Memorandum, respondent likewise cites this narration of facts by the CA.

7 Assailed Decision, pp. 1-3; rollo, pp. 21-23.

8 Id., pp. 5 & 25.

9 This case was deemed submitted for decision on January 24, 2002, upon receipt by this Court of petitioner’s Memorandum, signed by Attys. Pablo M. Bastes Jr. and Rhodora J. Corcuera-Menzon. Respondent’s Memorandum, signed by Atty. P. Winston G. Conlu, was received by this Court on January 10, 2002.

10 Petitioner’s Memorandum, p. 3; rollo, p. 120. Original in upper case.

11 GR No. 146749, p. 10, June 10, 2003, per Carpio, J.

12 Now §121.

13 Now RA 8424, approved on December 11, 1997, and effective January 1, 1998.

14 Now §32.

15 On October 1, 1946, RA 39 amended §249 of the 1939 Tax Code by imposing a GRT on banks. Their taxable gross receipts included interest income on their own deposits with other banks, without deduction or any withholding tax until June 1977. (China Banking Corp. v. CA, supra, p. 11)

16 Now §128(A)(1).

17 Now twenty-five (25) days.

18 On June 3, 1977, PD 1156 required the withholding of a 15% tax on the interest income from bank deposits. This was a creditable tax -- not a FWT --and the entire interest income still formed part of taxable gross receipts. On September 17, 1980, however, PD 1739 made this a FWT of 15% on savings accounts and 20% on time deposits. (China Banking Corp. v. CA, supra, pp. 11-12)

19 Now §27(D)(1).

20 Now §57(A).

21 Now §58.

22 De Leon, The Fundamentals of Taxation (12th ed.), 1998, p. 136.

23 Id., p. 92.

24 The withholding tax concept obviously and necessarily implies that the amount withheld comes from the income earned by a taxpayer. (China Banking Corp. v. CA, supra, p. 31)

25 Bank of America NT & SA v. Court of Appeals, 234 SCRA 302, July 21, 1994.

26 Dated October 12, 1984, these regulations cover the "Income Taxation of Interest Income Derived from Deposits and Yield from Deposit Substitutes" as provided for by PD No. 1959.

27 "Interest" is the amount paid by a borrower to a lender in consideration for the use of the lender’s money. It is an expense item to the borrower and an income item to the lender. Hence, the total interest expense paid by a depository bank forms part of the gross income of a lending bank. (China Banking Corp. v. CA, supra, p. 28)

28 Respondent’s Memorandum, p. 8; rollo, p. 81. Dated November 7, 1980, these regulations cover the "Taxation of Certain Income Derived from Banking Activities."

29 Now §32(A).

30 Now §32(B).

31 Respondent’s Memorandum, p. 10; rollo, p. 83.

32 The possession by a sheriff by virtue of a court order is one of the ways of constructive possession. (Paras, Civil Code of the Philippines, Vol. II [10th ed.], 1981, p. 359; Muyco v. Montilla, 7 Phil. 498, February 18, 1907)

And so is the inscription of información posesoria or possessory information titles. (Bishop of Nueva Segovia v. Municipality of Bantay, 28 Phil. 347, November 7, 1914. See Alcala v. Alcala, 35 Phil. 679, December 11, 1916)

33 "The most usual form of the authority to acquire possession for another is that of agency, whether it be a special power or a general authority. Where there is such authorization, the principal acquires the possession from the moment the agent holds the thing for the former." Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. II (1992 ed.), p. 263.

34 Id., p. 262.

35 Commissioner of Internal Revenue v. Royal Interocean Lines, 34 SCRA 9, 15, July 30, 1970.

36 Victorias Milling Co., Inc. v. Social Security Commission, 114 Phil. 555, 558, March 17, 1962.

37 Kenneth Culp Davis, Administrative Law Treatise, Vol. I (1958 ed.), p. 299.

38 Victorias Milling Co., Inc. v. Social Security Commission, supra.

39 Director of Forestry v. Muñoz, 23 SCRA 1183, 1198, June 28, 1968.

40 People v. Exconde, 101 Phil. 1125, 1129, August 30, 1957.

"The delegated power, if at all, therefore, is not the determination of what the law shall be, but merely the ascertainment of the facts and circumstances upon which the

application of said law is to be predicated." Calalang v. Williams, 70 Phil. 726, 731, December 2, 1940, per Laurel, J.

"Delegata potestas non potest delegare x x x has been made to adapt itself to the complexities of modern governments, giving rise to the adoption, within certain limits, of the principle of ‘subordinate legislation’ x x x. The difficulty lies in the fixing of the limit and extent of the authority. While courts have undertaken to lay down general principles, the safest is to decide each case according to its peculiar environment, having in mind the wholesome legislative purpose intended to be achieved." People v. Rosenthal, 68 Phil. 328, 343, June 12, 1939, per Laurel, J.

"Accordingly, with the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency toward the delegation of greater powers by the legislature, and toward the approval of the practice by the courts." Pangasinan Transportation Co., Inc. v. Public Service Commission, 70 Phil. 221, 229, June 26, 1940, per Laurel, J.

"Discretion x x x may be committed by the Legislature to an executive department or official. The Legislature may make decisions of executive departments or subordinate officials thereof, to whom it has committed the execution of certain acts, final on questions of fact." Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 701, March 7, 1919, per Malcolm, J.

41 The true distinction is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and the conferment of an authority or discretion as to its execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be made. (Calalang v. Williams, supra, 730. See also Rubi v. Provincial Board of Mindoro, supra, pp. 700-701; State v. Fields, 35 NE 2d 744, 750, July 15, 1938; and Matz v. J. L. Curtis Cartage Co., 7 NE 2d 220, 226, March 17, 1937)

42 Mecano v. Commission on Audit, 216 SCRA 500, 504, December 11, 1992.

43 Id., p. 505.

44 Posadas Jr. v. National City Bank of New York, 296 US 497, 503, 80 L. Ed. 351, 355, January 6, 1936.

45 Ibid.

A subsequent regulation, which revises the whole subject matter of a previous one and is evidently intended as a substitute for it, operates to repeal it. (People v. Almuete, 69 SCRA 410, 414, February 27, 1976)

When both intent and scope clearly evince the idea of a repeal, then all parts and provisions of the previous regulation that are omitted from the revised one are deemed repealed. (People v. Binuya, 61 Phil. 208, 210, February 27, 1935)

46 Valera v. Tuason Jr., 80 Phil. 823, 827, April 30, 1948.

47 Agpalo, Statutory Construction (2nd ed.), 1990, p. 279.

48 Parras v. Land Registration Commission, 108 Phil. 1142, 1146, July 26, 1960.

49 Victorias Milling Co., Inc. v. Social Security Commission, supra.

50 Smith, Bell & Co. v. Estate of Maronilla, 41 Phil. 557, 562, February 5, 1916, per Carson, J.

51 Ibid.

52 Petitioner’s Memorandum, p. 7; rollo, p. 124. Indeed, RR 17-84 supplanted RR 12-80; §4(e) of the earlier regulation was not readopted by the later one. (China Banking Corp. v. CA, supra, pp. 33-34)

53 Id., pp. 9 & 126. In fact, we ruled in China Banking Corp. v. CA that Section 4(e) did not exclude accrued interest income from taxable gross receipts, but merely postponed its inclusion until actual payment, physically or constructively, to a lending bank, pp. 30-31.

54 Commissioner of Internal Revenue v. Blaine, Mackay, Lee Co., 141 F. 2d 201, 203, March 6, 1944. See Brown v. Helvering, 291 US 193, 199, 78 L. Ed. 725, 730, January 15, 1934.

55 Utah-Idaho Sugar Co. v. State Tax Commission, 73 P. 2d 974, 977-978, December 2, 1937.

56 Lorenzo v. Posadas, 64 Phil. 353, 368, June 18, 1937.

57 108 Phil. 821, 825-826, June 30, 1960.

58 See Visayan Cebu Terminal Co., Inc. v. Commissioner of Internal Revenue, 121 Phil. 337, February 27, 1965.

59 From RA 39 to the present Tax Code, there has been no statutory definition of "gross receipts" as applied to taxes on banks. (China Banking Corp. v. CA, supra, p. 14)

60 Limpan Investment Corp. v. Commissioner of Internal Revenue, 17 SCRA 703, 709, July 26, 1966. See also Consolidated Mines, Inc. v. Court of Tax Appeals, 58 SCRA 618, August 29, 1974.

61 Lucky Lager Brewing Co. v. Commissioner of Internal Revenue, 246 F. 2d, 621, 622, June 24, 1957, per Denman, CJ.

62 State v. United Electric Light & Water Co., 97 A. 857, 859, June 2, 1916, per Thayer, J.

63 Ibid.

64 "Gross receipts," absent a statutory definition, is to be understood in its plain and ordinary meaning. The words are to be taken in their usual and familiar signification, with due regard to their general and popular use. This principle applies to all statutes, including tax statutes. (China Banking Corp. v. CA, supra, p. 17)

65 Ibid. See Taylor v. Rosenthal, 213 SW 2d 437, April 23, 1948. The Taylor case, however, is not a tax case. It refers to a lease contract covering the rental of a motion picture theater.

66 Deducting any amount from gross receipts changes the meaning to net receipts. (China Banking Corp. v. CA, supra, p. 16, citing Commonwealth v. Koppers Co., Inc., 156 A. 2d 328, 332, Nov. 24, 1959, and Laclede Gas Co. v. City of St. Louis, 253 SW 2d 832, 835, January 9, 1953)

67 Cooley, The Law on Taxation, Vol. II (1924), pp. 1789-1790; State v. Illinois Cent. R. Co., 92 NE 848, Oct. 28, 1910.

68 Ibid., pp. 1786-1787.

69 Id., p. 1788.

The rule of taxation shall be uniform and equitable. §28(1), Art. VI, 1987 Constitution.

70 China Banking Corp. v. CA, supra, p. 19.

71 "When a statute is susceptible of the meaning placed upon it by a ruling of the government agency charged with its enforcement and the [l]egislature thereafter [reenacts] the provisions with substantial change, such action is to some extent confirmatory that the ruling carries out the legislative purpose." Alexander Howden & Co., Ltd. v. Collector (now Commissioner) of Internal Revenue, 121 Phil. 579, 587, April 14, 1965, per Bengzon J.P., J.

72 China Banking Corp. v. CA, supra.

73 State v. Illinois Cent. R. Co., 92 NE 847, Oct. 28, 1910.

74 Manila Jockey Club merely held that these amounts were held in trust and did not form part of gross receipts.

75 A trustee does not own money received in trust. It is a basic concept in taxation that such money does not constitute taxable income to the trustee. (China Banking Corp. v. CA, supra, p. 27)

76 Ibid., p. 26.

77 Ibid., p. 27.

78 183 SCRA 402, March 21, 1990.

79 Id., p. 412, per Gutierrez Jr., J.

In an earlier case -- Philippine Long Distance Telephone Co. v. Collector of Internal Revenue, 90 Phil. 674, January 21, 1952 -- cited in the Dissenting Opinion of CTA Associate Judge Amancio Q. Saga, receipts means amounts actually received; otherwise, they will not be receipts. A careful reading of this case, however, reveals that receipts are equated with earnings, the latter word having been used in the legislative acts referred to therein; and dealing with collection, not accrual. In fact, these acts have been construed so as not to be rendered unconstitutional.

80 Hart v. Smith, 64 NE 661, 662, June 27, 1902.

81 Ibid.

82 Scottish Union & National Insurance Co. v. Bowland, 196 US 611, 629, 49 L. Ed. 619, 627, February 20, 1905, per Day, J.

83 China Banking Corp. v. CA, supra, p. 40.

84 Hart v. Smith, supra.

85 Kirtland v. Hotchkiss, 100 US 491, 497, 25 L. Ed. 558, 561-562, November 17, 1879.

86 M’Culloch v. Maryland, 4 Wheaton 316, 429, 4 L. Ed. 579, 607, February 1819.

87 Kirtland v. Hotchkiss, supra, p. 562.

88 Bromley v. McCaughn, 280 US 124, 137, 74 L. Ed. 226, 230, November 25, 1929.

89 "It is a general rule in the interpretation of all statutes levying taxes or duties upon subjects or citizens, not to extend their provisions by implication beyond the clear import of the language used, or to enlarge their operation so as to embrace matters not specifically pointed out, although standing on a close analogy. In every case, therefore, of doubt, such statutes are construed most strongly against the government, and in favor of the subjects or citizens, because burdens are not to be imposed, nor presumed to be imposed, beyond what the statutes expressly and clearly import. Revenue statutes are in no just sense either remedial laws, or laws founded upon any permanent public policy, and therefore are not to be liberally construed." Froelich & Kuttner v. Collector of Customs, 18 Phil. 461, 481-482, March 2, 1911, per Moreland, J.

90 Churchill and Tait v. Rafferty, 32 Phil. 580, 585, December 21, 1915, per Trent, J.

91 Lorenzo v. Posadas Jr., supra, p. 371, per Laurel, J.

92 Republic v. Lim Tian Teng Sons & Co., Inc., 16 SCRA 584, 590, March 31, 1966, per Bengzon, J.P., J. See also Churchill and Tait v. Rafferty, supra.

93 A. Magnano Co. v. Hamilton, 292 US 40, 46, 78 L. Ed. 1109, 1115, April 2, 1934.

94 Moran v. Leccony Smokeless Coal Co., 10 SE 2d 581, June 22, 1940.

Tax laws are to be strictly construed against the taxing power. (Miller v. Illinois Cent. R. Co. 111 So. 559, February 28, 1927)

95 "If there is any doubt whether the language of an act was intended to authorize the taxation of certain property, the language of the act will not be extended beyond its clear import in order to make the property subject to the tax. In case of doubt such statutes are construed most strongly against the government and in favor of the citizen." People ex rel. Chicago v. Barrett, 139 NE 903, 906, June 20, 1923, per Carter, J.

"Before one is liable for taxes he must come within the express provisions of the taxing statute." Miller v. Illinois Cent. R. Co., supra.

96 Lizarraga Hermanos v. Yap Tico, 24 Phil. 504, 513, March 27, 1913. See Pacific Oxygen & Acetylene Co. v. Central Bank of the Philippines, 22 SCRA 917, 921, March 1, 1968.

"Where language is plain, subtle refinements which tinge words so as to give them the color of a particular judicial theory are not only unnecessary but decidedly harmful. That which has caused so much confusion in the law, which has made it so difficult for the public to understand and know what the law is with respect to a given matter, is in considerable measure the unwarranted interference by judicial tribunals with the English language as found in statutes and contracts, cutting out words here and inserting them there, making them fit personal ideas of what the legislature ought to have done or what parties should have agreed upon, giving them meanings which they do not ordinarily have, cutting, trimming, fitting, changing and coloring until lawyers themselves are unable to advise their clients as to the meaning of a given statute or contract until it has been submitted to some court for its interpretation and construction." Nery v. Lorenzo, 44 SCRA 431, 437, April 27, 1972, per Fernando, J. See Yangco v. Court of First Instance of Manila, 29 Phil. 183, 188, January 6, 1915.

97 35 SCRA 270, October 16, 1970.

98 Id., p. 277, per Barredo, J.

99 In Re Allen, 2 Phil. 630, 643, October 29, 1903.

100 Commissioner of Internal Revenue v. Esso Standard Eastern, Inc., 172 SCRA 364, 370, April 18, 1989.

101 People v. Rivera, 59 Phil. 236, 242, December 22, 1933, per Imperial, J.

102 Insular Bank of Asia and America Employees’ Union v. Inciong, 132 SCRA 663, 673, October 23, 1984, per Makasiar, J. (later CJ). See Chartered Bank Employees Association v. Ople, 138 SCRA 273, 280, August 28, 1985, per Gutierrez, J.

103 China Banking Corp. v. CA, supra, p. 24.

104 It was created by Congress pursuant to Republic Act No. 1125, effective June 16, 1954.

105 The Coca-Cola Export Corp. v. Commissioner of Internal Revenue, 56 SCRA 5, 14, March 15, 1974. See Commissioner of Internal Revenue v. Court of Appeals, 242 SCRA 289, 304, March 10, 1995.

106 Commissioner of Internal Revenue v. Tours Specialists, Inc., 183 SCRA 402, 407, March 21, 1990. See Philippine Refining Co. v. CA, 256 SCRA 667, 675-676, May 8, 1996.

107 Commissioner of Internal Revenue v. SC Johnson & Son, Inc., 368 Phil. 388, 411, June 25, 1999; Magsaysay Lines, Inc., v. Court of Appeals, 329 Phil. 310, 324, August 12, 1996; Commissioner of Internal Revenue v. Tokyo Shipping Co., Ltd., 314 Phil. 220, 228, May 26, 1995.

108 Whoever claims an exemption must justify it by the clearest grant of organic or statute law. (China Banking Corp. v. CA, supra, p. 37)

109 Ibid. See Davao Light & Power Co., Inc. v. Commissioner of Customs, 44 SCRA 122, 130, March 29, 1972.

110 Asiatic Petroleum Co., Ltd. v. Llanes, 49 Phil. 466, 471, October 20, 1926.

111 Commissioner of Internal Revenue v. SC Johnson and Son, Inc., supra, p. 411, per Gonzaga-Reyes, J.

112 §28(4) of Art. VI states:

"No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress."

113 Davao Light & Power Co., Inc. v. Commissioner of Customs, supra.

114 Manila Electric Co. v. Vera, 67 SCRA 351, 357-358, October 22, 1975. See Asiatic Petroleum Co., Ltd. v. Llanes, supra.

115 China Banking Corp. v. CA, supra, p. 22.

116 Ibid., p. 23.

117 Afisco Insurance Corp. v. Court of Appeals, 361 Phil. 671, January 25, 1999, per Panganiban, J.

118 San Miguel Brewery, Inc. v. City of Cebu, 43 SCRA 275, 280, February 26, 1972. See also Villanueva v. City of Iloilo, 135 Phil. 572, 588, December 28, 1968, and Commissioner of Internal Revenue v. Lednicky, 120 Phil. 586, 593, July 31, 1964

119 Victorias Milling, Co., Inc. v. Municipality of Victorias, Province of Negros Occidental, 134 Phil. 180, 198, September 27, 1968.

120 Villanueva v. City of Iloilo, supra.

121 Generally stated, an excise tax is one that is imposed on the performance of an act, the engagement in an occupation, or the enjoyment of a privilege; and the word has come to have a broader meaning that includes every form of taxation not a burden laid directly on persons or property. (Manila Electric Company v. Vera, 67 SCRA 352, October 22, 1975. See also State ex rel. Janes v. Brown, 148 NE 95, 96, May 19, 1925; Buckstaff Bath House Co. v. McKinley, 127 SW 2d 802, 806, April 10, 1939; and State v. Fields, 35 NE 2d 744, 749, July 15, 1938)

122 Cooley, The Law on Taxation, Vol. II, 1924, p. 1785.

123 We have also ruled that there is no double taxation when the law imposes two different taxes on the same income, business or property. (China Banking Corp. v. CA, supra, p. 40. See also Sanchez v. Collector of Internal Revenue, 97 Phil. 687, 690, Oct. 18, 1955, and People v. Mendaros, 97 Phil. 958, 959, May 27, 1955)

124 62 Phil. 624, 632, December 19, 1935.

125 Afisco Insurance Corp. v. Court of Appeals, supra. De Leon, The Fundamentals of Taxation (12th ed.) 1998, p. 51.

EN BANC  RENATO V. DIAZ and G.R. No. 193007AURORA MA. F. TIMBOL,

Petitioners, Present:

CORONA, C.J.,

CARPIO,

VELASCO, JR.,

LEONARDO-DE CASTRO,

BRION,

- versus - PERALTA,

BERSAMIN,*

DEL CASTILLO,

ABAD,

VILLARAMA, JR.,

PEREZ,

MENDOZA, and

SERENO,**** JJ.

THE SECRETARY OF FINANCE

and THE COMMISSIONER OF Promulgated:

INTERNAL REVENUE,

Respondents. July 19, 2011

** On leave.

**** On official leave.

 

x ---------------------------------------------------------------------------------------- x

 

 

DECISION

 

ABAD, J.:

 

 

May toll fees collected by tollway operators be subjected to

value- added tax?

 

 

The Facts and the Case

 

Petitioners Renato V. Diaz and Aurora Ma. F. Timbol

(petitioners) filed this petition for declaratory relief146[1] assailing

the validity of the impending imposition of value-added tax (VAT) by

the Bureau of Internal Revenue (BIR) on the collections of tollway

operators.

146[1] Rollo, pp. 3-14.

