Digests

Taxation Law I
Michael Vernon Guerrero Mendiola
2003
Shared under Creative Commons AttributionNonCommercial-ShareAlike 3.0 Philippines license.
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Lutz vs. Araneta

GR L-7859, 22 December 1955
Facts: AWalter Lutz, as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma,
sought to
recover the sum of P14,6666.40 paid by the estate as taxes from the Commissioner under Section e of
Commonwealth Act 567 (the Sugar Adjustment Act), alleging that such tax is unconstitutional as it levied
for
the aid and support of the sugar industry exclusively, which is in his opinion not a public purpose.
Issue: Whether the tax is valid in supporting an industry.
Held: The tax is levied with a regulatory prupose, i.e. to provide means for the rehabilitation and
stabilization
of the threatened sugar industry. The act is primarily an exercise of police power, and is not a pure
exercise of
taxing power. As sugar production is one of the great industries of the Philippines; and that its promotion,
protection and advancement redounds greatly to the general welfare, the legislature found that the general
welfare demanded that the industry should be stabilized, and provided that the distribution of benefits
therefrom be readjusted among its component to enable it to resist the added strain of the increase in tax
that it
had to sustain. Further, it cannot be said that the devotion of tax money to experimental stations to seek
increase of efficiency in sugar production, utilization of by-products, etc., as well as to the improvement
of
living and working conditions in sugar mills and plantations, without any part of such money being
channeled
diectly to private persons, constitute expenditure of tax money for private purposes.
The tax is valid.
Commissioner vs. Lingayen Gulf Electric
GR L-23771, 4 August 1988
Facts: Lingayen Gulf Electric Power operates an electric power plant serving the municipalities of
Lingayen
and Binmaley, Pangaisnan, pursuant to municipal franchise granted it by the respective municipal
councils.
The franchises provided that the grantee shall pay quarterly to the Provincial Treasury of Pangasinan 1%
of
the gross earnings obtained through the privilege for the first 20 years (from 1946), and 2% during the
remaining 15 years of the life of the franchise. In 1948, the Philippine President approved the franchise
(RA
3843). In 1955, the BIR assessed and demanded against the company deficiency franchise taxes and
surcharges fro the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts from 1948 to
1954. The company asked for a reinvestigation, which was denied.
Issue : Whether a rate below 5% on gross income violate the uniformity of tax clause in the
Constitution.

Held [2]: A tax is uniform when it operates with the same force and effect in every place where the
subject of
it is found. Uniformity means that all property belonging to the same class shall be taxed alike. The
legislature
has the inherent power not only to select the subjects of taxation but to grant exemptions. Tax exemptions
have never been deemed violateve of the equal protection clause. Herein, the 5% franchise tax rate
provided
in Section 259 of the Tax Code was never intended to have a universal application. Section 259 expressly
allows the payment of taxes at rates lower than 5% when the charter granting the franchise precludes the
imposition of a higher tax. RA 3843 did not only fix and specify a franchise tax of 2% on its gross
receipts,
but made it in lieu of any and all taxes, all laws to the contrary notwithstanding.
The company, hence, is not liable for deficiency taxes.
National Development Co. vs. Commissioner
GR L-53961, 30 June 1987
Facts: The National Development Co. (NDC) entered into contracts in Tokyo with several Japanese
shipbuilding companies for the construction of 12 ocean-going vessels. Initial payments were made in
cash
and through irrevocable letters of credit. When the vessels were completed and delivered to the NDC in
Tokyo, the latter remitted to the shipbilders the amount of US$ 4,066,580.70 as interest on the balance of
the
purchase price. No tax was withheld. The Commissioner then held NDC liable on such tax in the total
amount
of P5,115,234.74. The Bureau of Internal Revenue served upon the NDC a warrant of distraint and levy
after
negotiations failed.
Issue: Whether the NDC is liable for deficiency tax.
Held: The Japanese shipbuilders were liable on the interest remitted to them under Section 37 of the
Tax
Code. The NDC is not the one taxed. The imposition of the deficiency taxes on the NDS is a penalty for
its
failure to withhold the same from the Japanese shipbuilders. Such liability is imposed by Section 53(c) of
the
Tax Code. NDC was remiss in the discharge of its obligation of its obligation as the withholding agent of
the
government and so should be liable for its omission.
Domingo vs. Garlitos
GR L-18993, 29 June 1963
Facts: InDomingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory
the
order of the Court of First Instance of Leyte for the payment of estate and inheritance taxes, charges and
penalties amounting to P40,058.55 by the Estate of the late Walter Scott Price. The petition for execution
filed
by the fiscal, however, was denied by the lower court. The Court held that the execution is unjustified as
the
Government itself is indebted to the Estate for 262,200; and ordered the amount of inheritance taxes be
deducted from the Governments indebtedness to the Estate.
Issue: Whether a tax and a debt may be compensated.