 

Petitioners claim that, since the VAT would result in increased

toll fees, they have an interest as regular users of tollways in stopping

the BIR action. Additionally, Diaz claims that he sponsored the

approval of Republic Act 7716 (the 1994 Expanded VAT Law or EVAT

Law) and Republic Act 8424 (the 1997 National Internal Revenue

Code or the NIRC) at the House of Representatives. Timbol, on the

other hand, claims that she served as Assistant Secretary of the

Department of Trade and Industry and consultant of the Toll

Regulatory Board (TRB) in the past administration.

 

Petitioners allege that the BIR attempted during the

administration of President Gloria Macapagal-Arroyo to impose VAT

on toll fees. The imposition was deferred, however, in view of the

consistent opposition of Diaz and other sectors to such move. But,

upon President Benigno C. Aquino III’s assumption of office in 2010,

the BIR revived the idea and would impose the challenged tax on toll

fees beginning August 16, 2010 unless judicially enjoined.

 

Petitioners hold the view that Congress did not, when it

enacted the NIRC, intend to include toll fees within the meaning of

“sale of services” that are subject to VAT; that a toll fee is a “user’s

tax,” not a sale of services; that to impose VAT on toll fees would

amount to a tax on public service; and that, since VAT was never

factored into the formula for computing toll fees, its imposition

would violate the non-impairment clause of the constitution.

 

On August 13, 2010 the Court issued a temporary restraining

order (TRO), enjoining the implementation of the VAT. The Court

required the government, represented by respondents Cesar V.

Purisima, Secretary of the Department of Finance, and Kim S. Jacinto-

Henares, Commissioner of Internal Revenue, to comment on the

petition within 10 days from notice.147[2] Later, the Court issued

another resolution treating the petition as one for prohibition.148[3]

 

On August 23, 2010 the Office of the Solicitor General filed the

government’s comment.149[4] The government avers that the NIRC

imposes VAT on all kinds of services of franchise grantees, including

tollway operations, except where the law provides otherwise; that

the Court should seek the meaning and intent of the law from the

words used in the statute; and that the imposition of VAT on tollway

operations has been the subject as early as 2003 of several BIR

rulings and circulars.150[5]

147[2] Id. at 63-64.

148[3] Id. at 143-144.

149[4] Id. at 73-135.

150[5] The OSG cites VAT Ruling 045-03 (October 13, 2003) issued by then Deputy Commissioner Jose Mario Bunag in response to a query by the Philippine National Construction Corporation (PNCC) on its VAT liability as operator of the South and North Luzon expressways. PNCC was informed “that with the promulgation of R.A. 7716 restructuring the VAT system, services of all franchise grantees, x x x are already subject to VAT.” The ruling was apparently clarified and reiterated in BIR Revenue Memorandum Circulars 52-2005 (September 28, 2005), 72-2009 (December 21, 2009) and 30-2010 (March 26, 2010).

 

The government also argues that petitioners have no right to

invoke the non-impairment of contracts clause since they clearly

have no personal interest in existing toll operating agreements

(TOAs) between the government and tollway operators. At any rate,

the non-impairment clause cannot limit the State’s sovereign taxing

power which is generally read into contracts.

Finally, the government contends that the non-inclusion of VAT

in the parametric formula for computing toll rates cannot exempt

tollway operators from VAT. In any event, it cannot be claimed that

the rights of tollway operators to a reasonable rate of return will be

impaired by the VAT since this is imposed on top of the toll rate.

Further, the imposition of VAT on toll fees would have very minimal

effect on motorists using the tollways.

 

In their reply151[6] to the government’s comment, petitioners

point out that tollway operators cannot be regarded as franchise

grantees under the NIRC since they do not hold legislative franchises.

Further, the BIR intends to collect the VAT by rounding off the toll

rate and putting any excess collection in an escrow account. But this

would be illegal since only the Congress can modify VAT rates and

authorize its disbursement. Finally, BIR Revenue Memorandum

Circular 63-2010 (BIR RMC 63-2010), which directs toll companies to

151[6] Rollo, pp. 153-201.

record an accumulated input VAT of zero balance in their books as of

August 16, 2010, contravenes Section 111 of the NIRC which grants

entities that first become liable to VAT a transitional input tax credit

of 2% on beginning inventory. For this reason, the VAT on toll fees

cannot be implemented.

The Issues Presented

 

The case presents two procedural issues:

 

1. Whether or not the Court may treat the petition for declaratory relief as one for prohibition; and

 

2. Whether or not petitioners Diaz and Timbol have legal standing to file the action.

 

The case also presents two substantive issues:

 

1. Whether or not the government is unlawfully expanding VAT coverage by including tollway operators and tollway operations in the terms “franchise grantees” and “sale of services” under Section 108 of the Code; and

 

2. Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not a tax on services; b) will impair the tollway operators’ right to a reasonable return of investment under their TOAs; and c) is not administratively feasible and cannot be implemented.

 

The Court’s Rulings

 

A. On the Procedural Issues:

 

On August 24, 2010 the Court issued a resolution, treating the

petition as one for prohibition rather than one for declaratory relief,

the characterization that petitioners Diaz and Timbol gave their

action. The government has sought reconsideration of the Court’s

resolution,152[7] however, arguing that petitioners’ allegations clearly

made out a case for declaratory relief, an action over which the Court

has no original jurisdiction. The government adds, moreover, that

the petition does not meet the requirements of Rule 65 for actions for

prohibition since the BIR did not exercise judicial, quasi-judicial, or

ministerial functions when it sought to impose VAT on toll fees.

Besides, petitioners Diaz and Timbol has a plain, speedy, and

adequate remedy in the ordinary course of law against the BIR action

in the form of an appeal to the Secretary of Finance.

 

152[7] Id. at 457-476.

But there are precedents for treating a petition for declaratory

relief as one for prohibition if the case has far-reaching implications

and raises questions that need to be resolved for the public good.153

[8] The Court has also held that a petition for prohibition is a proper

remedy to prohibit or nullify acts of executive officials that amount to

usurpation of legislative authority.154[9]

 

Here, the imposition of VAT on toll fees has far-reaching

implications. Its imposition would impact, not only on the more than

half a million motorists who use the tollways everyday, but more so

on the government’s effort to raise revenue for funding various

projects and for reducing budgetary deficits.

 

To dismiss the petition and resolve the issues later, after the

challenged VAT has been imposed, could cause more mischief both to

the tax-paying public and the government. A belated declaration of

nullity of the BIR action would make any attempt to refund to the

motorists what they paid an administrative nightmare with no

solution. Consequently, it is not only the right, but the duty of the

Court to take cognizance of and resolve the issues that the petition

raises.

 

153[8] Macasiano v. National Housing Authority, G.R. No. 107921, July 1, 1993, 224 SCRA 236, 243.

154[9] See Ernesto B. Francisco, Jr. and Jose Ma. O. Hizon v. Toll Regulatory Board, G.R. No. 166910, October 19, 2010.

Although the petition does not strictly comply with the

requirements of Rule 65, the Court has ample power to waive such

technical requirements when the legal questions to be resolved are of

great importance to the public. The same may be said of the

requirement of locus standi which is a mere procedural requisite.155

[10]

 

B. On the Substantive Issues:

One. The relevant law in this case is Section 108 of the NIRC,

as amended. VAT is levied, assessed, and collected, according to

Section 108, on the gross receipts derived from the sale or exchange

of services as well as from the use or lease of properties. The third

paragraph of Section 108 defines “sale or exchange of services” as

follows:

 

The phrase ‘sale or exchange of services’ means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in

155[10] Id.

securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines; sales of electricity by generation companies, transmission, and distribution companies; services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. (Underscoring supplied)

 

It is plain from the above that the law imposes VAT on “all

kinds of services” rendered in the Philippines for a fee, including

those specified in the list. The enumeration of affected services is not

exclusive.156[11] By qualifying “services” with the words “all kinds,”

Congress has given the term “services” an all-encompassing meaning.

The listing of specific services are intended to illustrate how

pervasive and broad is the VAT’s reach rather than establish concrete

limits to its application. Thus, every activity that can be imagined as

a form of “service” rendered for a fee should be deemed included

unless some provision of law especially excludes it.

 

Now, do tollway operators render services for a fee?

Presidential Decree (P.D.) 1112 or the Toll Operation Decree

156[11] Commissioner of Internal Revenue v. SM Primeholdings, Inc., G.R. No. 183505, February 26, 2010, 613 SCRA 774, 788.

establishes the legal basis for the services that tollway operators

render. Essentially, tollway operators construct, maintain, and

operate expressways, also called tollways, at the operators’ expense.

Tollways serve as alternatives to regular public highways that

meander through populated areas and branch out to local roads.

Traffic in the regular public highways is for this reason slow-moving.

In consideration for constructing tollways at their expense, the

operators are allowed to collect government-approved fees from

motorists using the tollways until such operators could fully recover

their expenses and earn reasonable returns from their investments.

 

When a tollway operator takes a toll fee from a motorist, the

fee is in effect for the latter’s use of the tollway facilities over which

the operator enjoys private proprietary rights157[12] that its contract

and the law recognize. In this sense, the tollway operator is no

different from the following service providers under Section 108 who

allow others to use their properties or facilities for a fee:

 

1. Lessors of property, whether personal or real;

2. Warehousing service operators; 3. Lessors or distributors of cinematographic

films; 4. Proprietors, operators or keepers of hotels,

motels, resthouses, pension houses, inns, resorts; 5. Lending investors (for use of money); 6. Transportation contractors on their

transport of goods or cargoes, including persons who

157[12] See North Negros Sugar Co. v. Hidalgo, 63 Phil. 664, 690 (1936).

transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; and

7. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines.

 

It does not help petitioners’ cause that Section 108 subjects to

VAT “all kinds of services” rendered for a fee “regardless of whether

or not the performance thereof calls for the exercise or use of the

physical or mental faculties.” This means that “services” to be

subject to VAT need not fall under the traditional concept of services,

the personal or professional kinds that require the use of human

knowledge and skills.

 

And not only do tollway operators come under the broad term

“all kinds of services,” they also come under the specific class

described in Section 108 as “all other franchise grantees” who are

subject to VAT, “except those under Section 119 of this Code.”

 

Tollway operators are franchise grantees and they do not

belong to exceptions (the low-income radio and/or television

broadcasting companies with gross annual incomes of less than P10

million and gas and water utilities) that Section 119158[13] spares

158[13] SEC. 119. Tax on Franchises. – Any provision of general or special law to the contrary notwithstanding, there shall be levied, assessed and collected in respect to all franchises on radio and/or television broadcasting companies whose annual gross receipts of the preceding year do not exceed Ten million pesos (P10,000,000), subject to Section 236 of this Code, a tax of three percent (3%) and on electric, gas and water utilities, a tax of two percent (2%) on the gross receipts derived from the

from the payment of VAT. The word “franchise” broadly covers

government grants of a special right to do an act or series of acts of

public concern.159[14]

 

Petitioners of course contend that tollway operators cannot be

considered “franchise grantees” under Section 108 since they do not

hold legislative franchises. But nothing in Section 108 indicates that

the “franchise grantees” it speaks of are those who hold legislative

franchises. Petitioners give no reason, and the Court cannot surmise

any, for making a distinction between franchises granted by Congress

and franchises granted by some other government agency. The

latter, properly constituted, may grant franchises. Indeed, franchises

conferred or granted by local authorities, as agents of the state,

constitute as much a legislative franchise as though the grant had

been made by Congress itself.160[15] The term “franchise” has been

broadly construed as referring, not only to authorizations that

Congress directly issues in the form of a special law, but also to those

granted by administrative agencies to which the power to grant

franchises has been delegated by Congress.161[16]

 

business covered by the law granting the franchise: Provided, however, That radio and television broadcasting companies referred to in this Section shall have an option to be registered as a value-added taxpayer and pay the tax due thereon; Provided, further, That once the option is exercised, said option shall be irrevocable.

159[14] Associated Communications & Wireless Services v. National Telecommunications Commission, 445 Phil. 621, 641 (2003).

160[15] Philippine Airlines, Inc. v. Civil Aeronautics Board, 337 Phil. 254, 265 (1997).

161[16] Metropolitan Cebu Water District v. Adala, G.R. No. 168914, July 4, 2007, 526 SCRA 465, 476.

Tollway operators are, owing to the nature and object of their

business, “franchise grantees.” The construction, operation, and

maintenance of toll facilities on public improvements are activities of

public consequence that necessarily require a special grant of

authority from the state. Indeed, Congress granted special franchise

for the operation of tollways to the Philippine National Construction

Company, the former tollway concessionaire for the North and South

Luzon Expressways. Apart from Congress, tollway franchises may

also be granted by the TRB, pursuant to the exercise of its delegated

powers under P.D. 1112.162[17] The franchise in this case is

evidenced by a “Toll Operation Certificate.”163[18]

 

Petitioners contend that the public nature of the services

rendered by tollway operators excludes such services from the term

“sale of services” under Section 108 of the Code. But, again, nothing

in Section 108 supports this contention. The reverse is true. In

specifically including by way of example electric utilities, telephone,

telegraph, and broadcasting companies in its list of VAT-covered

businesses, Section 108 opens other companies rendering public

service for a fee to the imposition of VAT. Businesses of a public

nature such as public utilities and the collection of tolls or charges for

its use or service is a franchise.164[19]

 

162[17] Supra note 9.

163[18] Section 3(e), P.D. 1112.

164[19] 36 Am Jur 2d S3.

Nor can petitioners cite as binding on the Court statements

made by certain lawmakers in the course of congressional

deliberations of the would-be law. As the Court said in South African

Airways v. Commissioner of Internal Revenue,165[20] “statements made

by individual members of Congress in the consideration of a bill do

not necessarily reflect the sense of that body and are, consequently,

not controlling in the interpretation of law.” The congressional will is

ultimately determined by the language of the law that the lawmakers

voted on. Consequently, the meaning and intention of the law must

first be sought “in the words of the statute itself, read and considered

in their natural, ordinary, commonly accepted and most obvious

significations, according to good and approved usage and without

resorting to forced or subtle construction.”

 

Two. Petitioners argue that a toll fee is a “user’s tax” and to

impose VAT on toll fees is tantamount to taxing a tax.166[21] Actually,

petitioners base this argument on the following discussion in Manila

International Airport Authority (MIAA) v. Court of Appeals:167[22]

 

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like “roads, canals, rivers, torrents, ports and bridges constructed by the State,” are owned by the State. The term “ports” includes seaports and airports. The MIAA Airport Lands and Buildings constitute a “port” constructed by the State. Under Article 420 of the Civil

165[20] G.R. No. 180356, February 16, 2010, 612 SCRA 665, 676.

166[21] Rollo, p. 517.

167[22] G.R. No. 155650, July 20, 2006, 495 SCRA 591.

Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines.

 x x x The operation by the government of a tollway does

not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads.

 The charging of fees to the public does not determine

the character of the property whether it is for public dominion or not. Article 420 of the Civil Code defines property of public dominion as “one intended for public use.” Even if the government collects toll fees, the road is still “intended for public use” if anyone can use the road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road.

 The terminal fees MIAA charges to passengers, as well

as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed user’s tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. A user’s tax is more equitable – a principle of taxation mandated in the 1987 Constitution.”168[23] (Underscoring supplied)

 

Petitioners assume that what the Court said above, equating

terminal fees to a “user’s tax” must also pertain to tollway fees. But

the main issue in the MIAA case was whether or not Parañaque City

could sell airport lands and buildings under MIAA administration at

public auction to satisfy unpaid real estate taxes. Since local

168[23] Id. at 622-623.

governments have no power to tax the national government, the

Court held that the City could not proceed with the auction sale.

MIAA forms part of the national government although not integrated

in the department framework.”169[24] Thus, its airport lands and

buildings are properties of public dominion beyond the commerce of

man under Article 420(1)170[25] of the Civil Code and could not be

sold at public auction.

 

As can be seen, the discussion in the MIAA case on toll roads

and toll fees was made, not to establish a rule that tollway fees are

user’s tax, but to make the point that airport lands and buildings are

properties of public dominion and that the collection of terminal fees

for their use does not make them private properties. Tollway fees

are not taxes. Indeed, they are not assessed and collected by the BIR

and do not go to the general coffers of the government.

It would of course be another matter if Congress enacts a law

imposing a user’s tax, collectible from motorists, for the construction

and maintenance of certain roadways. The tax in such a case goes

directly to the government for the replenishment of resources it

spends for the roadways. This is not the case here. What the

169[24] Id. at 618.

170[25] Art. 420. The following things are property of public dominion:

(1)     Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;

x x x x

government seeks to tax here are fees collected from tollways that

are constructed, maintained, and operated by private tollway

operators at their own expense under the build, operate, and transfer

scheme that the government has adopted for expressways.171[26]

Except for a fraction given to the government, the toll fees essentially

end up as earnings of the tollway operators.

 

In sum, fees paid by the public to tollway operators for use of

the tollways, are not taxes in any sense. A tax is imposed under the

taxing power of the government principally for the purpose of raising

revenues to fund public expenditures.172[27] Toll fees, on the other

hand, are collected by private tollway operators as reimbursement

for the costs and expenses incurred in the construction, maintenance

and operation of the tollways, as well as to assure them a reasonable

margin of income. Although toll fees are charged for the use of public

facilities, therefore, they are not government exactions that can be

properly treated as a tax. Taxes may be imposed only by the

government under its sovereign authority, toll fees may be

demanded by either the government or private individuals or

entities, as an attribute of ownership.173[28]

 

171[26] See first and third “Whereas Clause” of P.D. 1112.

172[27] See Law of Basic Taxation in the Philippines (Revised Ed.), Benjamin B. Aban, p. 14.

173[28] See The Fundamentals of Taxation (2004 Ed.), Hector S. De Leon and Hector M. De Leon, Jr., p. 16.

Parenthetically, VAT on tollway operations cannot be deemed a

tax on tax due to the nature of VAT as an indirect tax. In indirect

taxation, a distinction is made between the liability for the tax and

burden of the tax. The seller who is liable for the VAT may shift or

pass on the amount of VAT it paid on goods, properties or services to

the buyer. In such a case, what is transferred is not the seller’s

liability but merely the burden of the VAT.174[29]

 

Thus, the seller remains directly and legally liable for payment

of the VAT, but the buyer bears its burden since the amount of VAT

paid by the former is added to the selling price. Once shifted, the VAT

ceases to be a tax175[30] and simply becomes part of the cost that the

buyer must pay in order to purchase the good, property or service.

 

Consequently, VAT on tollway operations is not really a tax on

the tollway user, but on the tollway operator. Under Section 105 of

the Code, 176[31] VAT is imposed on any person who, in the course of

174[29] Contex Corporation v. Commissioner of Internal Revenue, G.R. No. 151135, July 2, 2004, 433 SCRA 376, 384-385.

175[30] The National Internal Revenue Code Annotated, Eighth Ed.(Vol. II), Hector S. De Leon and Hector M. De Leon, Jr., p. 3.

176[31] SEC. 105. Persons Liable. Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, rendered services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

x x x x

The phrase ‘in the course of trade or business’ means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income) and whether or not it sells exclusively to members or their guests), or government entity.

trade or business, sells or renders services for a fee. In other words,

the seller of services, who in this case is the tollway operator, is the

person liable for VAT. The latter merely shifts the burden of VAT to

the tollway user as part of the toll fees.

For this reason, VAT on tollway operations cannot be a tax on

tax even if toll fees were deemed as a “user’s tax.” VAT is assessed

against the tollway operator’s gross receipts and not necessarily on

the toll fees. Although the tollway operator may shift the VAT burden

to the tollway user, it will not make the latter directly liable for the

VAT. The shifted VAT burden simply becomes part of the toll fees that

one has to pay in order to use the tollways.177[32]

 

Three. Petitioner Timbol has no personality to invoke the non-

impairment of contract clause on behalf of private investors in the

tollway projects. She will neither be prejudiced by nor be affected by

the alleged diminution in return of investments that may result from

the VAT imposition. She has no interest at all in the profits to be

earned under the TOAs. The interest in and right to recover

investments solely belongs to the private tollway investors.

 

Besides, her allegation that the private investors’ rate of

recovery will be adversely affected by imposing VAT on tollway

operations is purely speculative. Equally presumptuous is her

177[32] Supra note 27, at 24-25.

assertion that a stipulation in the TOAs known as the Material

Adverse Grantor Action will be activated if VAT is thus imposed. The

Court cannot rule on matters that are manifestly conjectural. Neither

can it prohibit the State from exercising its sovereign taxing power

based on uncertain, prophetic grounds.