Held: The court having jurisdiction of the Estate had found that the claim of the Estate against the
Government has been recognized and an amount of P262,200 has already been appropriated by a
corresponding law (RA 2700). Under the circumstances, both the claim of the Government for inheritance
taxes and the claim of the intestate for services rendered have already become overdue and demandable as
well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with
Article
1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount.
Republic vs. Mambulao Lumber
GR L-17725, 28 February 1962
Facts: Mambulao Lumber Company paid the Government a total of P9,127.50 as reforestation charges.
Having found liable for an aggregate amount of P4,802.37 for forest charges, it contended that since the
Republic (Government) has not made use of the reforestation charges for reforesting the denuded area of
the
land covered by the companys license, the Republic should refund said amount or, if it cannot be
refunded, at
least the company should be compensated with what it owed the Republic for reforestation charges.
Issue: Whether taxes may be subject of set-off or compensation.
Held: Internal revenue taxes, such as forest charges, cannot be the subject of set-off or compensation. A
claim
for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of
setoff,
which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any
indebtedness of the State or municipality to one who is liable to the State or municipality for taxes.
Neither
are they subject of recoupment since they do not arise out of the contract or transaction sued on.
Taxes are not in the nature of contracts between the parties but grow out of a duty to, and are the positive
acts
of the government, to the making and enforcing of which, the personal consent of individual taxpayers is
not
required.
Francia vs. Intermediate Appellate Court
GR L-67649, 28 June 1988
Facts: Engracio Francia was the registered owner of a house and lot located in Pasay City. A portion of
such
property was expropriated by the Republic of the Philippines in 1977. It appeared that Francia did not pay
his
real estate taxes from 1963 to 1977. Thus, his property was sold in a public auction by the City Treasurer
of
Pasay City.
Issue: Whether the expropriation payment may compensate for the real estate taxes due.
Held: There can be no off-setting of taxes against the claims that the taxpayer may have against the
government. A person canot refuse to pay a tax on the ground that the government owes him an amount
equal
to or greater than the tax being collected. The collection of a tax annot await the results of a lawsuit
agianst
the government. Internal revenue taxes cannot be the subject of compensation. The Government and the

taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a
claim
of taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.
Villegas vs, Hiu Chiong Tsai Pao Ho
GR L-29646, 10 November 1978
Facts: The Municipal Board of Manila enacted Ordinance 6537 requiring aliens (except those
employed in
the diplomatic and consular missions of foreign countries, in technical assistance programs of the
government
and another country, and members of religious orders or congregations) to procure the requisite mayors
permit so as to be employed or engage in trade in the City of Manila. The permit fee is P50, and the
penalty
for the violation of the ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or both.
Issue: Whether the ordinance imposes a regulatory fee or a tax.
Held: The ordinances purpose is clearly to raise money under the guise of regulation by exacting P50
from
aliens who have been cleared for employment. The amount is unreasonable and excessive because it fails
to
consider difference in situation among aliens required to pay it, i.e. being casual, permanent, part-time,
rankandfile or executive.
[ The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable, being applied only to
aliens who are thus deprived of their rights to life, liberty and property and therefore violates the due
process
and equal protection clauses of the Constitution. Further, the ordinance does not lay down any criterion or
standard to guide the Mayor in the exercise of his discretion, thus conferring upon the mayor arbitrary and
unrestricted powers.
Progressive Development Corporation vs. Quezon City
GR 36081, 24 April 1989
Facts: The City Council of Quezon City adopted Ordinance 7997 (1969) where privately owned and
operated
public markets to pay 10% of the gross receipts from stall rentals to the City, as supervision fee. Such
ordinance was amended by Ordinance 9236 (1972), which imposed a 5% tax on gross receipts on rentals
or
lease of space in privately-owned public markets in Quezon City. Progressive Development Corp., owned
and
operator of Farmers Market and Shopping Center, filed a petition for prohibition against the city on the
ground that the supervision fee or license tax imposed is in reality a tax on income the city cannot impose.
Issue: Whether the supervision fee / license tax is a tax on income.
Held: The 5% tax imposed in Ordinance 9236 does not constitute a tax on income, nor a city income
tax
(distinguished from the national income tax by the Tax Code) within the meaning of Section 2 (g) of the
Local
Autonomy Act, but rather a license tax or fee for the regulation of business in which the company is
engaged.
To be considered a license fee, the imposition must relate to an occupation or activity that so engages the
public interest in health, morals, safety and development as to require regulations for the protection and

promotion of such public interest; the imposition must also bear a reasonable relation to the probable
Compania General de Tobacos de Filipinas vs. Manila
GR L-16619, 29 June 1963
Facts: Compania General de Tabacos de Filipinas (Tabacalera) paid the City of Manila the fixed license
fees
prescribed by Ordinance 3358 for the years 1954 to 1957. In 1954, City Ordinance 3634 and 3816 were
passed; where the term general merchandise found therein included all articles in Sections 123 to 148
of the
Tax Code (thus, also liquor under Sedctions 133 to 135). The Tabacalera paid its wholesalers and
retailers
taxes. In 1954, the City Treasurer addressed a letter to an accounting firm, expressing the view that liquor
dealers paying the annual wholesale and retail fixed tax under Ordinance 3358 are not subject to the
wholesale aand retail deaklers taxes prescribed by City Ordinances 3634, 3301, and 3816. The
Tabacalera,
upon learning of said stopped including quarterly sworn declaratons required by the latter ordinances, and
in
1957, demanded refunde of the alleged overpayment. The claim was disallowed.
Issue: Whether there is a distinction between Ordinance 3358 and Ordinances 3634, 3301 and 3816, to
prevent refund to the company.
Held: Generally, the term tax applies to all kinds of exactions which become public funds. Legally,
however, a license fee is a legal concept quite distinct from tax: the former is imposed in the exercise of
police power for purposes of regulation, while the latter is imposed under the taxing power for the
purpose of
raising revenues. Ordinance 3358 prescribes municipal license fees for the privilege to engage in the
business
of selling liquor or alcohol beverages; considering that the sale of intoxicating liquor is (potentially)
harmful
to public health and morals, and must be subject to supervision or regulation by the State and by cities
and
municipalities authorized to act in the premises. On the other hand, Ordinances 3634 , 3301 and 3816
imposed taxes on the sales of general merchandise, wholesale or retail, and are revenue measures enacted
by
the Municipal Board of Manila.
Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same
article, without it being in violation of the rule against double taxation. The contrary view of the Treasurer
in
its letter is of no consequence as the government is not bound by the errors or mistakes committed by its
officers, specially on matters of law.
The company, thus, is not entitled to refund.
Philippine Acetylene Co. Inc. vs. Commissioner
GR L-19707, 17 August 1967
En Banc, Castro (J): 7 concur, 2 took no part
Facts: Philippine Acetylene Co. Inc. is engaged in the manufacture and sale of oxygen and acetylene
gases. It
sold its products to the National Power Corporation (Napocor), an agency of the Philippine Government,
and
the Voice of America (VOA), an agency of the United States Government. The Commissioner assessed
deficiency sales tax and surcharges against the company. The company denied liability for the payment of
tax