 

Four. Finally, petitioners assert that the substantiation

requirements for claiming input VAT make the VAT on tollway

operations impractical and incapable of implementation. They cite

the fact that, in order to claim input VAT, the name, address and tax

identification number of the tollway user must be indicated in the

VAT receipt or invoice. The manner by which the BIR intends to

implement the VAT – by rounding off the toll rate and putting any

excess collection in an escrow account – is also illegal, while the

alternative of giving “change” to thousands of motorists in order to

meet the exact toll rate would be a logistical nightmare. Thus,

according to them, the VAT on tollway operations is not

administratively feasible.178[33]

 

Administrative feasibility is one of the canons of a sound tax

system. It simply means that the tax system should be capable of

being effectively administered and enforced with the least

inconvenience to the taxpayer. Non-observance of the canon,

however, will not render a tax imposition invalid “except to the

extent that specific constitutional or statutory limitations are

178[33] Rollo, p. 540.

impaired.”179[34] Thus, even if the imposition of VAT on tollway

operations may seem burdensome to implement, it is not necessarily

invalid unless some aspect of it is shown to violate any law or the

Constitution.

 

Here, it remains to be seen how the taxing authority will

actually implement the VAT on tollway operations. Any declaration

by the Court that the manner of its implementation is illegal or

unconstitutional would be premature. Although the transcript of the

August 12, 2010 Senate hearing provides some clue as to how the BIR

intends to go about it,180[35] the facts pertaining to the matter are not

sufficiently established for the Court to pass judgment on. Besides,

any concern about how the VAT on tollway operations will be

enforced must first be addressed to the BIR on whom the task of

implementing tax laws primarily and exclusively rests. The Court

cannot preempt the BIR’s discretion on the matter, absent any clear

violation of law or the Constitution.

 

For the same reason, the Court cannot prematurely declare as

illegal, BIR RMC 63-2010 which directs toll companies to record an

accumulated input VAT of zero balance in their books as of August

16, 2010, the date when the VAT imposition was supposed to take

179[34] Tax Law and Jurisprudence, Third Edition (2006), Justice Jose C. Vitug and Justice Ernesto D. Acosta, pp. 2-3.

180[35] Rollo, pp. 246-254.

effect. The issuance allegedly violates Section 111(A)181[36] of the

Code which grants first time VAT payers a transitional input VAT of

2% on beginning inventory.

 

In this connection, the BIR explained that BIR RMC 63-2010 is

actually the product of negotiations with tollway operators who have

been assessed VAT as early as 2005, but failed to charge VAT-

inclusive toll fees which by now can no longer be collected. The

tollway operators agreed to waive the 2% transitional input VAT, in

exchange for cancellation of their past due VAT liabilities. Notably,

the right to claim the 2% transitional input VAT belongs to the

tollway operators who have not questioned the circular’s validity.

They are thus the ones who have a right to challenge the circular in a

direct and proper action brought for the purpose.

 

Conclusion

 

In fine, the Commissioner of Internal Revenue did not usurp

legislative prerogative or expand the VAT law’s coverage when she

sought to impose VAT on tollway operations. Section 108(A) of the

181[36] SEC. 111. Transitional/Presumptive Input Tax credits.-

(A) Transitional Input Tax Credits.- A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory according to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to two percent (2%) of the value of such inventory or the actual value-added tax paid on such goods, materials, and supplies, whichever is higher, which shall be creditable against the output tax.

Code clearly states that services of all other franchise grantees are

subject to VAT, except as may be provided under Section 119 of the

Code. Tollway operators are not among the franchise grantees

subject to franchise tax under the latter provision. Neither are their

services among the VAT-exempt transactions under Section 109 of

the Code.

 

If the legislative intent was to exempt tollway operations from

VAT, as petitioners so strongly allege, then it would have been well

for the law to clearly say so. Tax exemptions must be justified by

clear statutory grant and based on language in the law too plain to be

mistaken.182[37] But as the law is written, no such exemption obtains

for tollway operators. The Court is thus duty-bound to simply apply

the law as it is found.

 

Lastly, the grant of tax exemption is a matter of legislative

policy that is within the exclusive prerogative of Congress. The

Court’s role is to merely uphold this legislative policy, as reflected

first and foremost in the language of the tax statute. Thus, any

unwarranted burden that may be perceived to result from enforcing

such policy must be properly referred to Congress. The Court has no

discretion on the matter but simply applies the law.

 

182[37] Supra note 27, at 119.

The VAT on franchise grantees has been in the statute books

since 1994 when R.A. 7716 or the Expanded Value-Added Tax law

was passed. It is only now, however, that the executive has earnestly

pursued the VAT imposition against tollway operators. The

executive exercises exclusive discretion in matters pertaining to the

implementation and execution of tax laws. Consequently, the

executive is more properly suited to deal with the immediate and

practical consequences of the VAT imposition.

 

WHEREFORE, the Court DENIES respondents Secretary of

Finance and Commissioner of Internal Revenue’s motion for

reconsideration of its August 24, 2010 resolution, DISMISSES the

petitioners Renato V. Diaz and Aurora Ma. F. Timbol’s petition for

lack of merit, and SETS ASIDE the Court’s temporary restraining

order dated August 13, 2010.

SO ORDERED.

 

ROBERTO A. ABAD

Associate Justice

 

 

WE CONCUR:

 

 

 

RENATO C. CORONA

Chief Justice

 

 

 

 

ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice

 

 

 

TERESITA J. LEONARDO-DE CASTRO ARTURO D. BRION

Associate Justice Associate Justice

 

 

 

(On Leave)

DIOSDADO M. PERALTA LUCAS P. BERSAMIN

Associate Justice Associate Justice

 

 

 

 

MARIANO C. DEL CASTILLO MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

 

 

 

 

 

 

 

 

 

 

 

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA

Associate Justice Associate Justice

 

 

 

(On Official Leave)

MARIA LOURDES P. A. SERENO

Associate Justice

 

 

 

 

CERTIFICATION

 

 

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court.

 

 

 

RENATO C. CORONA

Chief Justice

 

 

 

 

 

Republic of the Philippines

SUPREME COURTManila

FIRST DIVISION

 

G.R. No. 100959 June 29, 1992

BENGUET CORPORATION, petitioner,

vs.

CENTRAL BOARD OF ASSESSMENT APPEALS, LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF BENGUET, and MUNCIPAL ASSESSOR OF ITOGON, BENGUET, respondents.

 

BELLOSILLO, J.:

BENGUET CORPORATION, in this original petition for certiorari, seeks to annul and set aside the Decision of the Central Board of Assessment Appeals of May 28, 1991, as well as the Resolution of July 1, 1991, denying its motion for reconsideration, which affirmed the decision of respondent Local Board of Assessment Appeals of the Province of Benguet declaring as valid the tax assessments made by the Municipal Assessor of Itogon, Benguet, on the bunkhouses of petitioner occupied as dwelling by its rank and file employees based on Tax Declarations Nos. 8471 and 10454.

The Provincial Assessor of Benguet, through the Municipal Assessor of Itogon, assessed real property tax on the bunkhouses of petitioner Benguet Corporation occupied for residential purposes by its rank and file employees under Tax Declarations Nos. 8471 (effective 1985) and 10454 (effective 1986). According to the Provincial Assessor, the tax exemption of bunkhouses under Sec. 3 (a), P.D. 745 (Liberalizing the Financing and Credit Terms for Low Cost Housing Projects of Domestic Corporations and Partnerships),was withdrawn by P.D. 1955 (Withdrawing, Subject to Certain Conditions, the Duty and Tax Privileges Granted to Private Business Enterprises and/or Persons Engaged in Any Economic Activity, and Other Purposes). Petitioner appealed the assessment on Tax Declarations Nos. 8471 and 10454 to the Local Board of Assessment Appeals (LBAA) of the Province of Benguet, docketed as LBAA Cases Nos. 42 and 43, respectively. Both were heard jointly.

Meanwhile, the parties agreed to suspend hearings in LBAA Cases Nos. 42 and 43 to await the outcome of another case, LBAA Case No. 41, covering Tax Declaration No. 9534(effective 1984), which involved the same parties and issue until the appeal was decided by the Central Board of Assessment Appeals (CBAA). On July 15, 1986, CBAA handed down its decision in LBAA Case No. 41 holding that the buildings of petitioner used as dwellings by its rank and file employees were exempt from real property tax pursuant to P.D. 745.

Thereafter, the proceedings in LBAA Cases Nos. 42 and 43 proceeded after which a decision was rendered affirming the taxability of subject property of petitioner. On appeal, CBAA sustained the decision holding that the realty tax exemption under P.D. 745 was withdrawn by P.D. 1955 and E.O. 93, so that petitioner should have applied for restoration of the exemption with the Fiscal Incentives Review Board (FIRB). The decision of CBAA clarified that Case No. 41 was different because it was effective prior to 1985, hence, was not covered by P.D. 1955 nor by E.O. 93.

Petitioner moved for reconsideration but was denied with CBAA holding that petitioner's "classification" of P.D. 745 is unavailing because P.D. 1955 and E.O. 93 do not discriminate against the so-called "social statutes". Hence, this petition.

Encapsulized, the issues raised in the petition are:(1) whether respondent Assessors may validly assess real property tax on the properties of petitioner considering the proscription in The Local Tax Code (P.D. 231) and the Mineral Resources Development Degree of 1974 (P.D. 463)against imposition of taxes on mines by local governments; and, (2) whether the real tax exemption granted under P.D. 745 (promulgated July 15, 1975) was withdrawn by P.D. 1955 (took effect October 15, 1984) and E.O. 93.

Presidential Decree No. 745, particularly Sec. 3 thereof, provides:

Sec. 3. Pursuant to the above incentive, such domestic corporations and partnerships shall enjoy tax exemption on: (a) real estate taxes on the improvements which will be used exclusively for housing their employees and workers . . .

Presidential Decree No. 1955, Sec. 1, provides:

Sec. 1. The provisions of any special or general law to the contrary notwithstanding, all exemptions from or any preferential treatment in the payment of duties, taxes, fees, imposts and other charges heretofore granted to private business enterprises and/or persons engaged in any economic activity are hereby withdrawn. except those enjoyed by the following: . . . (e) Those that will be approved by the President of the Philippines upon the recommendation of the Minister of Finance,

should be read in connection with Ministry Order No. 39-84, Sec. 1 (d), of the then Ministry of Finance, which took effect October 15, 1984, states:

Sec. 1. The withdrawal of exemptions from, or any preferential treatment in, the payment of duties, taxes, fees, imposts and other charges as provided for under Presidential Decree No. 1955, does not apply to exemptions or preferential treatment embodied in the following laws: . . . (d) The Real Property Tax Code . . .

Executive Order No. 93, promulgated December 17, 1986, is also to the same effect. Both P.D. 1955 and E.O. 93 operate as wholesale withdrawal of tax incentives granted to private entities so that the government may re-examine existing tax exemptions and restore through the "review mechanism" of the Fiscal Incentives Review Board only those that are consistent with declared economic policy. Thuswise, the chief revenue source of the government will not be greatly, if not unnecessarily, eroded since tax exemptions that were granted on piecemeal basis, and which have lost relevance to existing programs, are eliminated.

On the first issue, petitioner contends that local government units are without any authority to levy realty taxes on mines pursuant to Sec. 52 of P.D. 463, which states:

Sec. 52. Power to Levy Taxes on Mines, Mining Operations and Mineral Products. — Any law to the contrary notwithstanding, no province, city, municipality, barrio or municipal district shall levy and collect taxes, fees, rentals, royalties or charges of any kind whatsoever on mines, mining claims, mineral products, or any operation, process or activity connected therewith,

and Sec. 5 (m) of The Local Tax Code, as amended by P.D. 426 (reiterated in Secs. 17 [d] and 22 [c], same Code), which provides:

Sec. 5. Common limitations on the taxing powers of local governments. — The exercise of the taxing powers of provinces, cities, municipalities and barrios shall not extend to the imposition of the following: . . . (m) Taxes on mines; mining operations; and minerals, mineral products, and their by-products when sold domestically by the operator . . .

The Solicitor General observes that the petitioner is estopped from raising the question of lack of authority to issue the challenged assessments inasmuch as it was never raised before, hence, not passed upon by, the municipal and provincial assessors, LBAA and CBAA. This observation is well taken. The rule that the issue of jurisdiction over subject matter may be raised anytime, even during appeal, has been qualified where its application results in mockery of the tenets of fair play, as in this case when the issue could have been disposed of earlier and more authoritatively by any of the respondents who are supposed to be experts in the field of realty tax assessment. As We held in Suarez v. Court of Appeals 1:

. . . It is settled that any decision rendered without jurisdiction is a total nullity and may be struck down at any time, even on appeal before this Court. The only exception is where the party raising the issue is barred by estoppel (Tijam vs. Sibonghanoy, 23 SCRA 29, reiterated in Solid Homes, Inc. vs. Payawal and Court of Appeals, G.R. No. 84811, August 29, 1989; emphasis supplied).

While petitioner could have prevented the trial court from exercising jurisdiction over the case by seasonably taking exception thereto, they instead invoked the very same jurisdiction by filing an answer and seeking affirmative relief from it. What is more, they participated in the trial of the case by cross-examining respondent. Upon the premises, petitioner cannot now be allowed belatedly to adopt an inconsistent posture by attacking the jurisdiction of the court to which they had submitted themselves voluntarily (Tijam vs. Sibonghanoy, supra).

In Aguinaldo Industries Corporation v. Commissioner of Internal Revenue and the Court of Tax of Appeals, 2 We held:

To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level, would be to sanction a procedure whereby the court — which is supposed to review administrative determinations — would not review, but determine and decide for the first time, a question not raised at the administrative forum. This cannot be permitted, for the same reason that underlies the requirement of prior exhaustion of administrative remedies to give administrative authorities the prior opportunity to decide controversies within its competence, and in much the same way that, an the judicial level, issues not raised in the lower court cannot be raised for the first time on appeal.

Besides, the special civil action of certiorari is available to pass upon the determinations of administrative bodies where patent denial of due process is alleged as a consequence of grave abuse of discretion or lack of jurisdiction, or question of law is raised and no appeal is available. In this case, petitioner may not complain of denial of due process since it had enough opportunity, but opted not, to raise the issue of jurisdiction in any of the administrative bodies to which the case may have been brought.

Petitioner argues that realty taxes are local taxes because they are levied by local government units, citing Sec. 39 of P.D. 464, which provides:

Sec. 39. Rates of Levy. — The provincial, city or municipal board or council shall fix a uniform rate of real property tax applicable to their respective localities . . .

While local government units are charged with fixing the rate of real property taxes, it does not necessarily follow from that authority the determination of whether or not to impose the tax. In fact, local governments have no alternative but to collect taxes as mandated in Sec. 38 of the Real Property Tax Code, which states:

Sec. 38 Incidence of Real Property Tax. — There shall be levied, assessed and collected in all provinces, cities and municipalities an annual ad valorem tax on real property, such as land, buildings, machinery and other improvements affixed or attached to real property not hereinafter specifically exempted.

It is thus clear from the foregoing that it is the national government, expressing itself through the legislative branch, that levies the real property tax. Consequently, when local governments are required to fix the rates, they are merely constituted as agents of the national government in the enforcement of the Real Property Tax Code. The delegation of taxing power is not even involved here because the national government has already imposed realty tax in Sec. 38 above-quoted, leaving only the enforcement to be done by local governments.

The challenge of petitioner against the applicability of Meralco Securities Industrial Corporation v. Central Board of Assessment Appeals, et al., 3 is unavailing, absent any cogent reason to overturn the same. Thus —

Meralco Securities argues that the realty tax is a local tax or levy and not a tax of general application. This argument is untenable because the realty tax has always been imposed by the lawmaking body and later by the President of the Philippines in the exercise of his lawmaking powers, as shown in Sections 342 et seq. of the Revised Administrative Code, Act No. 3995, Commonwealth Act No. 470 and Presidential Decree No. 464.

The realty tax is enforced throughout the Philippines and not merely in a particular municipality or city but the proceeds of the tax accrue to the province, city, municipality and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464). In contrast, a local tax is imposed by the municipal or city council by virtue of the Local Tax Code, Presidential Decree No. 231, which took effect on July 1, 1973 (69 O.G. 6197).

Consequently, the provisions of Sec. 52 of the Mineral Resources Development Decree of 1974 (P.D. 463), and Secs. 5 (m), 17 (d) and 22 (c) of The Local Tax Code (P.D. 231) cited by petitioner are mere limitations on the taxing power of local government units; they are not pertinent to the issue before Us and, therefore, cannot and should not affect the imposition of real property tax by the national government.

As regards the second issue, petitioner, which claims that E.O. 93 does not repeal social statutes like P.D. 745, in the same breath takes refuge in Sec. 1 (e) of the same E.O. 93, to wit:

Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are hereby withdrawn except: . . . (e) those conferred under the four basic codes, namely: . . . (iv) the Real Property Tax Code, as amended . . .

in relation to Sec. 40 of the Real Property Tax Code, which provides:

Sec. 40. Exemptions from Real Property Tax. — The exemption shall be as follows: . . . (g) Real property exempt under other laws.

and concluding that P.D. 745 is one of the "other laws" referred to.

We do not agree. If We are to sanction this interpretation, then necessarily all real properties exempt by any law would be covered, and there would be no need for the legislature to specify "Real Property Tax Code, as amended", instead of stating clearly "realty tax exemption laws''. Indubitably, the intention is to limit the application of the "exception clause" only to those conferred by the Real Property Tax Code. This is not only a logical construction of the provisions but more so in keeping with the principle of statutory construction that tax exemptions are construed strictly against taxpayers, hence, they cannot be created by mere implication but must be clearly provided by law. Non-exemption, in case of doubt, is favored.

Quite obviously, the exception in Sec. 1 (e), (iv), of E.O. 93, refers to "those conferred under . . . Real Property Tax Case, as amended, and that the exemption claimed by petitioner is granted not by the Real Property Tax Code but by P.D. 745. When Sec. 40 (g) of the Property Tax Code provides that "[T]he exemption shall be as follows: . . . Real Property exempt under other laws", the Code merely recognizes realty tax exemptions provided by other laws, otherwise, it may unwittingly repeal those "other laws"

The argument of petitioner that P.D. 745 is a social statute to give flesh to the Constitutional provisions on housing, hence, not covered by P.D. 1955, was squarely met by respondent CBAA in its Resolution of July 1, 1991, to which We fully agree —

The phrase "any special or general law" explicitly indicates that P.D. No. 1955 did not distinguish between a social statute and an economic or tax legislation. Hence, where the law does not distinguish, we cannot distinguish. In view thereof, we have no recourse but to apply the express provision of P.D. No. 1955 and rule in favor of the withdrawal of the real property tax exemption provided under P.D. No. 745. We also find without merit the contention of Petitioner-Appellant that B.P. No. 391 (Investment Incentives Policy Act of 1983) is the source and reason for the existence of P.D. No. 1955; therefore, the scope of P.D. No. 1955 is limited to investment incentives. Although Section 20 of said B.P. which authorizes the President to restructure investment incentives systems/legislations to align them with the overall economic development objectives is one of the declared policies of P.D. No. 1955, its primary aim is the formulation of national recovery program to meet and overcome the grave emergency arising from the current economic crisis. Hence, it cannot be maintained that its provisions apply only to investment incentives.

Besides, even granting that its scope is limited, it is noted that P.D. No. 745 also speaks of investment incentives in Section 2 and 3 thereof . . .

In fine, despite the spirited effort put up by petitioner, We find no compelling reason to disturb the findings and conclusion of public respondents. Petitioner, which even changed theories midstream, utterly failed to show that respondents, in issuing the challenged Decision and Resolution, committed grave abuse of discretion amounting to lack of or excess of jurisdiction.

WHEREFORE, for lack of merit, the instant petition is dismissed, with costs against petitioner.

SO ORDERED.

Cruz, Griño-Aquino and Medialdea, JJ., concur.

 

Footnotes

1 G.R. No. 80199, June 6, 1990; 186 SCRA 339.

2 L-29790, February 25, 1982; 112 SCRA 136.

3 199 Phil. 453; G.R. No. L-46245, May 31, 1982.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-31092 February 27, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS, respondents.

 

YAP, J.:

The question involved in this petition is whether respondent John Gotamco & Sons, Inc. should pay the 3% contractor's tax under Section 191 of the National Internal Revenue Code on the gross receipts it realized from the construction of the World Health Organization office building in Manila.

The World Health Organization (WHO for short) is an international organization which has a regional office in Manila. As an international organization, it enjoys privileges and immunities which are defined more specifically in the Host Agreement entered into between the Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of that Agreement provides, inter alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes. It is understood, however, that the Organization will not claim exemption from taxes which are, in fact, no more than charges for public utility services; . . .