on the ground that both Napocor and VOA are exempt from taxes.
Issue: Whether Philippine Acetylene Co. is exempt from the tax.
Held: Sales tax are paid by the manufacturer or producer who must make a true and complete return of
the
amount of his, her or its gross monthly sales, receipts or earnings or gross value of output actually
removed
from the factory or mill, warehouse and to pay the tax due thereon. The tax imposed by Section 186 of the
Tax Code is a tax on the manufacturer or producer and not a tax on the purchaser except probably in a
very
remote and inconsequential sense. Accordingly, its levy on the sales made to tax-exempt entities like the
Napocor is permissible. On the other hand, there is nothing in the language of the Military Bases
Agreement
to warrant the general exemption granted by General Circular V-41 (1947). Thus, the expansive
construction
of the tax exemption is void; and the sales to the VOA are subject to the payment of percentage taxes
under
Section 186 of the Tax Code. Therefore, tax exemption is strictly construed and exemption will nbot be
held
to be conferred unless the terms under which it is granted clearly and distinctly show that such was the
intention.
Pascual vs. Secretary of Public Works and Communications
GR L-10405, 29 December 1960
Facts: RA 920 (Act appropriating funds for public works) was enacted in 1953 containing an item
(Section 1
c[a]) for the construction, reconstruction, repair, extension and improvement of Pasig feeder road
terminals
(the projected and planned subdivision roads, which were not yet constructed, within Antonio Subdivision
owned by Senator Jose C. Zulueta). Zulueta donated said parcels of land to the Government 5 months
after
the enactment of RA 920, on the condition that if the Government violates such condition the lands would
revert to Zulueta. The provincial governor of Rizal, Wenceslao Pascual, questioned the validity of the
donation and the Constitutionality of the item in RA 920, it being not for a public purpose.
Issue: Whether the item in the appropriation is valid.
Held: The right of the legislature to appropriate funds is correlative with its right to tax, under
constitutional
provisions against taxation except for public purposes and prohibiting the collection of a tax for one
purpose
and the devotion thereof to another purpose, no appropriation of state funds can be made for other than a
public purpose. The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occupying, or acts performed, subsequently thereto, unless the latter consist of
an
amendment of the organic law, removing, with retrospective operation, the constitutional limitation
infringed
by said statute. Herein, inasmuch as the land on which the projected feeder roads were to be constructed
belonged to Senator Zulueta at the time RA 920 was passed by Congress, or approved by the President,
and
the disbursement of said sum became effective on 20 June 1953 pursuant to Section 13 of the Act, the
result
is that the appropriating sough a private purpose and hence, null and void.

Abra vs. Hernando

GR L-49336, 31 August 1981
Facts: The provincial assessor made a tax assessment on the properties of the Roman Catholic Bishop
of
Bangued. The bishop claims tax exemption from real estate tax, through an action for declaratory relief. A
summary judgment was made granting the exemption without hearing the side of the Province of Abra.
Issue: Whether the properties of the Bishop of Bangued are tax-exempt.
)

Held: The 1935 and the 1973 Constitutions differ in language as to the exemption of religious property
from
taxes as tehy should not only be exclusively but also actually and directly used for religious
purposes.
Herein, the judge accepted at its face the allegation of the Bishop instead of demonstrating that there is
compliance with the constitutional provision that allows an exemption. There was an allegation of lack of
jurisdiction and of lack of cause of action, which should have compelled the judge to accord a hearing to
the
province rather than deciding the case immediately in favor of the Bishop. Exemption from taxation is not
favored and is never presumed, so that if granted, it must be strictly construed against the taxpayer. There
must be proof of the actual and direct use of the lands, buildings, and improvements for religious (or
charitable) purposes to be exempted from taxation.
The case was remanded to the lower court for a trial on merits.
Sison vs. Ancheta
GR L-59431, 25 July 1984
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1)
unduly
discriminated against him by the imposition of higher rates upon his income as a professional, that it
amounts
to class legislation, and that it transgresses against the equal protection and due process clauses of the
Constitution as well as the rule requiring uniformity in taxation.
Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on
uniformity in
taxation.
Held: There is a need for proof of such persuasive character as would lead to a conclusion that there
was a
violation of the due process and equal protection clauses. Absent such showing, the presumption of
validity
must prevail. 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. Where the differentitation conforms to the practical dictates of
justice
and equity, similar to the standards of equal protection, it is not discriminatory within the meaning of the
clause and is therefore uniform. Taxpayers may be classified into different categories, such as recipients
of
compensation income as against professionals. Recipients of compensation income are not entitled to
make
deductions for income tax purposes as there is no practically no overhead expense, while professionals
and
businessmen have no uniform costs or expenses necessaryh to produce their income. There is ample
justification to adopt the gross system of income taxation to compensation income, while continuing the

system of net income taxation as regards professional and business income.