When the WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed in Manila, it entered into a further agreement with the Govermment of the Republic of the Philippines on November 26, 1957. This agreement contained the following provision (Article III, paragraph 2):

The Organization may import into the country materials and fixtures required for the construction free from all duties and taxes and agrees not to utilize any portion of the international reserves of the Government.

Article VIII of the above-mentioned agreement referred to the Host Agreement concluded on July 22, 1951 which granted the Organization exemption from all direct and indirect taxes.

In inviting bids for the construction of the building, the WHO informed the bidders that the building to be constructed belonged to an international organization with diplomatic status and thus exempt from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and should not include items for such taxes, licenses and other payments to Government agencies."

The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for short) on February 10, 1958 for the stipulated price of P370,000.00, but when the building was completed the price reached a total of P452,544.00.

Sometime in May 1958, the WHO received an opinion from the Commissioner of the Bureau of Internal Revenue stating that "as the 3% contractor's tax is an indirect tax on the assets and income of the Organization, the gross receipts derived by contractors from their contracts with the WHO for the construction of its new building, are exempt from tax in accordance

with . . . the Host Agreement." Subsequently, however, on June 3, 1958, the Commissioner of Internal Revenue reversed his opinion and stated that "as the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, the same is not covered by . . . the Host Agreement."

On January 2, 1960, the WHO issued a certification state 91 inter alia,:

When the request for bids for the construction of the World Health Organization office building was called for, contractors were informed that there would be no taxes or fees levied upon them for their work in connection with the construction of the building as this will be considered an indirect tax to the Organization caused by the increase of the contractor's bid in order to cover these taxes. This was upheld by the Bureau of Internal Revenue and it can be stated that the contractors submitted their bids in good faith with the exemption in mind.

The undersigned, therefore, certifies that the bid of John Gotamco & Sons, made under the condition stated above, should be exempted from any taxes in connection with the construction of the World Health Organization office building.

On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of P 16,970.40, representing the 3% contractor's tax plus surcharges on the gross receipts it received from the WHO in the construction of the latter's building.

Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which after trial rendered a decision, in favor of Gotamco and reversed the Commissioner's decision. The Court of Tax Appeal's decision is now before us for review on certiorari.

In his first assignment of error, petitioner questions the entitlement of the WHO to tax exemption, contending that the Host Agreement is null and void, not having been ratified by the Philippine Senate as required by the Constitution. We find no merit in this contention. While treaties are required to be ratified by the Senate under the Constitution, less formal types of international agreements may be entered into by the Chief Executive and become binding without the concurrence of the legislative body. 1 The Host Agreement comes within the latter category; it is a valid and binding international agreement even without the concurrence of the Philippine Senate.

The privileges and immunities granted to the WHO under the Host Agreement have been recognized by this Court as legally binding on Philippine authorities. 2

Petitioner maintains that even assuming that the Host Agreement granting tax exemption to the WHO is valid and enforceable, the 3% contractor's tax assessed on Gotamco is not an "indirect tax" within its purview. Petitioner's position is that the contractor's tax "is in the nature of an excise tax which is a charge imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation. . . It is a tax due primarily and directly on the contractor, not on the owner of the building. Since this tax has no bearing upon the WHO, it cannot be deemed an indirect taxation upon it."

We agree with the Court of Tax Appeals in rejecting this contention of the petitioner. Said the respondent court:

In context, direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. (Pollock vs. Farmers, L & T Co., 1957 US 429, 15 S. Ct. 673, 39 Law. Ed. 759.) The

contractor's tax is of course payable by the contractor but in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO. In the last analysis it is the WHO that will pay the tax indirectly through the contractor and it certainly cannot be said that 'this tax has no bearing upon the World Health Organization.

Petitioner claims that under the authority of the Philippine Acetylene Company versus Commissioner of Internal Revenue, et al., 3 the 3% contractor's tax fans directly on Gotamco and cannot be shifted to the WHO. The Court of Tax Appeals, however, held that the said case is not controlling in this case, since the Host Agreement specifically exempts the WHO from "indirect taxes." We agree. The Philippine Acetylene case involved a tax on sales of goods which under the law had to be paid by the manufacturer or producer; the fact that the manufacturer or producer might have added the amount of the tax to the price of the goods did not make the sales tax "a tax on the purchaser." The Court held that the sales tax must be paid by the manufacturer or producer even if the sale is made to tax-exempt entities like the National Power Corporation, an agency of the Philippine Government, and to the Voice of America, an agency of the United States Government.

The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which, although not imposed upon or paid by the Organization directly, form part of the price paid or to be paid by it. This is made clear in Section 12 of the Host Agreement which provides:

While the Organization will not, as a general rule, in the case of minor purchases, claim exemption from excise duties, and from taxes on the sale of movable and immovable property which form part of the price to be paid, 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).

The above-quoted provision, although referring only to purchases made by the WHO, elucidates the clear intention of the Agreement to exempt the WHO from "indirect" taxation.

The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor, Gotamco, from any taxes in connection with the construction of the WHO office building. The 3% contractor's tax would be within this category and should be viewed as a form of an "indirect tax" On the Organization, as the payment thereof or its inclusion in the bid price would have meant an increase in the construction cost of the building.

Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the appealed decision is hereby affirmed.

SO ORDERED.

Narvasa, Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

 

Footnotes

1 Usaffe Veterans Association, Inc. vs. Treasurer of the Philippines, et. al., 105 Phil. 1030.

2 World Health Organization and Dr. Leonce Verstuyft v. Hon. Benjamin Aquino, etc., et al., 48 SCRA 242.

3 127 Phil. 461.

 

THIRD DIVISION

 

 

COMMISSIONER OF INTERNAL      G.R. No. 140230

REVENUE,

                                Petitioner,       Present :

               

                                                          PANGANIBAN, J., Chairman,

           -  versus  -                              SANDOVAL-GUTIERREZ,

                                                          CORONA,

                                                          CARPIO MORALES and

  GARCIA, JJ.

PHILIPPINE LONG DISTANCE        

TELEPHONE COMPANY,

                                Respondent.      Promulgated:

 

December 15, 2005

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

 

D E C I S I O N

 

GARCIA, J.:

 

 

In this petition for review on certiorari, the

Commissioner of Internal Revenue (Commissioner) seeks

the review and reversal of the September 17, 1999

Decision[1] of the Court of Appeals (CA) in CA-G.R. No. SP

47895, affirming, in effect, the February 18, 1998

decision[2] of the Court of Tax Appeals (CTA) in C.T.A.

Case No. 5178, a claim for tax refund/credit instituted by

respondent Philippine Long Distance Company (PLDT)

against petitioner for taxes it paid to the Bureau of

Internal Revenue (BIR) in connection with its importation

in 1992 to 1994 of equipment, machineries and spare

parts.

 

The facts:

 

PLDT is a grantee of a franchise under Republic Act

(R.A.) No. 7082 to install, operate and maintain a

telecommunications system throughout the Philippines.

 

For equipment, machineries and spare parts it 

imported for its business  on different dates from October

1, 1992 to May 31, 1994, PLDT paid the BIR the amount of

P164,510,953.00, broken down as follows: (a)

compensating tax of P126,713,037.00; advance sales tax

of P12,460,219.00 and other internal revenue taxes of

P25,337,697.00. For similar importations made between

March 1994 to May 31, 1994, PLDT paid P116,041,333.00

value-added tax (VAT).

 

On March 15, 1994, PLDT addressed a letter to the

BIR seeking a confirmatory ruling on its tax exemption

privilege under Section 12 of R.A. 7082, which reads:

 

Sec. 12. The grantee … shall be liable to pay the same taxes on their real estate, buildings, and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay.  In addition thereto, the grantee, … shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee, its successors or assigns, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee … shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Sec. 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto. (Emphasis supplied).

 

 

            Responding, the BIR issued on April 19, 1994 Ruling

No. UN-140-94,[3] pertinently reading, as follows:    

 

PLDT shall be subject only to the following taxes, to wit:

 

xxx       xxx       xxx

 

7.         The 3% franchise tax on gross receipts which shall be in lieu of all taxes on its franchise or earnings thereof.

 

      xxx                         xxx                               xxx

 

The “in lieu of all taxes” provision under Section 12 of RA 7082 clearly exempts PLDT from all taxes including the 10% value-added tax (VAT) prescribed by Section 101 (a) of the same Code on its importations of equipment, machineries and spare parts necessary in the conduct of its business covered by the franchise, except the aforementioned enumerated taxes for which PLDT is expressly made liable.

 

xxx       xxx       xxx 

            In view thereof, this Office … hereby holds that PLDT, is exempt from VAT on its importation of equipment, machineries and spare parts … needed in its franchise operations.

 

             Armed with the foregoing BIR ruling, PLDT filed on

December 2, 1994 a claim[4] for tax credit/refund of the

VAT, compensating taxes, advance sales taxes and other

taxes it had been paying “in connection with its

importation of various equipment, machineries and spare

parts needed for its operations”. With its claim not having

been acted upon by the BIR, and  obviously to forestall the

running of the prescriptive period therefor, PLDT filed with

the CTA a petition for review,[5] therein seeking a refund

of, or the issuance of a tax credit certificate in, the amount

of P280,552,286.00, representing compensating taxes,

advance sales taxes, VAT and other internal revenue taxes

alleged to have been erroneously paid on its importations

from October 1992 to May 1994.  The petition was

docketed in said court as CTA Case No. 5178.

       

On February 18, 1998, the CTA rendered a

decision[6] granting PLDT’s petition, pertinently

saying:          

             

This Court has noted that petitioner has included in its claim receipts covering the period prior to December 16, 1992, thus, prescribed and barred from recovery. In conclusion, We  find  that  the  petitioner  is  entitled  to  the  reduced amount of  P223,265,276.00  after  excluding  from  the  final  computation those taxes  that  were  paid  prior  to  December 16, 1992 as they fall outside the  two-year  prescriptive  period  for claiming for a refund as provided by law. The computation of the refundable amount is summarized as follows:   COMPENSATING TAX 

            Total amount claimed                                                   P126,713.037.00

             Less: 

a)                                    Amount already prescribed: xxx             Total                                                      P 38,015,132.00

 

b)                                    Waived by petitioner(Exh. B-216)                          P   1,440,874.00     P 39,456,006.00  

Amount refundable                                                        P 87,257,031.00

 ADVANCE SALES TAX 

Total amount claimed                                                    P12,460.219.00

Less amount already prescribed:                                P 5,043,828.00              Amount refundable                                                      P 7,416,391.00  OTHER BIR TAXES             Total amount claimed                                                  P 25,337,697.00

            Less amount already prescribed:                                 11,187,740.00                           Amount refundable                                                        P 14,149,957.00  VALUE ADDED TAX             Total amount claimed                                                  P 116.041,333.00             Less amount waived by petitioner                  (unaccounted receipts)                                                1,599,436.00 

Amount refundable                                                    P 114,441,897.00  TOTAL AMOUNT REFUNDABLE     P223,265,276.00,                                                                                                                         ============(Breakdown omitted)             

and accordingly disposed, as follows:

 

 

WHEREFORE, in view of all the foregoing, this Court finds the instant petition meritorious and in accordance with law.  Accordingly, respondent is hereby ordered to REFUND or to ISSUE in favor of petitioner a Tax Credit Certificate in the reduced amount of P223,265,276.00 representing erroneously paid value-added taxes, compensating taxes, advance sales taxes and other BIR taxes on its importation of equipments (sic), machineries and spare parts for the period covering the taxable years 1992 to 1994.   

  

 

                                                Noticeably, the CTA decision, penned by then

Associate Justice Ramon O. de Veyra, with then CTA

Presiding Judge Ernesto D. Acosta, concurring, is

punctuated by a dissenting opinion[7] of Associate Judge

Amancio Q. Saga who maintained that the phrase “in lieu

of all taxes” found in Section 12 of R.A. No. 7082, supra,

refers to exemption from “direct taxes only” and does not

cover “indirect taxes”, such as VAT, compensating tax and

advance sales tax.

 

        In time, the BIR Commissioner moved for a

reconsideration but the CTA, in its Resolution[8] of May 7,

1998, denied the motion, with Judge Amancio Q. Saga

reiterating his dissent.[9]

Unable to accept the CTA decision, the BIR

Commissioner elevated the matter to the Court of Appeals

(CA) by way of petition for review, thereat docketed as

CA-G.R. No. 47895.

 

 

As stated at the outset hereof, the appellate court, in

the herein challenged Decision[10] dated September 17,

1999, dismissed the BIR’s petition, thereby effectively

affirming the CTA’s judgment.

 

 

        Relying on its ruling in an earlier case between the

same parties and involving the same issue – CA-G.R. SP

No. 40811, decided 16 February 1998 – the appellate

court partly wrote in its assailed decision:

 

            This Court has already spoken on the issue of what taxes are referred to in the phrase “in lieu of all taxes” found in Section 12 of R.A. 7082.  There are no reasons to deviate from the ruling and the same must be followed pursuant to the doctrine of stare decisis. xxx.  “Stare decisis et non quieta movere.  Stand by the decision and disturb not what is settled.” 

           

Hence, this recourse by the BIR Commissioner on the

lone assigned error that:

 

THE COURT OF APPEALS ERRED  IN HOLDING THAT RESPONDENT IS EXEMPT FROM THE PAYMENT OF VALUE-ADDED TAXES, COMPENSATING TAXES, ADVANCE SALES TAXES AND OTHER BIR TAXES ON ITS IMPORTATIONS, BY VIRTUE OF THE PROVISION IN ITS FRANCHISE THAT THE 3% FRANCHISE  TAX  ON  ITS GROSS  RECEIPTS  SHALL  BE  IN LIEU OF ALL TAXES ON ITS FRANCHISE OR EARNINGS THEREOF.  

There is no doubt that, insofar as the Court of

Appeals is concerned, the issue petitioner presently raises

had been resolved by that court in CA-G.R. SP No. 40811,

entitled Commissioner of Internal Revenue vs. Philippine

Long Distance Company.  There, the Sixteenth Division of

the appellate court declared that under the express

provision of Section 12 of R.A. 7082, supra, “the payment

[by PLDT] of the 3% franchise tax of [its] gross receipts

shall be in lieu of all taxes” exempts PLDT from payment

of compensating tax, advance sales tax, VAT and other

internal revenue taxes on its importation of various

equipment, machinery and spare parts for the use of its

telecommunications system.

 

Dissatisfied with the CA decision in that case, the BIR

Commissioner initially filed with this Court a motion for

time to file a petition for review, docketed in this Court as

G.R. No. 134386. However, on the last day for the filing of

the intended petition, the then BIR Commissioner had a

change of heart and instead manifested[11] that he will no

longer pursue G.R. No. 134386, there being no compelling

grounds to disagree with the Court of Appeals’ decision in

CA-G.R. 40811. Consequently, on September 28, 1998, the

Court issued a Resolution[12] in G.R. No. 134386 notifying

the parties that “no petition” was filed in said case and

that the CA judgment sought to be reviewed therein “has

now become final and executory”. Pursuant to said

Resolution, an Entry of Judgment[13] was issued by the

Court of Appeals in CA-G.R. SP No. 40811. Hence, the CA’s

dismissal of CA-G.R. No. 47895 on the additional ground of

stare decisis.

 

Under the doctrine of stare decisis et non quieta

movere, a point of law already established will, generally,

be followed by the same determining court and by all

courts of lower rank in subsequent cases where the same

legal issue is raised.[14] For reasons needing no

belaboring, however, the Court is not at all concluded by

the ruling of the Court of Appeals in its earlier CA-G.R. SP

No. 47895.

 

The Court has time and again stated that the rule on

stare decisis promotes stability in the law and should,

therefore, be accorded respect. However, blind adherence

to precedents, simply as precedent, no longer rules. More

important than anything else is that the court is right,[15]

thus its duty to abandon any doctrine found to be in

violation of the law in force.[16]

 

 As it were, the former BIR Commissioner’s decision

not to pursue his petition in G.R. No. 134386 denied the

BIR, at least as early as in that case, the opportunity to

obtain from the Court an authoritative interpretation of

Section 12 of R.A. 7082. All is, however, not lost. For, the

government is not estopped by acts or errors of its agents,

particularly on matters involving taxes. Corollarily, the

erroneous application of tax laws by public officers does

not preclude the subsequent correct application thereof.

[17] Withal, the errors of certain administrative officers, if

that be the case, should never be allowed to jeopardize

the government’s financial position.[18]

 

Hence, the need to address the main issue tendered

herein.

 

According to the Court of Appeals, the “in lieu of all

taxes” clause found in Section 12 of PLDT’s franchise (R.A.

7082) covers all taxes, whether direct or indirect; and that

said section states, in no uncertain terms, that PLDT’s

payment of the 3% franchise tax on all its gross receipts

from businesses transacted by it under its franchise is in

lieu of all taxes on the franchise or earnings thereof. In

fine, the appellate court, agreeing with PLDT, posits the

view that the word “all” encompasses any and all taxes

collectible under the National Internal Revenue Code

(NIRC), save those specifically mentioned in PLDT’s

franchise, such as income and real property taxes.

 

The BIR Commissioner excepts. He submits that the

exempting “in lieu of all taxes” clause covers direct taxes

only, adding that for indirect taxes to be included in the

exemption, the intention to include must be specific and

unmistakable. He thus faults the Court of Appeals for

erroneously declaring PLDT exempt from payment of VAT

and other indirect taxes on its importations. To the

Commissioner, PLDT’s claimed entitlement to tax

refund/credit is without basis inasmuch as the 3%

franchise tax being imposed on PLDT is not a substitute

for or  in lieu of indirect taxes.

 

The sole issue at hand is whether or not PLDT, given

the tax component of its franchise, is exempt from paying

VAT, compensating taxes, advance sales taxes and

internal revenue taxes on its importations.

 

        Based on the possibility of shifting the incidence of

taxation, or as to who shall bear the burden of taxation,

taxes may be classified into either direct tax or indirect

tax.

 

In context, direct taxes are those that are exacted

from the very person who, it is intended or desired, should

pay them;[19] they are impositions for which a taxpayer is

directly liable on the transaction or business he is engaged

in.[20]

 

On the other hand, indirect taxes are those that are

demanded, in the first instance, from, or are paid by, one

person in the expectation and intention that he can shift

the burden to someone else.[21] Stated elsewise, indirect

taxes are taxes wherein the liability for the payment of the

tax falls on one person but the burden thereof can be

shifted or passed on to another person, such as when the

tax is imposed upon goods before reaching the consumer

who ultimately pays for it. When the seller passes on the

tax to his buyer, he, in effect, shifts the tax burden, not

the liability to pay it, to the purchaser as part of the price

of goods sold or services rendered.

 

  To put the situation in graphic terms, by tacking the

VAT due to the selling price, the seller remains the person

primarily and legally liable for the payment of the tax. 

What is shifted only to the intermediate buyer and

ultimately to the final purchaser is the burden of the tax.

[22] Stated differently, a seller who is directly and legally

liable for payment of an indirect tax, such as the VAT on

goods or services, is not necessarily the person who

ultimately bears the burden of the same tax.  It is the final

purchaser or end-user of such goods or services who,

although not directly and legally liable for the payment

thereof, ultimately bears the burden of the tax.[23]

 

        There can be no serious argument that PLDT, vis-à-

vis its payment of internal revenue taxes on its

importations in question, is effectively claiming exemption

from taxes not falling under the category of direct taxes.

The claim covers VAT, advance sales tax and

compensating tax.

 

The NIRC classifies VAT as “an indirect tax … the

amount of [which] may be shifted or passed on to the

buyer, transferee or lessee of the goods”.[24] As aptly

pointed out by Judge Amancio Q. Saga in his dissent in

C.T.A. Case No. 5178, the 10% VAT on importation of

goods partakes of an excise tax levied on the privilege of

importing articles. It is not a tax on the franchise of a

business enterprise or on its earnings. It is imposed on all

taxpayers who import goods (unless such importation falls

under the category of an exempt transaction under Sec.

109 of the Revenue Code) whether or not the goods will

eventually be sold, bartered, exchanged or utilized for

personal consumption. The VAT on importation replaces

the advance sales tax payable by regular importers who

import articles for sale or as raw materials in the

manufacture of finished articles for sale.[25]

 

 Advance sales tax has the attributes of an indirect

tax because the tax-paying importer of goods for sale or of

raw materials to be processed into merchandise can shift

the tax or, to borrow from Philippine Acetylene Co, Inc. vs.

Commissioner of Internal Revenue,[26]  lay the “economic

burden of the tax”, on the purchaser, by subsequently

adding the tax to the selling price of the imported article

or finished product.

 

Compensating tax also partakes of the nature of an

excise tax payable by all persons who import articles,

whether in the course of business or not.[27] The rationale

for compensating tax is to place, for tax purposes, persons

purchasing from merchants in the Philippines on a more or

less equal basis with those who buy directly from foreign

countries.[28]

 

It bears to stress that the liability for the payment of

the indirect taxes lies only with the seller of the goods or

services, not in the buyer thereof. Thus, one cannot invoke

one’s exemption privilege to avoid the passing on or the

shifting of the VAT to him by the manufacturers/suppliers

of the goods he purchased.[29]  Hence, it is important to

determine if the tax exemption granted to a taxpayer

specifically includes the indirect tax which is shifted to him

as part of the purchase price, otherwise it is presumed

that the tax exemption embraces only those taxes for

which the buyer is directly liable.[30]

 

Time and again, the Court has stated that taxation is

the rule,  exemption is the exception. Accordingly,

statutes granting tax exemptions must be construed in

strictissimi juris against the taxpayer and liberally in favor

of the taxing authority.[31] To him, therefore, who claims

a refund or exemption from tax payments rests the

burden of justifying the exemption by words too plain to

be mistaken and too categorical to be misinterpreted.[32]

 

As may be noted, the clause “in lieu of all taxes” in

Section 12 of RA 7082 is immediately followed by the

limiting or qualifying clause “on this franchise or earnings

thereof”, suggesting  that the exemption is limited to

taxes imposed directly on PLDT since taxes  pertaining to

PLDT’s franchise or earnings are its direct liability.

Accordingly, indirect taxes, not being taxes on PLDT’s

franchise or earnings, are outside the purview of the “in

lieu” provision.

 

If we were to adhere to the appellate court’s

interpretation of the law that the “in lieu of all taxes”

clause encompasses the totality of all taxes collectible

under the Revenue Code, then, the immediately following

limiting clause “on this franchise and its earnings” would

be nothing more than a pure jargon bereft of effect and

meaning whatsoever. Needless to stress, this kind of

interpretation cannot be accorded a governing sway

following the familiar legal maxim redendo singula singulis

meaning, take the words distributively and apply the

reference. Under this principle, each word or phrase must

be given its proper connection in order to give it proper

force and effect, rendering none of them useless or

superfluous. [33]

 

        Significantly, in Manila Electric Company  [Meralco]

vs. Vera,[34] the Court declared the relatively  broader

exempting clause “shall be in lieu of all taxes and

assessments of whatsoever nature … upon the privileges

earnings, income franchise ... of the grantee” written in

par. # 9 of Meralco’s franchise as not so all encompassing

as to embrace indirect tax, like compensating tax. There,

the Court said:

 

 It is a well-settled rule or principle in taxation that a compensating tax  … is an excise tax … one that is imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege.  A tax levied upon property because of its ownership is a direct tax, whereas one levied upon property because of its use is an excise duty. ….             The compensating tax being imposed upon … MERALCO, is an impost on its use of imported articles and is not in the nature of a direct tax on the articles themselves, the latter tax falling within the exemption. Thus, in International Business Machine Corporation vs. Collector of Internal Revenue, … which involved the collection of a compensating tax from the plaintiff-petitioner on business machines imported by it, this Court stated in unequivocal terms that “it is not the act of importation that is taxed under section 190 but the uses of imported goods not subjected to a sales tax” because the “compensating tax was expressly designated as a substitute to make up or compensate for the revenue lost to the government through the avoidance of sales taxes by means of direct purchases abroad. 

xxx         xxx         xxx 

            xxx If it had been the legislative intent to exempt MERALCO from paying a tax on the use of imported equipments, the legislative body could have easily done so by expanding the provision of paragraph 9 and adding to the exemption such words as “compensating tax” or “purchases from abroad for use in its business,” and the like.

 

         It may be so that in Maceda vs. Macaraig, Jr.[35] the

Court held that an exemption from “all taxes” granted to

the National Power Corporation (NPC) under its charter[36]

includes both direct and indirect taxes. But far from

providing PLDT comfort, Maceda  in fact supports the case

of herein petitioner, the correct lesson of Maceda being

that an exemption from “all taxes” excludes indirect

taxes, unless the exempting statute, like NPC’s charter, is

so couched as to include indirect tax from the exemption.

Wrote the Court:

 

        xxx  However, the amendment under Republic Act No. 6395 enumerated the details covered by the exemption. Subsequently, P.D. 380, made even more specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 [NPC’s amended charter) amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from “all forms of taxes, duties fees ….”             The use of the phrase “all forms” of taxes demonstrate the intention of the law to give NPC all the tax exemptions it has been enjoying before.  …. 

xxx       xxx       xxx              It is evident from the provisions of P.D. No. 938  that its purpose is to maintain the tax exemption of NPC from all forms of taxes including indirect taxes as provided under R.A. No. 6395 and

P.D. 380 if it is to attain its goals. (Italics in the original; words in bracket added)

 

        Of similar import is what we said in Borja vs. Collector

of Internal Revenue.[37] There, the Court upheld the

decision of the CTA denying a claim for refund of the

compensating taxes paid on the importation of materials

and equipment by a grantee of a heat and power

legislative franchise containing an “in lieu” provision,

rationalizing as follows:

 

            xxx Moreover, the petitioner’s alleged exemption from the payment of compensating tax in the present case is not clear or expressed; unlike the exemption from the payment of income tax which was clear and expressed in the Carcar case. Unless it appears clearly and manifestly that an exemption is intended, the provision is to be construed strictly against the party claiming exemption. xxx. 

 

        Jurisprudence thus teaches that imparting the “in lieu

of all taxes” clause a literal meaning, as did the Court of

Appeals and the CTA before it, is fallacious. It is basic that

in construing a statute, it is the duty of courts to seek the

real intent of the legislature, even if, by so doing, they

may limit the literal meaning of the broad language.[38]

       

It cannot be over-emphasized that tax exemption

represents a loss of revenue to the government and must,

therefore, not rest on vague inference. When claimed, it

must be strictly construed against the taxpayer who must

prove that he falls under the exception. And, if an

exemption is found to exist, it must not be enlarged by

construction, since the reasonable presumption is that the

state has granted in express terms all it intended to grant

at all, and that, unless the privilege is limited to the very

terms of the statute  the favor would be extended beyond

dispute in ordinary cases.[39]

 

        All told, we fail to see how Section 12 of RA 7082

operates as granting PLDT blanket exemption from

payment of indirect taxes, which, in the ultimate analysis,

are not taxes on its franchise or earnings.  PLDT has not

shown its eligibility for the desired exemption. None

should be granted.

 

         As a final consideration, the Court  takes particular

stock, as the CTA earlier did, of PLDT’s allegation that the

Bureau of Customs assessed the company for advance

sales tax and compensating tax for  importations entered

between October 1, 1992 and May 31, 1994 when the

value-added tax system already replaced, if not totally

eliminated, advance sales and compensating taxes.[40] 

Indeed, pursuant to Executive Order No. 273[41] which

took effect on January 1, 1988, a multi-stage value-added

tax was put into place to replace the tax on original and

subsequent sales tax.[42] It stands to reason then, as

urged by PLDT, that compensating tax and advance sales

tax were no longer collectible internal revenue taxes

under the NILRC when the Bureau of Customs made the

assessments in question and collected the corresponding

tax. Stated a bit differently, PLDT was no longer under

legal obligation to pay compensating tax and advance

sales tax on its importation from 1992 to 1994.

 

        Parenthetically, petitioner has not made an issue

about PLDT’s allegations concerning the abolition of the

provisions of the Tax Code imposing the payment of

compensating and advance sales tax on importations and

the non-existence of these taxes during the period under

review.  On the contrary, petitioner admits that the VAT on

importation of goods has “replace[d] the compensating

tax and advance sales tax under the old Tax Code”.[43]

 

        Given the above perspective, the amount PLDT paid

in the concept of advance sales tax and compensating tax

on the 1992 to 1994 importations were, in context,

erroneous tax payments and would theoretically be

refundable. It should be emphasized, however, that,  such

importations were, when made, already subject to VAT.

       

          Factoring in the fact that a portion of the claim was

barred by prescription,  the CTA had determined that PLDT

is entitled to a total refundable amount of P94,673,422.00

(P87,257,031.00 of compensating tax + P7,416,391.00 =

P94,673,422.00).  Accordingly, it behooves the BIR to

grant a refund of the advance sales tax and compensating

tax in the total amount of P94,673,422.00, subject to the

condition that PLDT present proof of payment of the

corresponding VAT on said transactions.

 

 

WHEREFORE, the petition is partially GRANTED.

The Decision of the Court of Appeals in CA-G.R. No. 47895

dated September 17, 1999 is MODIFIED. The

Commissioner of Internal Revenue is ORDERED to issue a

Tax Credit Certificate or to refund to PLDT only the of

P94,673,422.00 advance sales tax and compensating tax

erroneously collected by the Bureau of Customs from

October 1, 1992 to May 31, 1994, less the  VAT which may

have been due on the importations in question, but have

otherwise remained uncollected.

 

SO ORDERED.

 

 

 

CANCIO C. GARCIA

Associate Justice

 

 

W E  C O N C U R :

 

 

ARTEMIO V. PANGANIBAN

Associate Justice

Chairman

 

 

 

ANGELINA SANDOVAL-GUTIERREZ      RENATO C. CORONA

                 Associate Justice                           Associate Justice

  

 

CONCHITA CARPIO MORALES

Associate Justice

 

 A T T E S T A T I O N

 

I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

ARTEMIO V. PANGANIBAN

Associate Justice

Chairman, Third Division

 

 

 

C E R T I F I C A T I O N

 

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman’s Attestation, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

HILARIO G.  DAVIDE, JR.

Chief Justice

 

[1]               Penned by Associate Justice Wenceslao I. Agnir, Jr. and concurred in by Associate Justices Ramon Mabutas, Jr. and Hilarion L. Aquino, (all ret.), of the former Twelfth Division.

[2]               Penned by Associate Judge Ramon O. De Veyra and concurred in by the Associate Judge Ernesto D. Acosta, with Associate Judge Amancio Q. Saga, dissenting.

[3]               Records, pp. 46-49.

[4]               Ibid,  pp. 50-52.

[5]               Ibid,  pp. 41-45.

[6]                Rollo, pp. 32-42.

[7]                Rollo, pp. 43-51.

[8]               CA Records, pp. 34-40.

[9]               CA Records, p. 40.

[10]             Rollo, pp. 21-31.

 

 

[11]             CA Records, pp. 110-111.

[12]             Rollo, p. 245.

[13]             Rollo, p. 246.

[14]           Ayala Corporation vs. Rosa-Diana Realty and Development  Corp., 346 SCRA 663 [2000].

[15]              Urbano  vs. Chavez, 183 SCRA 347[1990].

[16]               Tan Chong vs. Secretary of Labor, 79 Phil. 249 [1947].

[17]             Phil. Basketball Association vs. CA, 337 SCRA 358 [2000].

[18]              Magsaysay Lines, Inc. vs. Court of Appeals, 260 SCRA 513[1996].

[19]            Aralar, Agrarian Reform, Coopertives & Taxation, 2004 ed., p. 166

[20]            Dimaampao, Tax Principles and Remedies, 2005 ed., p. 120.

[21]             Commissioner of Internal Revenue vs. Tours Specialists Inc,183 SCRA 402 [1990]. 

[22]             Deoferio, Jr. and Mamalateo, The Value Added Tax in the Philippines,  2000 ed, pp 35-36.

[23]             Deoferio, Jr. and Mamalateo, op. cit. p. 117.

[24]             Section 105 of the Tax Code, as amended.

[25]             Santiago, National Internal Revenue Code Annotated, 2000 ed., p. 234.

[26]             20 SCRA 1056 [1967].

[27]             Sec. 169 of the 1986 NIRC.

[28]             Panay Electric Co. vs. Collector of Internal Revenue, 97 Phil. 979 [1955]. 

[29]             Epifanio G. Gonzales, National Internal Revenue Code Annotated, 2001 ed. citing BIR Ruling No.

91-151.

[30]              Aban, Law of Basic Taxation in the Philippines, Revised Edition, pp. 25-26.

[31]             Commissioner of Internal Revenue vs. Visayan Electric Co., 23 SCRA 715 [1968].

[32]             Province of Tarlac. vs. Alcantara, 216 SCRA 790 [1992], citing cases.

[33]           Lee Jr., Handbook of Legal Maxims, pp 190-191.

[34]             67 SCRA 351[1975].

[35]          197 SCRA 771 [1991].

[36]           Com. Act No. 120, as successively  amended by R.A.358, R.A. 6395,  PD No. 380, and P.D. 938

[37]             3  SCRA 591, [1961].

[38]              Manila Electric Co. vs. Vera, supra. 

[39]              Dimaampao, Tax Principles and Remedies, 2nd ed., pp. 108-109; citing 2 Cooley Taxation, 1403-1414.

[40]           Santiago, National Internal Revenue Code Annotated, 2000 ed., p. 234.

[41]       Adopting a Value-Added Tax, Amending For This Purpose Certain Provisions of the National  Internal Revenue Code, and For Other Pruposes.

[42]            Preamble of EO 273.

[43]            Petition, p. 10; Rollo, p. 16.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. Nos. L-9456 and L-9481             January 6, 1958

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs.DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H. MILLER (Deceased), and the COURT OF TAX APPEALS, respondents.

Allison J. Gibbs, Zafra, De Leon and Veneracion for Domingo E. de Lara.Assistant Solicitor General Ramon L. Avancena and Cezar L. Kierulf for the Collector of Internal Revenue.

MONTEMAYOR, J.:

These are two separate appeals, one by the Collector of Internal Revenue, later on referred to as the Collector, and the other by Domingo de Lara as Ancilliary Administrator of the estate of Hugo H. Miller, from the decision of the Court of Tax Appeals of June 25, 1955, with the following dispositive part:

WHEREFORE, respondent's assessment for estate and inheritance taxes upon the estate of the decedent Hugo H. Miller is hereby modified in accordance with the computation attached as Annex "A" of this decision. Petitioner is hereby ordered to pay the amount of P2,047.22 representing estate taxes due, together with the interests and other increments. In case of failure to pay the amount of P2,047.22 within thirty (30) days from the time this decision has become final, the 5 per cent surcharge and the corresponding interest due thereon shall be paid as a part of the tax.

The facts in the case gathered from the record and as found by the Court of Tax Appeals may be briefly stated as follows: Hugo H. Miller, an American citizen, was born in Santa Cruz, California, U.S.A., in 1883. In 1905, he came to the Philippines. From 1906 to 1917, he was connected with the public school system, first as a teacher and later as a division superintendent of schools, later retiring under the Osmeiia Retirement Act. After his retirement, Miller accepted an executive position in the local branch of Ginn & Co., book publishers with principal offices in New York and Boston, U.S.A., up to the outbreak of the Pacific War. From 1922 up to December 7, 1941, he was stationed in the Philippines as Oriental representative of Ginn & Co., covering not only the Philippines, but also China and Japan. His principal work was selling books specially written for Philippine schools. In or about the year 1922, Miller lived at the Manila Hotel. His wife remained at their home in Ben-Lomond, Santa Cruz, California, but she used to come to the Philippines for brief visits with Miller, staying three or four months. Miller also used to visit his wife in California. He never lived in any residential house in the Philippines. After the death of his wife in 1931, he transferred from the Manila Hotel to the Army and Navy Club, where he was staying at the outbreak of the Pacific War. On January 17, 1941, Miller executed his last will and testament in Santa Cruz, California, in which he declared that he was "of Santa Cruz, California". On December 7, 1941, because of the Pacific War, the office of Ginn & Co. was closed, and Miller joined the Board of Censors of the United States Navy. During the war, he was taken prisoner by the Japanese forces in Leyte, and in January, 1944, he was transferred to Catbalogan, Samar, where he was reported to have been executed by said forces on March 11, 1944, and since then, nothing has been heard from him. At the time of his death in 1944, Miller owned the following properties:

Real Property situated in Ben-Lomond, Santa Cruz, California valued at ...................................................................... P 5,000.00

Real property situated in Burlingame, San Mateo, California valued at ........................................................................................ 16,200.00

Tangible Personal property, worth............................................. 2,140.00

Cash in the banks in the United States.................................... 21,178.20

Accounts Receivable from various persons in the United States including notes ............................................................... 36,062.74

Stocks in U.S. Corporations and U.S. Savings Bonds, valued at ........................................................................................ 123,637.16

Shares of stock in Philippine Corporations, valued at .......... 51,906.45

Testate proceedings were instituted before the Court of California in Santa Cruz County, in the course of which Miller's will of January 17, 1941 was admitted to probate on May 10, 1946. Said court subsequently issued an order and decree of settlement of final account and final distribution, wherein it found that Miller was a "resident of the County of Santa Cruz, State of California" at the time of his death in 1944. Thereafter ancilliary proceedings were filed by the executors of the will before the Court of First Instance of Manila, which court by order of November 21, 1946, admitted to probate the will of Miller was probated in the California court, also found that Miller was a resident of Santa Cruz, California, at the time of his death. On July 29, 1949, the Bank of America, National Trust and Savings Association of San Francisco California, co-executor named in Miller's will, filed an estate and inheritance tax return with the Collector, covering only the shares of stock issued by Philippines corporations, reporting a liability of P269.43 for taxes and P230.27 for inheritance taxes. After due investigation, the Collector assessed estate and inheritance taxes, which was received by the said executor on April 3, 1950. The estate of Miller protested the assessment of the liability for estate and inheritance taxes, including penalties and other increments at P77,300.92, as of January 16, 1954. This assessment was appealed by De Lara as Ancilliary Administrator before the Board of Tax Appeals, which appeal was later heard and decided by the Court of Tax Appeals.

In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of our Tax Code, it is first necessary to decide whether the decedent was a resident or a non-resident of the Philippines at the time of his death. The Collector maintains that under the tax laws, residence and domicile have different meanings; that tax laws on estate and inheritance taxes only mention resident and non-resident, and no reference whatsoever is made to domicile except in Section 93 (d) of the Tax Code; that Miller during his long stay in the Philippines had required a "residence" in this country, and was a resident thereof at the time of his death, and consequently, his intangible personal properties situated here as well as in the United States were subject to said taxes. The Ancilliary Administrator, however, equally maintains that for estate and inheritance tax purposes, the term "residence" is synonymous with the term domicile.

We agree with the Court of Tax Appeals that at the time that The National Internal Revenue Code was promulgated in 1939, the prevailing construction given by the courts to the "residence" was synonymous with domicile. and that the two were used intercnangeabiy. Cases were cited in support of this view, paricularly that of Velilla vs. Posadas, 62 Phil. 624, wherein this Tribunal used the terms "residence" and "domicile" interchangeably and without distinction, the case involving the application of the term residence employed in the inheritance tax law at the time (section 1536- 1548 of the Revised Administrative Code), and that consequently, it will be presumed that in using the term residence or resident in the meaning as construed and interpreted by the Court. Moreover, there is reason to believe that the Legislature adopted the American (Federal and State) estate and inheritance tax system (see e.g. Report to the Tax Commision of the Philippines, Vol. II, pages 122-124, cited in I Dalupan, National Internal Revenue Code Annotated, p. 469-470). In the United States, for estate tax purposes, a resident is considered one who at the time of his death had his domicile in the United States, and in American jurisprudence, for purposes of estate and taxation, "residence" is interpreted as synonymous with domicile, and that—

The incidence of estate and succession has historically been determined by domicile and situs and not by the fact of actual residence. (Bowring vs. Bowers, (1928) 24 F 2d 918, at 921, 6 AFTR 7498, cert. den (1928) 272 U.S.608).

We also agree with the Court of Tax Appeals that at the time of his death, Miller had his residence or domicile in Santa Cruz, California. During his country, Miller never acquired a house for residential purposes for he stayed at the Manila Hotel and later on at the Army and Navy Club. Except this wife never stayed in the Philippines. The bulk of his savings and properties were in the United States. To his home in California, he had been sending souvenirs, such as carvings, curios and other similar collections from the Philippines and the Far East. In November, 1940, Miller took out a property insurance policy and indicated therein his address as Santa Cruz, California, this aside from the fact that Miller, as already stated, executed his will in Santa Cruz, California, wherein he stated that he was "of Santa Cruz, California". From the foregoing, it is clear that as a non-resident of the Philippines, the only properties of his estate subject to estate and inheritance taxes are those shares of stock issued by Philippines corporations, valued at P51,906.45. It is true, as stated by the Tax Court, that while it may be the general rule that personal property, like shares of stock in the Philippines, is taxable at the domicile of the owner (Miller) under the doctrine of mobilia secuuntur persona, nevertheless, when he during his life time,

. . . extended his activities with respect to his intangibles, so as to avail himself of the protection and benefits of the laws of the Philippines, in such a way as to bring his person or property within the reach of the Philippines, the reason for a single place of taxation no longer obtains- protection, benefit, and power over the subject matter are no longer confined to California, but also to the Philippines (Wells Fargo Bank & Union Trust Co. vs. Collector (1940), 70 Phil. 325). In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled herein: and besides, the right to vote the certificates at stockholders' meetings, the right to collect dividends, and the right to dispose of the shares including the transmission and acquisition thereof by succession, all enjoy the protection of the Philippines, so that the right to collect the estate and inheritance taxes cannot be questioned (Wells Fargo Bank & Union Trust Co. vs. Collector supra). It is recognized that the state may, consistently with due process, impose a tax upon transfer by death of shares of stock in a domestic corporation owned by a decedent whose domicile was outside of the state (Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Aldrich, (1942) 316 U.S. 174, 86 L. Ed. 1358, 62 ALR 1008)." (Brief for the Petitioner, p. 79-80).

The Ancilliary Administrator for purposes of exemption invokes the proviso in Section 122 of the Tax Code, which provides as follows:

. . ."And Provided, however, That no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of his death did not impose a transfer tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that country, or (b) if the laws of the foreign country of which the decedent was resident at the tune of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizen, of the Philippine not residing in that foreign country.

The Ancilliary Administrator bases his claim of exemption on (a) the exemption of non-residents from the California inheritance taxes with respect to intangibles, and (b) the exemption by way of reduction of P4,000 from the estates of non-residents, under the United States Federal Estate Tax Law. Section 6 of the California Inheritance Tax Act of 1935, now reenacted as Section 13851, California Revenue and Taxation Code, reads as follows:

SEC. 6. The following exemption from the tax are hereby allowed:

xxx             xxx             xxx.

(7) The tax imposed by this act in respect of intangible personal property shall not be payable if decedent is a resident of a State or Territory of the United States or a foreign state or country which at the time of his death imposed a legacy, succession of death tax in respect of intangible personal property within the State or Territory or foreign state or country of residents of the States or Territory or foreign state or country of residence of the decedent at

the time of his death contained a reciprocal provision under which non-residents were exempted from legacy or succession taxes or death taxes of every character in respect of intangible personal property providing the State or Territory or foreign state or country of residence of such non-residents allowed a similar exemption to residents of the State, Territory or foreign state or country of residence of such decedent.

Considering the State of California as a foreign country in relation to section 122 of Our Tax Code we beleive and hold, as did the Tax Court, that the Ancilliary Administrator is entitled to exemption from the tax on the intangible personal property found in the Philippines. Incidentally, this exemption granted to non-residents under the provision of Section 122 of our Tax Code, was to reduce the burden of multiple taxation, which otherwise would subject a decedent's intangible personal property to the inheritance tax, both in his place of residence and domicile and the place where those properties are found. As regards the exemption or reduction of P4,000 based on the reduction under the Federal Tax Law in the amount of $2,000, we agree with the Tax Court that the amount of $2,000 allowed under the Federal Estate Tax Law is in the nature of deduction and not of an exemption. Besides, as the Tax Court observes--.

. . . this exemption is allowed on all gross estate of non-residents of the United States, who are not citizens thereof, irrespective of whether there is a corresponding or similar exemption from transfer or death taxes of non-residents of the Philippines, who are citizens of the United States; and thirdly, because this exemption is allowed on all gross estates of non-residents irrespective of whether it involves tangible or intangible, real or personal property; so that for these reasons petitioner cannot claim a reciprocity. . .

Furthermore, in the Philippines, there is already a reduction on gross estate tax in the amount of P3,000 under section 85 of the Tax Code, before it was amended, which in part provides as follows:

SEC. 85. Rates of estate tax.—There shall be levied, assessed, collected, and paid upon the transfer of the net estate of every decedent, whether a resident or non-resident of the Philippines, a tax equal to the sum of the following percentages of the value of the net estate determined as provided in sections 88 and 89:

One per centrum of the amount by which the net estate exceeds three thousand pesos and does not exceed ten thousand pesos;. . .

It will be noticed from the dispositive part of the appealed decision of the Tax Court that the Ancilliary Administrator was ordered to pay the amount of P2,047.22, representing estate taxes due, together with interest and other increments. Said Ancilliary Administrator invokes the provisions of Republic Act No. 1253, which was passed for the benefit of veterans, guerrillas or victims of Japanese atrocities who died during the Japanese occupation. The provisions of this Act could not be invoked during the hearing before the Tax Court for the reason that said Republic Act was approved only on June 10, 1955. We are satisfied that inasmuch as Miller, not only suffered deprivation of the war, but was killed by the Japanese military forces, his estate is entitled to the benefits of this Act. Consequently, the interests and other increments provided in the appealed judgment should not be paid by his estate.

With the above modification, the appealed decision of the Court of Tax Appeals is hereby affirmed. We deem it unnecessary to pass upon the other points raised in the appeal. No costs.

Bengzon, Paras, C.J., Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-59068 January 27, 1983

JOSE MARI EULALIO C. LOZADA and ROMEO B. IGOT, petitioners, vs.THE COMMISSION ON ELECTIONS, respondent.

 

DE CASTRO, J.:

This is a petition for mandamus filed by Jose Mari Eulalio C. Lozada and Romeo B. Igot as a representative suit for and in behalf of those who wish to participate in the election irrespective of party affiliation, to compel the respondent COMELEC to call a special election to fill up existing vacancies numbering twelve (12) in the Interim Batasan Pambansa. The petition is based on Section 5(2), Article VIII of the 1973 Constitution which reads:

(2) In case a vacancy arises in the Batasang Pambansa eighteen months or more before a regular election, the Commission on Election shall call a special election to be held within sixty (60) days after the vacancy occurs to elect the Member to serve the unexpired term.

Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient voter of Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa; while petitioner Romeo B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus the calling of a special election as mandated by the 1973 Constitution. As reason for their petition, petitioners allege that they are "... deeply concerned about their duties as citizens and desirous to uphold the constitutional mandate and rule of law ...; that they have filed the instant petition on their own and in behalf of all other Filipinos since the subject matters are of profound and general interest. "

The respondent COMELEC, represented by counsel, opposes the petition alleging, substantially, that 1) petitioners lack standing to file the instant petition for they are not the proper parties to institute the action; 2) this Court has no jurisdiction to entertain this petition; and 3) Section 5(2), Article VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa.

The petition must be dismiss.

I

As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the constitutional provision above cited, and therefore, involves no expenditure of public funds. It is only when an act complained of, which may include a legislative enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed. 1 What the case at bar seeks is one that entails expenditure of public funds which may be illegal because it would be spent for a purpose that of calling a special election which, as will be shown, has no authority either in the Constitution or a statute.

As voters, neither have petitioners the requisite interest or personality to qualify them to maintain and prosecute the present petition. The unchallenged rule is that the person who impugns the validity of a statute must have a personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement. 2 In the case before Us, the alleged inaction of the COMELEC to call a special election to fill-up the existing vacancies in the Batasan Pambansa, standing alone, would adversely affect only the generalized interest of all citizens. Petitioners' standing to sue may not be predicated upon an interest of the kind alleged here, which is held in common by all members of the public because of the necessarily abstract nature of the injury supposedly shared by all citizens. Concrete injury, whether actual or threatened, is that indispensable element of a dispute which serves in part to cast it in a form traditionally capable of judicial resolution. 3 When the asserted harm is a "generalized grievance" shared in substantially equal measure by all or a large class of citizens, that harm alone normally does not warrant exercise of jurisdiction. 4 As adverted to earlier, petitioners have not demonstrated any permissible personal stake, for petitioner Lozada's interest as an alleged candidate and as a voter is not sufficient to confer standing. Petitioner Lozada does not only fail to inform the Court of the region he wants to be a candidate but makes indiscriminate demand that special election be called throughout the country. Even his plea as a voter is predicated on an interest held in common by all members of the public and does not demonstrate any injury specially directed to him in particular.

II

The Supreme Court's jurisdiction over the COMELEC is only to review by certiorari the latter's decision, orders or rulings. This is as clearly provided in Article XI IC Section 11 of the New Constitution which reads:

Any decision, order, or ruling of the Commission may be brought to the Supreme Court on certiorari by the aggrieved party within thirty days from his receipt of a copy thereof.

There is in this case no decision, order or ruling of the COMELEC which is sought to be reviewed by this Court under its certiorari jurisdiction as provided for in the aforequoted provision which is the only known provision conferring jurisdiction or authority on the Supreme Court over the COMELEC. It is not alleged that the COMELEC was asked by petitioners to perform its alleged duty under the Constitution to call a special election, and that COMELEC has issued an order or resolution denying such petition.

Even from the standpoint of an action for mandamus, with the total absence of a showing that COMELEC has unlawfully neglected the performance of a ministerial duty, or has refused on being demanded, to discharge such a duty; and as demonstrated above, it is not shown, nor can it ever be shown, that petitioners have a clear right to the holding of a special election. which is equally the clear and ministerial duty of COMELEC to respect, mandamus will not lie. 5 The writ will not issue in doubtful cases. 6

It is obvious that the holding of special elections in several regional districts where vacancies exist, would entail huge expenditure of money. Only the Batasan Pambansa can make the necessary appropriation for the purpose, and this power of the Batasan Pambansa may neither be subject to mandamus by the courts much less may COMELEC compel the Batasan to exercise its power of appropriation. From the role Batasan Pambansa has to play in the holding of special elections, which is to appropriate the funds for the expenses thereof, it would seem that the initiative on the matter must come from said body, not the COMELEC, even when the vacancies would occur in the regular not interim Batasan Pambansa. The power to appropriate is the sole and exclusive prerogative of the legislative body, the exercise of which may not be compelled through a petition for mandamus. What is more, the provision of Section 5(2), Article VIII of the Constitution was intended to apply to vacancies in the regular National Assembly, now Batasan Pambansa, not to the Interim Batasan Pambansa, as will presently be shown.

III

Perhaps the strongest reason why the aforecited provision of the Constitution is not intended to apply to the Interim National Assembly as originally envisioned by the 1973 Constitution is the fact that as passed by the Constitutional Convention, the Interim National Assembly was to be composed by the delegates to the Constitutional Convention, as well as the then incumbent President and Vice-President, and the members of the Senate and House of Representatives of Congress under the 1935 Constitution. With such number of representatives representing each congressional district, or a province, not to mention the Senators, there was felt absolutely no need for filing vacancies occurring in the Interim National Assembly, considering the uncertainty of the duration of its existence. What was in the mind of the Constitutional Convention in providing for special elections to fill up vacancies is the regular National Assembly, because a province or representative district would have only one representative in the said National Assembly.

Even as presently constituted where the representation in the Interim Batasan Pambansa is regional and sectoral, the need to fill up vacancies in the Body is neither imperative nor urgent. No district or province would ever be left without representation at all, as to necessitate the filling up of vacancies in the Interim Batasan Pambansa. There would always be adequate representation for every province which only forms part of a certain region, specially considering that the Body is only transitory in character.

The unmistakable intent of the Constitutional Convention as adverted to is even more positively revealed by the fact that the provision of Section 5(2) of Article VIII of the New Constitution is in the main body of the said Constitution, not in the transitory provisions in which all matters relating to the Interim Batasan Pambansa are found. No provision outside of Article VIII on the "Transitory Provisions" has reference or relevance to the Interim Batasan Pambansa.

Also under the original provision of the Constitution (Section 1, Article XVII-Transitory Provisions), the Interim National Assembly had only one single occasion on which to call for an election, and that is for the election of members of the regular National Assembly.1äwphï1.ñët The Constitution could not have at that time contemplated to fill up vacancies in the Interim National Assembly the composition of which, as already demonstrated, would not raise any imperious necessity of having to call special elections for that purpose, because the duration of its existence was neither known or pre-determined. It could be for a period so brief that the time prescriptions mentioned in Section 5(2), Article VIII of the Constitution cannot be applicable.

The foregoing observations make it indubitably clear that the aforementioned provision for calling special elections to fill up vacancies apply only to the regular Batasan Pambansa. This is evident from the language thereof which speaks of a vacancy in the Batasan Pambansa, " which means the regular Batasan Pambansa as the same words "Batasan Pambansa" found in all the many other sections of Article VIII, undoubtedly refer to the regular Batasan, not the interim one. A word or phrase used in one part of a Constitution is to receive the same interpretation when used in every other part, unless it clearly appears, from the context or otherwise, that a different meaning should be applied. 7

WHEREFORE, the petition is hereby dismissed.

SO ORDERED.

Aquino, Concepcion Jr., Guerrero, Plana, Escolin Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Fernando, CJ., Makasiar, and Melencio-Herrera, JJ., concurs in the result.

Teehankee, J., took no part.

Abad Santos, J., I reserve my vote.

 

Footnotes

1 Flast vs. Cohen, 392 U.S. 383 (1960), Pascual vs. Secretary of Public Works, 1 10 Phil. 331 (1960).

2 People vs. Vera, 65 Phil. 56 (1937).

3 Schlesigner vs. Reservist Comm. to Stop the War, 418 U.S. 208, 94 S Ct. 2925, 41 F Ed. 2d 706 (1974) citing Flast vs. Cohen.

4 Ibid

5 Lemi vs. Valencia, 26 SCRA 203.

6 Taboy vs. Court of Appeals, 105 SCRA 759; Valdez vs. Gutierrez, 23 SCRA 661; Alzate vs. Aldana, 8 SCRA 219.

7 16 C.J.S. 88-89, citing Carter vs. Cain 14 S.W. 2d 250, 199 Ark. 79; Whittemore v. Terral, 215 S.W. 686, 140 Ark. 493; Wilmore v. Annear, 65 P. 2d 1433, 100 Colo 163; 50 Am Jur 259, citing Spring Canyon Coal Co. v. Industrial Commission, 74 Utah, 103, 277 P 206; Alexander v. Alexandria, 5 Cranch (US) 1, 3 L ed 19.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. Nos. L-13887 and L-13890             June 30, 1960

THE COLLECTOR (now Commissioner) OF INTERNAL REVENUE, petitioner, vs.MANILA JOCKEY CLUB, INC., respondent.

THE COMMISSIONER (formerly Collector) OF INTERNAL REVENUE, petitioner, vs.MANILA JOCKEY CLUB, INC., respondent.

Assistant Solicitor General Jose P. Alejandro and Atty. Jose G. Azurin for petitioner.Marcial P. Lichauco and Alfonso V. Agcaoili for respondent.

BENGZON, J.:

Statement.—The Commissioner (formerly Collector) of Internal Revenue has appealed from two decisions of the Court of Tax Appeals from two decisionsof the Court of Tax appeals disapproving his levy of amusement taxes upon the Manila Jockey Club, a corporation duly organized and authorized to hold horse races in Manila.

First case.—In such races, betting is made through the sale of tickets tothe public. The total amount of bets is called wager funds, which were distributed, pursuant to Executive Order 320 and Republic Act 309, as follows:[in regular races]1

87-1/2 as dividends to holders of winning tickets;

12-1/2 as "commission" of the Manila Jockey Club, of which 1/2% was assigned to the Board on Races and 5% was distributed as prizes for owners of winning horses and authorized bonuses for jockeys.

During the period November 1946 to October 1950, the Manila Jockey Club paid amusement tax on its commission abovementioned but without including the 5 1/2% which, as stated, went to the Board on Races and to the owners of horses and jockeys. Under the Internal Revenue Law, sec. 260, the amusement tax was payable by the operator on its "gross receipts." Yet the ManilaJockey Club did not consider as part of its "gross receipts" subject to amusement tax the amounts which it had to deliver to the Board on Races, the horse owners and the jockeys. In this view it was fully sustained by three opinions of the Secreatry of Justice rendered on three different occasions (Opinion No. 345, series of 1941; Opinion No. 249, series of 1952 and Opinion No. 340, series of 1955). Said the Secretary:

There is no question that the Manila Jockey Club, Inc. owns only 7-1/2% of the total bets registered by the Totalizer. This portion represents its share or commission in the total amount of money it handles and goes to the funds thereof as its own property which it may legally disburse for its own purposes. The 5% does not belong to the club. It is merely held in trust for distribution as prizes to the owners of winning horses. It is destined for no other object than the payment of prizes and the club cannot otherwise appropriate this portion without incurring liability to the owners of winning horses. It can not be considered as an item of expense because the sum used for the payment of prizes is not taken from the funds of the club but from a certain portion of the total bets especially earmarked for that purpose.

In view of all foregoing, I am of the opinion that in the submission of the returns for the amusement tax of 10% (now it is 20%) of the "gross receipts", provided for in section 260 of the National Internal Revenue Code, the 5% of the total bets that is set aside for prizes to owners of winning horses should not be included by the Manila Jockey Club, Inc.

Notwithstanding the opinion of the legal adviser of the Government, in October 1955, the Collector of Internal Revenue demanded payment of amusement taxes amounting to P401,173.20 plus P39,810.00, for the period of November 1946 to October 1950.

After resisting the demand and making appropriate representations, the Manila Jockey Club resorted to the Court of Tax Appeals wherein it obtained judgment unanimously reversing the Collector's stand in the matter.

In this appeal, the appellant cites two opinion of the aforesaid Department Head, particularly Opinion No. 135, series of 1950. But the Department itself in subsequent opinions, explained that there is no conflict between this Opinion No. 135 and the Opinion No. 345 of October 1941. The former made a general statement of the rule about gross receipts (and referred to theater tickets). The latter specifically declared that the 5% reserved to horse owners and jockeys of the Manila Jockey Club should not be included in the computation of gross receipts for purposes of the amusement tax. Thus, for several years, the Executive Department (including previous Collectors of Internal Revenue who at one time or another, attempted tocollect on this portion of the "commission" of the Jockey Club, but who had to desist it in view of the Secretary of Justice's opinions), proceeded on the principle that such funds are not included as "gross receipts" of the Jockey Club. As the court a quo holds, such interpretation deserves great weight. More so in this case, because the Legislature has lately amended the law making it clearer, and ordering distribution of the total wager funds as follows: (in regular races)

87-1/2 % dividends for winning tickets;

  6-1/2 % commission of the racing club;

  5-1/2 % prizes of owners of winning horses and jockeys; and

      1/2 % for the Games and Amusements Boards (successors of Board on Races). [Rupublic Act 1933]

At this point, the arrangement of appellee on the inequity of requiring it to pay amusement tax on these funds may favorably be quoted; after the Secretary of Justice rendered his official Opinion No. 345 (October 1945), "the Club necessarily could not and did not deduct any amount (amusement tax) from the prizes turned over (by it) to the owners of the winning horses. ... It is most unjust and unfair to say the least, for the government (now) to hold the Club liable for amusement tax on funds ... which it turned over without deductions to the parties entitled thereto" relying upon the advice of the Goverment's legal adviser.

The Secretary's opinion was correct. The Government could not have meant to tax as gross receipt of the Manila Jockey Club the 1/2 % which it directs same Club to turn over to the Board on Races. The latter being a Government institution, there would be double taxation, which should be avoided unless the statute admits of no other interpretation. In the same manner, theGovernment could not have intended to consider as gross receipt the portion of the funds which it directed the Club to give, or knew the Club would give, to winning horses and jockeys—admittedly 5%. It is true that the law says that out of the total wager funds 12-1/2 % shall be set aside as the "commission" of the race track owner, but the law itself takes official notice, and actually approves or directs payment of the portion that goes to owners of horses as prizes and bonuses of jockeys, which portion is admittedly 5% out of that 12 1/2% commission. As it did not at that time contemplate the application of "gross receipts" revenue principle, the law in making distribution of the total wager funds, took no trouble of separating one item from the other; and for convenience, grouped three items under one common denomination.

Needless to say, gross receipts of the proprietor of the amusement place should not include any money which although delivered to the amusement place has been especially earmarked by law or regulation for some person other than the proprietor.2

The appellants seems to labor under the impression that since the Jockey Club, at least for some time held possession of the money represented by12-1/2 % before paying over 5% to horse owners and jockeys and 1/2% to the Board on Races, the whole 12-1/2% should be considered its gross receipts. However, under the theory, the Club should also pay amusement tax on the 87--1/2% paid as dividends to winning tickets. Yet no claim of amusement tax on that portion has been laid. In fact, the appellant admits that the 87-1/2% paid as dividends to the winning tickets is "owned" by the holders of winning tickets. If so, there is no reason to hold that the"dividends" or prizes assigned to owners of winning horses are not also"owned" by the latter. These form part of the gross receipts from the sale of tickets (sec. 19, Republic Act 309)—not gross receipts of theClub. They are, of course, moneys received by the racing track; but they moneys earmarked by law or regulation for horse owners and jockeys and do not for a single minute become the property of the race track. Indeed, there were reasons for such earmarking. As to the 1/2% for the Board on Races, it is self-evident; to insure its adequate functioning. As to the 5%, probably to give incentives to horse owners to develop a better breed of horses.

For all the above reasons, we must agree with the Court of Tax Appeals that such funds do not form part of the gross receipts of the Club and are not subject to the amusement tax.

Second case.—The Manila Jockey Club holds once a year a so called "special Novato race", wherein only "novato" horses, (i.e. horses which are running for the first time in an official [of the club] race), may take part. Owners of these horses must pay to the Club an inscription fee of P1.00 and a declaration fee of P1.00 per horse. In addition, each of them must contribute to a common fund P10.00 per horse. The Club contributes an equal amount (P10.00 per horse) to such common fund, the total amount of which is added to the 5% participation of horse owners already described herein-above in the first case.

Since the institution of this yearly special novato race in 1950, the Manila Jockey Club never paid amusement tax on the moneys thus contributed by horse owners (P10.00 each) because it entertained the belief that in accordance with the three opinions, of the Secretary of Justice herein-above described, such contributions never formed part of its gross receipts. On the inscription fee of the P1.00 per horse, it paid the tax. It did not on the declaration fee of P1.00 because it was imposed by the Municipal Ordinance of Manila and was turned over to the City officers.

The Collector of Internal Revenue required the Manila Jockey Club to pay amusement tax on such contributed fund P10.00 per horse in a special novato race, holding they were part of its gross receipts. The Manila Jockey Club protested and resorted to the Court of Tax Appeals, where it obtained favorable judgment on the same grounds sustained by said Court in connection with the 5% of the total wager funds in the herein-mentioned first case; they were not receipts of the Club. We think the reasons for upholding the Tax Court's decision in the first case apply to this one. The ten-peso contribution never belonged to the Club. It was held by it as a trust fund. And then, after all, when it received the ten-peso contribution, it at thesame time contributed ten pesos out of its own pocket, and thereafter distributed both amounts as prizes to horse owners. It would seem unreasonable to regard the ten-peso contribution of the horse owners as taxable receipt of the Club, since the latter, at the same moment it received the contribution necessarily lost ten pesos too.

Judgment.—Both decisions of the Court of Tax Appeals should be, and are hereby affirmed. No costs.

Paras, C.J., Padilla, Bautista Angelo, Concepcion, Barrera, and Gutierrez David, JJ., concur.

Footnotes

1 SEC. 18. Totalizator Receipts or wager funds; how distributed.—The total wager funds or gross receipts from the sale of totalizator tickets shall be apportioned as follows: 87 1/2% shall be distributed in the form of dividends among holders of win, place and show horses, as the case may be, in the regular races; 12 1/2 shall be set aside as the commission of the person, race-track, racing club or any other entity conducting the race, which shall include the

amounts for the payment of authorized stakes or prizes for win, place and show horses, and authorized bonuses for jockeys; Provided, However, That .. 1/2% of the total wager funds or gross receipts from the sale of tickets shall be set aside .. as a special fund to cover the expenses of the Board on Races and its personnel. . . .

2 The situation thus differs from one in which the owner of the amusement place, by a private contract, with its employees or partners, agrees to reserve for them a portion of the proceeds of the establishment. (See Wong & Lee vs. Coll. 104 Phil., 469; 55 Off. Gaz. (51) 10539; Sy Chuico vs. Coll. 107 Phil., 428; 59 Off. Gaz., (6) 896).

SECOND DIVISION

 

 

COMMISSIONER OF INTERNAL REVENUE,

Petitioner,

- versus -

CITYTRUST INVESTMENT PHILS., INC.,

Respondent.

x---------------------------------------------x

ASIANBANK CORPORATION,

Petitioner,

- versus -

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

G.R. No. 139786

G.R. No. 140857

Present:

PUNO, J., Chairperson,

SANDOVAL-GUTIERREZ,

CORONA,

AZCUNA, and

GARCIA, JJ.

Promulgated:

September 27, 2006

x------------------------------------------------------------------------------------------------------------------------------x

 

D E C I S I O N

 

SANDOVAL-GUTIERREZ, J.:

 

 

Does the twenty percent (20%) final withholding tax (FWT) on a

bank’s passive income183[1] form part of the taxable gross receipts for

the purpose of computing the five percent (5%) gross receipts tax

(GRT)? This is the central issue in the present two (2) consolidated

petitions for review.

 

183 [1] Also referred to as “interest income” as it pertains to interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties.

In G.R. No. 139786, petitioner Commissioner of Internal

Revenue (Commissioner) assails the Court of Appeals Decision dated

August 17, 1999 in CA-G.R. SP No. 52707184[2] affirming the Court of

Tax Appeals (CTA) Decision185[3] ordering the refund or issuance of

tax credit certificate in favor of respondent Citytrust Investment

Philippines., Inc. (Citytrust). In G.R. No. 140857, petitioner

Asianbank Corporation (Asianbank) challenges the Court of Appeals

Decision dated November 22, 1999 in CA-G.R. SP No. 51248186[4]

reversing the CTA Decision187[5] ordering a tax refund in its

(Asianbank’s) favor.

 

A brief review of the taxation laws provides an adequate

backdrop for our subsequent narration of facts.

 

Under Section 27(D), formerly Section 24(e)(1) of the National

Internal Revenue Code of 1997 (Tax Code), the earnings of banks from

184 [2] Entitled Commissioner of Internal Revenue v. Citytrust Investment Phils., Inc., penned by Associate Justice Romeo J. Callejo, Sr. (now a member of this Court) and concurred in by Associate Justice Quirino D. Abad Santos, Jr. and Associate Justice Mariano M. Umali (both retired).

185 [3] CTA Case No. 5403, entitled Citytrust Investment Philippines, Inc. v. Commissioner of Internal Revenue, penned by Associate Justice Ramon O. De Veyra.

186 [4] Entitled Commissioner of Internal Revenue v. Asianbank Corporation, penned by Associate Justice Hector L. Hofileña (retired) and concurred in by Associate Justice Omar U. Amin (retired) and Associate Justice Jose L. Sabio, Jr.

187 [5] CTA Case No. 5412.

passive income are subject to a 20% FWT,188[6] thus:

 

(D) Rates of Tax on Certain Passive Incomes – (1) Interest from Deposits and Yield or any other Monetary

Benefit from Deposit Substitutes and from Trust Funds and Similar Arrangements, and Royalties. – A final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest on currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements received by domestic corporation and royalties, derived from sources within the Philippines: x x x

 

Apart from the 20% FWT, banks are also subject to the 5%

GRT on their gross receipts, which includes their passive income.

Section 121 (formerly Section 119) of the Tax Code reads:

SEC. 121. Tax on banks and Non-bank financial intermediaries. – There shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with the following schedule: 

(a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived:

 Short-term maturity (not in excess of two [2] years) 5%

 Medium-term maturity (over two [2] years but notexceeding four [4] years) 3%

 Long-term maturity – 

188[6] This tax is withheld at source and is thus not actually and physically received by the banks, because it is paid directly to the government by the entities from which the banks derived the income. (Commissioner of Internal Revenue v. Solidbank Corporation, G.R. No. 148191, November 25, 2003, 416 SCRA 436.)

(1) Over four (4) years but not exceeding seven (7) years 1%

 (2) Over seven (7) years 0%

 (b) On dividends 0%

 (c) On royalties, rentals of property, real or personal, profits

from exchange and all other items treated as gross income

under Section 32 of this Code 5%

 Provided, however, That in case the maturity period referred to

in paragraph (a) is shortened thru pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction as short, medium or long-term and the correct rate of tax shall be applied accordingly. 

Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar banking activities.

  

 

I - G.R. No. 139786

Citytrust, respondent, is a domestic corporation engaged in quasi-banking

activities. In 1994, Citytrust reported the amount of P110,788,542.30 as its total

gross receipts and paid the amount of P5,539,427.11 corresponding to its 5% GRT.

Meanwhile, on January 30, 1996, the CTA, in Asian Bank Corporation v.

Commissioner of Internal Revenue189[7] (ASIAN BANK case), ruled that the basis

in computing the 5% GRT is the gross receipts minus the 20% FWT. In other

words, the 20% FWT on a bank’s passive income does not form part of the taxable

gross receipts.

On July 19, 1996, Citytrust, inspired by the above-mentioned CTA ruling, filed

with the Commissioner a written claim for the tax refund or credit in the amount of

189 [7] CTA Decision in CTA Case No. 4720.

P326,007.01. It alleged that its reported total gross receipts included the 20%

FWT on its passive income amounting to P32,600,701.25. Thus, it sought to be

reimbursed of the 5% GRT it paid on the portion of 20% FWT or the amount of

P326,007.01.

On the same date, Citytrust filed a petition for review with the CTA, which

eventually granted its claim.190[8]

On appeal by the Commissioner, the Court of Appeals affirmed

the CTA Decision, citing as main bases Commissioner of Internal

Revenue v. Tours Specialist Inc.191[9] and Commissioner of Internal

Revenue v. Manila Jockey Club,192[10] holding that monies or receipts

that do not redound to the benefit of the taxpayer are not part of its gross

receipts, thus:

Patently, as expostulated by our Supreme Court, monies or receipts that do not redound to the benefit of the taxpayer are not part of its gross receipts for the purpose of computing its taxable gross receipts. In Manila Jockey Club, a portion of the wager fund and the ten-peso contribution, although actually received by the Club, was not considered as part of its gross receipts for the purpose of imposing the amusement tax. Similarly, in Tours Specialists, the room or hotel charges actually received by them from the foreign travel agency was, likewise, not included in its gross receipts for the imposition of the 3% contractor’s tax. In both cases, the fees, bets or hotel charges, as the case may be, were actually received and held in trust by the taxpayers. On the other hand, the 20% final tax on the Respondent’s passive income was already deducted and withheld by various withholding agents. Hence, the actual or the exact amount received by the Respondent, as its passive income in the year 1994, was less the 20% final tax already withheld by various

190 [8] On April 19, 1999, the Court of Tax Appeals rendered a Decision, the dispositive portion of which reads:

“WHEREFORE, in view of the foregoing, Respondent is hereby ORDERED to REFUND or to ISSUE a tax credit certificate in favor of Petitioner in the amount of P39,629.44 representing overpaid gross receipts tax for the taxable year 1994.”

191 [9] G.R. No. 66416, March 21, 1990, 183 SCRA 402.

192 [10] 108 Phil. 821 (1960).

withholding agents. The various withholding agents at source were required under section 50 (a), of the National Internal Revenue Code of 1986, to withhold the 20% final tax on certain passive income x x x.

 Moreover, under Section 51 (g) of the said Code, all taxes

withheld pursuant to the provisions of this Code and its implementing regulations are considered trust funds and shall be maintained in a separate account and not commingled with any other funds of the withholding agent.

 Accordingly, the 20% final tax withheld against the

Respondent’s passive income was already remitted to the Bureau of Internal Revenue, for the corresponding year that the same was actually withheld and considered final withholding taxes under Section 50 of the same Code. Indubitably, to include the same to the Respondent’s gross receipts for the year 1994 would be to tax twice the passive income derived by Respondent for the said year, which would constitute double taxation anathema to our taxation laws.

 

 

II - G.R. No. 140857

Asianbank, petitioner, is a domestic corporation also engaged in banking business.

For the taxable quarters ending June 30, 1994 to June 30, 1996, Asianbank filed

and remitted to the Bureau of Internal Revenue (BIR) the 5% GRT on its total

gross receipts.

On the strength of the January 30, 1996 CTA Decision in the ASIAN BANK case,

Asianbank filed with the Commissioner a claim for refund of the overpaid GRT

amounting to P2,022,485.78.

To toll the running of the two-year prescriptive period for filing of claims,

Asianbank also filed a petition for review with the CTA.

On February 3, 1999, the CTA allowed refund in the reduced amount of

P1,345,743.01,193[11] the amount proven by Asianbank. Unsatisfied, the

Commissioner filed with the Court of Appeals a petition for review.

On November 22, 1999, the Court of Appeals reversed the CTA Decision and

ruled in favor of the Commissioner, thus:

It is true that Revenue Regulation No. 12-80 provides that the gross receipts tax on banks and other financial institutions should be based on all items of income actually received. Actual receipt here is used in opposition to mere accrual. Accrued income refers to income already earned but not yet received. (Rep. v. Lim Tian Teng Sons & Co., 16 SCRA 584).

But receipt may be actual or constructive. Article 531 of the Civil Code provides that possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to the action of one will, or by the proper acts and legal formalities established for acquiring such right. Moreover, taxation income may be received by the taxpayer himself or by someone authorized to receive it for him (Art. 532, Civil Code). The 20% final tax withheld from interest income of banks and other similar institutions is not income that they have not received; it is simply withheld from them and paid to the government, for their benefit. Thus, the 20% income tax withheld from the interest income is, in fact, money of the taxpayer bank but paid by the payor to the government in satisfaction of the bank’s obligation to pay the tax on interest earned. It is the bank’s obligation to pay the tax. Hence, the withholding of the said tax and its payment to the government is for its benefit.

x x x

The case of Collector of Internal Revenue vs. Manila Jockey Club is inapplicable. In that case, a percentage of the gross receipts to be collected by the Manila Jockey Club was earmarked by law to be turned over to the Board on Races and distributed as prizes among owners of winning horses and authorized bonus for jockeys. The Manila Jockey Club itself derives no benefit at all from earmarked percentage. That is why it cannot be considered as part of its gross receipts.

193[11] The amount as alleged in the petition; P1,345,749.01, as it appears in the CA decision.

WHEREFORE, the C.T.A’s judgment herein appealed from is hereby REVERSED, and judgment is hereby rendered DISMISSING the respondent’s Petition for Review in C.T.A Case No. 5412.

SO ORDERED.

 

Hence, the present consolidated petitions.

The Commissioner’s arguments in the two (2) petitions may be

synthesized as follows:

first, there is no law which excludes the 20% FWT

from the taxable gross receipts for the purpose of computing

the 5% GRT;

second, the imposition of the 20% FWT on the

bank’s passive income and the 5% GRT on its taxable gross

receipts, which include the bank’s passive income, does not

constitute double taxation;

third, the ruling by this Court in Manila Jockey

Club,194[12] cited in the ASIAN BANK case, is not applicable;

and

fourth, in the computation of the 5% GRT, the passive

income need not be actually received in order to form part

of the taxable gross receipts.

194[12] Supra, footnote 10.

 

In its Resolution195[13] dated January 17, 2000, this Court adopted

as Citytrust’s Comment on the instant petition for review its

Memorandum submitted to the CTA and its Comment submitted to the

Court of Appeals. Citytrust contends therein that: first, Section 4(e) of

Revenue Regulations No. 12-80 dated November 7, 1980 provides that

the rates of taxes on the gross receipts of financial institutions shall be

based only on all items of income actually received; and, second, this

Court’s ruling in Manila Jockey Club196[14] is applicable. Asianbank

echoes similar arguments.

We rule in favor of the Commissioner.

The issue of whether the 20% FWT on a bank’s interest income

forms part of the taxable gross receipts for the purpose of

computing the 5% GRT is no longer novel. This has been previously

resolved by this Court in a catena of cases, such as China Banking

Corporation v. Court

195 [13] Rollo, p. 50.

196 [14] Supra.

of Appeals,197[15] Commissioner of Internal Revenue v. Solidbank

Corporation,198[16] Commissioner of Internal Revenue v. Bank of

Commerce,199[17] and the latest, Commissioner of Internal Revenue v.

Bank of the Philippine Islands.200[18]

The above cases are unanimous in defining “gross receipts” as

“the entire receipts without any deduction.” We quote the Court’s

enlightening ratiocination in Bank of the Philippines Islands,201[19]

thus:

The Tax Code does not provide a definition of the term “gross receipts”. Accordingly, the term is properly understood in its plain and ordinary meaning and must be taken to comprise of the entire receipts without any deduction. We, thus, made the following disquisition in Bank of Commerce:

The word “gross” must be used in its plain and ordinary meaning. It is defined as “whole, entire, total, without deduction.” A common definition is “without deduction.” “Gross” is also defined as “taking in the whole; having no deduction or abatement; whole, total as opposed to a sum consisting of separate or specified parts.” Gross is the antithesis of net. Indeed, in China Banking Corporation v. Court of Appeals, the Court defined the term in this wise:

As commonly understood, the term “gross receipts” means the entire receipts without any deduction. Deducting any amount from the gross receipts changes the result, and the meaning, to net receipts. Any deduction from gross receipts is

197 [15] G.R. No. 146749, June 10, 2003, 403 SCRA 634.

198 [16] Supra, footnote 6.

199 [17] G.R. No. 149636, June 8, 2005, 459 SCRA 638.

200 [18] G.R. No. 147375, June 26, 2006.

201 [19] Id.

inconsistent with a law that mandates a tax on gross receipts, unless the law itself makes an exception. As explained by the Supreme Court of Pennsylvania in Commonwealth of Pennsylvania v. Koppers Company, Inc. –

Highly refined and technical tax concepts have been developed by the accountant and legal technician primarily because of the impact of federal income tax legislation. However, this is no way should affect or control the normal usage of words in the construction of our statutes; and we see nothing that would require us not to include the proceeds here in question in the gross receipts allocation unless statutorily such inclusion is prohibited. Under the ordinary basic methods of handling accounts, the term gross receipts, in the absence of any statutory definition of the term, must be taken to include the whole total gross receipts without any deductions, x x x. [Citations omitted] (Emphasis supplied)”

Likewise, in Laclede Gas Co. v. City of St. Louis, the Supreme Court of Missouri held:

The word “gross” appearing in the term “gross receipts,” as used in the ordinance, must have been and was there used as the direct antithesis of the word “net.” In its usual and ordinary meaning, “gross receipts” of a business is the whole and entire amount of the receipts without deduction, x x x. On the ordinary, “net receipts” usually are the receipts which remain after deductions are made from the gross amount thereof of the expenses and cost of doing business, including fixed charges and depreciation. Gross receipts become net receipts after certain proper deductions are made from the gross. And in the use of the words “gross receipts,” the instant ordinance, or course, precluded plaintiff from first deducting its costs and expenses of doing business, etc., in arriving at the higher base figure upon which it must pay the 5% tax under this ordinance. (Emphasis supplied)

x x x x x x

Additionally, we held in Solidbank, to wit:

[W]e note that US cases have persuasive effect in our jurisdiction because Philippine income tax law is patterned after its US counterpart.

[G]ross receipts with respect to any period means the sum of: (a) The total amount received or accrued during such period from the sale, exchange, or other disposition of x x x other property of a kind which would properly be

included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business, and (b) The gross income, attributable to a trade or business, regularly carried on by the taxpayer, received or accrued during such period x x x.

x x x [B]y gross earnings from operations x x x was intended all operations x x x including incidental, subordinate, and subsidiary operations, as well as principal operations.

When we speak of the “gross earnings” of a person or corporation, we mean the entire earnings or receipts of such person or corporation from the business or operation to which we refer.

From these cases, “gross receipts” refer to the total, as opposed to the net income. These are therefore the total receipts before any deduction for the expenses of management. Webster’s New International Dictionary, in fact, defines gross as “whole or entire.”

 

In China Banking Corporation,202[20] this Court further explained

that the legislative intent to apply the term in its plain and ordinary

meaning may be surmised from a historical perspective of the levy on

gross receipts. From the time the GRT on banks was first imposed in

1946 under Republic Act No. 39203[21] and throughout its successive re-

enactments,204[22] the legislature has not established a definition of the

202 [20] Supra, footnote 15.

203 [21] Republic Act No. 39 amended Section 249 of the Tax Code of 1939 (effective October 1, 1946), which states:

“Sec. 249. Tax on banks. – There shall be collected a tax of five per centum on the gross receipts derived by all banks doing business in the Philippines from interests, discounts, dividends, commissions, profits from exchange, royalties, rentals of property, real and personal, and all other items treated as gross income under section twenty-nine of this Code.”

204 [22] Since 1 October 1946 when R.A. No. 39 first imposed the gross receipts tax on banks under Section 249 of the Tax Code, the legislature has re-enacted several times this section of the Tax Code. On 24 December 1972, Presidential Decree No. 69, which enacted into law the Omnibus Tax Bill of 1972, re-enacted Section 249 of the Tax Code. Then on 11 June 1977, Presidential Decree No. 1158, otherwise known as the National Internal Revenue Code of 1977, re-enacted Section 249 as Section 119 of the Tax Code. Finally, on 11 December 1997, Republic Act No. 8424, otherwise known as the Tax Reform Act of 1987, re-enacted Section 119 as the present Section 121 of the Tax Code. (See China Banking Corporation v. Court of Appeals, supra).

term “gross receipts.” Under Revenue Regulations No. 12-80 and No. 17-

84, as well as several numbered rulings, the BIR has consistently ruled

that the term “gross receipts” does not admit of any deduction. This

interpretation has remained unchanged throughout the various re-

enactments of the present Section 121 of the Tax Code. On the

presumption that the legislature is familiar with the contemporaneous

interpretation of a statute given by the administrative agency tasked to

enforce the statute, the reasonable conclusion is that the legislature has

adopted the BIR’s interpretation. In other words, the subsequent re-

enactments of the present Section 121, without changes in the term

interpreted by the BIR, confirm that its interpretation carries out the

legislative purpose.

Now, bereft of any laudable statutory basis, Citytrust and

Asianbank simply anchor their argument on Section 4(e) of Revenue

Regulations No. 12-80 stating that “the rates of taxes to be imposed on

the gross receipts of such financial institutions shall be based on all items

of income actually received.” They contend that since the 20% FWT is

withheld at source and is paid directly to the government by the entities

from which the banks derived the income, the same cannot be considered

actually received, hence, must be excluded from the taxable gross

receipts.

The argument is bereft of merit.

First, Section 4(e) merely recognizes that income may be taxable

either at the time of its actual receipt or its accrual, depending on the

accounting method of the taxpayer. It does not really exclude accrued

interest income from the taxable gross receipts but merely postpones its

inclusion until actual payment of the interest to the lending bank. Thus,

while it is true that Section 4(e) states that “the rates of taxes to be

imposed on the gross receipts of such financial institutions shall be based

on all items of income actually received,” it goes on to distinguish actual

receipt from accrual, i.e., that “mere accrual shall not be considered,

but once payment is received in such accrual or in case of

prepayment, then the amount actually received shall be included in

the tax base of such financial institutions.”

And second, Revenue Regulations No. 12-80, issued on November

7, 1980, had been superseded by Revenue Regulations No. 17-84 issued

on October 12, 1984. Section 4(e) of Revenue Regulations No. 12-80

provides that only items of income actually received shall be

included in the tax base for computing the GRT. On the other hand,

Section 7(c) of Revenue Regulations No. 17-84 includes all interest

income in computing the GRT, thus:

SECTION 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes. –

 (a)      The interest earned on Philippine Currency bank deposits

and yield from deposit substitutes subjected to the withholding taxes in accordance with these regulations need not be included in the gross income in computing the depositor’s/investor’s income tax liability in accordance with the provision of Section 29 (b), (c) and (d) of the National Internal Revenue Code, as amended.

 (b)      Only interest paid or accrued on bank deposits, or yield

from deposit substitutes declared for purposes of imposing the withholding taxes in accordance with these regulations shall be allowed as interest expense deductible for purposes of computing taxable net income of the payor.

 

(c)       If the recipient of the above-mentioned items of income are financial institutions, the same shall be included as part of the tax base upon which the gross receipt tax is imposed.

 

 

Revenue Regulations No. 17-84 categorically states that if the

recipient of the above-mentioned items of income are financial

institutions, the same shall be included as part of the tax base upon

which the gross receipt tax is imposed. There is, therefore, an implied

repeal of Section 4(e). There exists a disparity between Section 4(e)

which imposes the GRT only on all items of income actually received (as

opposed to their mere accrual) and Section 7(c) which includes all

interest income (whether actual or accrued) in computing the GRT. As

held by this Court in Commissioner of Internal Revenue v. Solidbank

Corporation,205[23] “the exception having been eliminated, the clear

intent is that the later R.R. No. 17-84 includes the exception within the

scope of the general rule.” Clearly, then, the current Revenue

Regulations require interest income, whether actually received or merely

accrued, to form part of the bank’s taxable gross receipts.206[24]

Moreover, this Court, in Bank of Commerce,207[25] settled the

matter by holding that “actual receipt may either be physical receipt or

constructive

205 [23] Supra, footnote 6.

206 [24] Supra, footnote 18.

207[25] Supra, footnote 17.

receipt,” thus:

Actual receipt of interest income is not limited to physical receipt. Actual receipt may either be physical receipt or constructive receipt. When the depositary bank withholds the final tax to pay the tax liability of the lending bank, there is prior to the withholding a constructive receipt by the lending bank of the amount withheld. From the amount constructively received by the lending bank, the depositary bank deducts the final withholding tax and remits it to the government for the account of the lending bank. Thus, the interest income actually received by the lending bank, both physically and constructively, is the net interest plus the amount withheld as final tax.

The concept of a withholding tax on income obviously and necessarily implies that the amount of the tax withheld comes from the income earned by the taxpayer. Since the amount of the tax withheld constitute income earned by the taxpayer, then that amount manifestly forms part of the taxpayer’s gross receipts. Because the amount withheld belongs to the taxpayer, he can transfer its ownership to the government in payment of his tax liability. The amount withheld indubitably comes from the income of the taxpayer, and thus forms part of his gross receipts.

Corollarily, the Commissioner contends that the imposition of the

20% FWT and 5% GRT does not constitute double taxation.

 

We agree.

Double taxation means taxing for the same tax period the same

thing or activity twice, when it should be taxed but once, for the same

purpose and with the same kind of character of tax.208[26] This is not

the situation in the case at bar. The GRT is a percentage tax under Title

208 [26] Tax Law and Jurisprudence, by Justice Jose C. Vitug and Judge Ernesto D. Acosta, Second Edition, 2000.

V of the Tax Code ([Section 121], Other Percentage Taxes), while the

FWT is an income tax under Title II of the Code (Tax on Income). The

two concepts are different from each other. In Solidbank Corporation,209

[27] this Court defined that a percentage tax is a national tax measured

by a certain percentage of the gross selling price or gross value in money

of goods sold, bartered or imported; or of the gross receipts or earnings

derived by any person engaged in the sale of services. It is not subject

to withholding. An income tax, on the other hand, is a national tax

imposed on the net or the gross income realized in a taxable year. It is

subject to withholding. Thus, there can be no double taxation here as the

Tax Code imposes two different kinds of taxes.

Now, both Asianbank and Citytrust rely on Manila Jockey

Club210[28] in support of their positions. We are not convinced. In said

case, Manila Jockey Club paid amusement tax on its commission in the

total amount of bets called wager funds from the period November 1946

to October 1950. But such payment did not include the 5 ½ % of the

funds which went to the Board on Races and to the owners of horses and

jockeys. We ruled that the gross receipts of the Manila Jockey Club

should not include the 5 ½% because although delivered to the Club, such

money has been especially earmarked by law or regulation for other

persons.

The Manila Jockey Club211[29] does not apply to the cases at bar

because what happened there is earmarking and not withholding.

209 [27] Supra, footnote 6.

210[28] Supra, footnote 10.

211[29] Id.

Earmarking is not the same as withholding. Amounts earmarked do not

form part of gross receipts because these are by law or regulation

reserved for some person other than the taxpayer, although delivered or

received. On the contrary, amounts withheld form part of gross receipts

because these are in constructive possession and not subject to any

reservation, the withholding agent being merely a conduit in the

collection process.212[30] The distinction was explained in Solidbank,

thus:

 

“The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys amounts that never became the property of the race track (Manila Jockey Club merely held that these amounts were held in trust and did not form part of gross receipts). Unlike these amounts, the interest income that had been withheld for the government became property of the financial institutions upon constructive possession thereof. Possession was indeed acquired, since it was ratified by the financial institutions in whose name the act of possession had been executed. The money indeed belonged to the taxpayers; merely holding it in trust was not enough (A trustee does not own money received in trust.) It is a basic concept in taxation that such money does not constitute taxable income to the trustee [China Banking Corp. v. Court of Appeals, supra, p. 27]).

The government subsequently becomes the owner of the money when the financial institutions pay the FWT to extinguish their obligation to the government. As this Court has held before, this is the consideration for the transfer of ownership of the FWT from these institutions to the government (Ibid., p. 26). It is ownership that determines whether interest income forms part of taxable gross receipts (Ibid., p. 27). Being originally owned by these financial institutions as part of their interest income, the FWT should form part of their taxable gross receipts.

 

In fine, let it be stressed that tax exemptions are highly disfavored.

It is a governing principle in taxation that tax exemptions are to be

construed in strictissimi juris against the taxpayer and liberally in favor of

212 [30] Supra, footnote 6.

the taxing authority and should be granted only by clear and unmistakable

terms.

WHEREFORE, in G.R. No. 139786, we GRANT the petition of

the Commissioner of Internal Revenue and REVERSE the Decision of

the Court of Appeals dated August 17, 1999 in CA-G.R. SP No. 52707.

In G.R. No. 140857, we DENY the petition of Asianbank

Corporation and AFFIRM in toto the Decision of the Court of Appeals

in CA-G.R. SP No. 51248. Costs against petitioner.

SO ORDERED.

 

ANGELINA SANDOVAL-GUTIERREZ

Associate Justice

 

 

 

 

 

 

WE CONCUR:

 

 

REYNATO S. PUNO Associate Justice

Chairperson

RENATO C. CORONA

Associate Justice

ADOLFO S. AZCUNA

Associate Justice

CANCIO C. GARCIA

Associate Justice

 

ATTESTATION

 

 

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

 

 

REYNATO S. PUNO

Associate Justice

Chairperson, Second Division

 

 

CERTIFICATION

 

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

 

 

 

ARTEMIO V. PANGANIBAN

Chief Justice

 

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-24756            October 31, 1968

CITY OF BAGUIO, plaintiff-appellee, vs.FORTUNATO DE LEON, defendant-appellant.

The City Attorney for plaintiff-appellee.Fortunato de Leon for and in his own behalf as defendant-appellant.

FERNANDO, J.:

In this appeal, a lower court decision upholding the validity of an ordinance1 of the City of Baguio imposing a license fee on any person, firm, entity or corporation doing business in the City of Baguio is assailed by defendant-appellant Fortunato de Leon. He was held liable as a real estate dealer with a property therein worth more than P10,000, but not in excess of P50,000, and therefore obligated to pay under such ordinance the P50 annual fee. That is the principal question. In addition, there has been a firm and unyielding insistence by defendant-appellant of the lack of jurisdiction of the City Court of Baguio, where the suit originated, a complaint having been filed against him by the City Attorney of Baguio for his failure to pay the amount of P300 as license fee covering the period from the first quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor was defendant-appellant agreeable to such a suit being instituted by the City Treasurer without the consent of the Mayor, which for him was indispensable. The lower court was of a different mind.

In its decision of December 19, 1964, it declared the above ordinance as amended, valid and subsisting, and held defendant-appellant liable for the fees therein prescribed as a real estate dealer. Hence, this appeal. Assume the validity of such ordinance, and there would be no question about the liability of defendant-appellant for the above license fee, it being shown in the partial stipulation of facts, that he was "engaged in the rental of his property in Baguio" deriving income therefrom during the period covered by the first quarter of 1958 to the fourth quarter of 1962.

The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending the city charter of Baguio2 empowering it to fix the license fee and regulate "businesses, trades and occupations as may be established or practiced in the City."

Unless it can be shown then that such a grant of authority is not broad enough to justify the enactment of the ordinance now assailed, the decision appealed from must be affirmed. The task confronting defendant-appellant, therefore, was far from easy. Why he failed is understandable, considering that even a cursory reading of the above amendment readily discloses that the enactment of the ordinance in question finds support in the power thus conferred.

Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City of Baguio,3 the effect of the amendatory section insofar as it would expand the previous power vested by the city charter was clarified in these terms: "Appellants apparently have in mind section 2553, paragraph (c) of the Revised Administrative Code, which empowers the City of Baguio merely to impose a license fee for the purpose of rating the business that may be established in the city. The power as thus conferred is indeed limited, as it does not include the power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding to its power to license the power to tax and to regulate. And it is precisely having in view this amendment that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the amendment above adverted to empowers the city council not only to impose a license fee but also to levy a tax for purposes of revenue, more so when in amending section 2553 (b), the phrase 'as provided

by law' has been removed by section 2 of Republic Act No. 329. The city council of Baguio, therefore, has now the power to tax, to license and to regulate provided that the subjects affected be one of those included in the charter. In this sense, the ordinance under consideration cannot be considered ultra vires whether its purpose be to levy a tax or impose a license fee. The terminology used is of no consequence."

It would be an undue and unwarranted emasculation of the above power thus granted if defendant-appellant were to be sustained in his contention that no such statutory authority for the enactment of the challenged ordinance could be discerned from the language used in the amendatory act. That is about all that needs to be said in upholding the lower court, considering that the City of Baguio was not devoid of authority in enacting this particular ordinance. As mentioned at the outset, however, defendant-appellant likewise alleged procedural missteps and asserted that the challenged ordinance suffered from certain constitutional infirmities. To such points raised by him, we shall now turn.

1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in the suit for the collection of the real estate dealer's fee from him in the amount of P300. He contended before the lower court, and it is his contention now, that while the amount of P300 sought was within the jurisdiction of the City Court of Baguio where this action originated, since the principal issue was the legality and constitutionality of the challenged ordinance, it is not such City Court but the Court of First Instance that has original jurisdiction.

There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently, on September 7, 1968 to be exact, we rejected a contention similar in character in Nemenzo v. Sabillano.4 The plaintiff in that case filed a claim for the payment of his salary before the Justice of the Peace Court of Pagadian, Zamboanga del Sur. The question of jurisdiction was raised; the defendant Mayor asserted that what was in issue was the enforcement of the decision of the Commission of Civil Service; the Justice of the Peace Court was thus without jurisdiction to try the case. The above plea was curtly dismissed by Us, as what was involved was "an ordinary money claim" and therefore "within the original jurisdiction of the Justice of the Peace Court where it was filed, considering the amount involved." Such is likewise the situation here.

Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this license fee corresponding to the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of the amount involved. The thought that the municipal court lacked jurisdiction apparently was not even in the minds of the parties and did not receive any consideration by this Court.

Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is raised, it is the Court of First Instance that should have original jurisdiction on the matter. It does not admit of doubt, however, that what confers jurisdiction is the amount set forth in the complaint. Here, the sum sought to be recovered was clearly within the jurisdiction of the City Court of Baguio.

Nor could it be plausibly maintained that the validity of such ordinance being open to question as a defense against its enforcement from one adversely affected, the matter should be elevated to the Court of First Instance. For the City Court could rely on the presumption of the validity of such ordinance,6 and the mere fact, however, that in the answer to such a complaint a constitutional question was raised did not suffice to oust the City Court of its jurisdiction. The suit remains one for collection, the lack of validity being only a defense to such an attempt at recovery. Since the City Court is possessed of judicial power and it is likewise axiomatic that the judicial power embraces the ascertainment of facts and the application of the law, the Constitution as the highest law superseding any statute or ordinance in conflict therewith, it cannot be said that a City Court is bereft of competence to proceed on the matter. In the exercise of such delicate power, however, the admonition of Cooley on inferior tribunals is well worth remembering. Thus: "It must be evident to any one that the power to declare a legislative enactment void is one which the judge, conscious of the fallibility of the human judgment, will shrink from exercising in any case where he can conscientiously and with due regard to duty and official oath decline the responsibility."7 While it remains undoubted that such a power to pass on the validity of an ordinance alleged to infringe certain constitutional rights of a litigant exists, still it should be exercised with due care and circumspection, considering not only the presumption of validity but also the relatively modest rank of a city court in the judicial hierarchy.

2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample statutory authority for the enactment thereof. Nonetheless, its validity on constitutional grounds is challenged because of the allegation that it imposed double taxation, which is repugnant to the due process clause, and that it violated the requirement of uniformity. We do not view the matter thus.

As to why double taxation is not violative of due process, Justice Holmes made clear in this language: "The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the due process clause] no more forbids double taxation than it does doubling the amount of a tax, short of confiscation or proceedings unconstitutional on other grounds."8With that decision rendered at a time when American sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered the coup de grace to the bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as with us, its ghost as noted by an eminent critic, still stalks the juridical state. In a 1947 decision, however,9 we quoted with approval this excerpt from a leading American decision:10 "Where, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results."

At any rate, it has been expressly affirmed by us that such an "argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city ..., it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof."11

The above would clearly indicate how lacking in merit is this argument based on double taxation.

Now, as to the claim that there was a violation of the rule of uniformity established by the constitution. According to the challenged ordinance, a real estate dealer who leases property worth P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not over P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face, therefore, the above ordinance cannot be assailed as violative of the constitutional requirement of uniformity. In Philippine Trust Company v. Yatco,12 Justice Laurel, speaking for the Court, stated: "A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found."

There was no occasion in that case to consider the possible effect on such a constitutional requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso.13 Thus: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; ..." About two years later, Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la Fuente14 incorporated the above excerpt in his opinion and continued: "Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution."

To satisfy this requirement then, all that is needed as held in another case decided two years later, 15 is that the statute or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation." This Court is on record as accepting the view in a leading American case16 that "inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation."17

It is thus apparent from the above that in much the same way that the plea of double taxation is unavailing, the allegation that there was a violation of the principle of uniformity is inherently lacking in persuasiveness. There is no need to pass upon the other allegations to assail the validity of the above ordinance, it being maintained that the license fees therein imposed "is excessive, unreasonable and oppressive" and that there is a failure to observe the mandate of equal protection. A reading of the ordinance will readily disclose their inherent lack of plausibility.

3. That would dispose of all the errors assigned, except the last two, which would predicate a grievance on the complaint having been started by the City Treasurer rather than the City Mayor of Baguio. These alleged errors, as was the case with the others assigned, lack merit.

In much the same way that an act of a department head of the national government, performed within the limits of his authority, is presumptively the act of the President unless reprobated or disapproved,18 similarly the act of the City Treasurer, whose position is roughly analogous, may be assumed to carry the seal of approval of the City Mayor unless repudiated or set aside. This should be the case considering that such city official is called upon to see to it that revenues due the City are collected. When administrative steps are futile and unavailing, given the stubbornness and obduracy of a taxpayer, convinced in good faith that no tax was due, judicial remedy may be resorted to by him. It would be a reflection on the state of the law if such fidelity to duty would be met by condemnation rather than commendation.

So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes to it from the functional and pragmatic test. If a city treasurer has to await the nod from the city mayor before a municipal ordinance is enforced, then opportunity exists for favoritism and undue discrimination to come into play. Whatever valid reason may exist as to why one taxpayer is to be accorded a treatment denied another, the suspicion is unavoidable that such a manifestation of official favor could have been induced by unnamed but not unknown consideration. It would not be going too far to assert that even defendant-appellant would find no satisfaction in such a sad state of affairs. The more desirable legal doctrine therefore, on the assumption that a choice exists, is one that would do away with such temptation on the part of both taxpayer and public official alike.

WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against defendant-appellant.

Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Capistrano, JJ., concur.Zaldivar, J., is on leave.

Footnotes

1 Ordinance No. 218.

2 Section 2553, paragraph (c), Revised Administrative Code.

3 91 Phil. 854, 856-857 (1952).

4 L-20977.

5 101 Phil. 859 (1957).

6 U.S. v. Salaveria, 39 Phil. 102 (1918) and Ermita-Malate Hotel Association v. Mayor of Manila, L-24693, July 31, 1967.

7 Cooley on Constitutional Limitations, Vol. I, 8th ed. 332 (1927).

8 Fort Smith Lumber Co. v. Arkansas, 251 US 523, 533 (1920).

9 Wise & Co. v. Meer, 78 Phil. 655.

10 Helmich v. Hellman, 276 US 233 (1928).

11 Punsalan v. Municipal Board of Manila, 95 Phil. 46, 49 (1954).

12 69 Phil. 420 (1940).

13 83 Phil. 852, 862 (1949).

14 88 Phil. 60, 65 (1951).

15 Uy Matias v. City of Cebu, 93 Phil. 300 (1953).

16 Carmichael v. Southern Coal and Coke Co., 301 US 495 (1937).

17 Lutz v. Araneta, 98 Phil. 148, 153 (1955).

18 Villena v. Sec. of the Interior, 67 Phil. 451 (1939).