Shell Co. vs. Vano
GR L-6093, 24 February 1954
Facts: The municipal council of Cordova, Cebu adopted Ordinance 10 (1946) imposing an annual tax
of P150
on occupation or the exercise of the privilege of installation manager; Ordinance 9 (1947) imposing 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 Ordinance 11 (1948) imposing an annual tax of P150 on tin can factories having
a
maximum annual output capacity of 30,000 tin cans. Shell Co., 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.
Issue: Whether Ordinance 10 is discriminatory and hostile because there is no other person in the
locality
who exercise such designation or occupation.
Held: 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.
Pepsi-Cola Bottling Co. vs. City of Butuan
GR L-22814, 28 August 1968
Facts: Ordinance 110 was enacted by the City of Butuan imposing a tax of P0.10 per case of 24 bottles
of
softdrinks or carbonated drinks. The tax was imposed upon dealers engeged in selling softdrinks or
carbonated drinks. When Ordinance 110, the tax was imposed upon an agent or consignee of any person,
association, partnership, company or corporation engaged in selling softdrinks or carbonated drinks, with
agent or consignee being particularly defined on the inserted provision Section 3-A. In effect,
merchants
engaged in the sale of softdrinks, etc. are not subject to the tax unless they are agents or consignees of
another
dealer who must be one engaged in business outside the City. Pepsi-Cola Bottling Co. filed suit to recover
sums paid by it to the city pursuant to the Ordinance, which it claims to be null and void.
Issue: Whether the Ordinance is discriminatory.
Held: The Ordinance, as amended, is discriminatory since only sales by agents or consignees of
outside
dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants,
regardless of the volume of their sales , and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the city, would be exempt from the tax. The
classification made in the exercise of the authority to tax, to be valid must be reasonable, which would be
satisfied if the classification is based upon substantial distinctions which makes real differences; these are
germane to the purpose of legislation or ordinance; the classification applies not only to present
conditions but
also to future conditions substantially identical to those of the present; and the classification applies
equally to
all those who belong to the same class. These conditions are not fully met by the ordinance in question.

American Bible Society vs. Manila

GR L-9637, 30 April 1957
Facts: In the course of its ministry, the Philippine agency of the American Bible Society has been
distributing
and selling bibles and/or gospel portions thereof throughout the Philippines and translating the same into
several Philippine dialets. The acting City Treasurer of Manila required the society to secure the
corresponding Mayors permit and municipal license fees, together with compromise covering the period
from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and filed suit
questioning the legality of the ordinances under which the fees are being collected.
Issue: Whether the municipal ordinances violate the freedom of religious profession and worship.
Held: A tax on the income of one who engages in religious activities is different from a tax on property
used
or employed in connection with those activities. It is one thing to impose a tax on the income or property
of a
preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the
exercise of a privilege is the power to control or suppress its enjoyment. Even if religious groups and the
press
are not altogether free from the burdens of the government, the act of distributing and selling bibles is
purely
religious and does not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price of
bibles,
etc. are a little higher than actual cost of the same does not necessarily mean it is already engaged in
business
for profit. Ordinance 2529 and 3000 are not applicable to the Society.
Cagayan Electric Power & Light Co. vs. Commissioner
GR L-60126, 25 September 1985
Second Division, Aquino (J): 5 concur
Facts: Cagayan Electric is a holder of a legislative franchise under Republic Act 3247 where payment
of 3%
tax on gross earnings is in lieu of all taxes and assessments upon privileges, etc. In 1968, RA 5431
amended
the franchise by making all corporate taxpayers liable for income tax except those indicated in paragraph
(c)
(1) of Section 24 of the Tax Code. In 1969, through RA 6020, its franchise was extended to two other
towns
and the tax exemption was reenacted. In 1973, the Commissioner required the company to pay deficiency
income taxes for 1968 to 1971.
Issue: Whether the withdrawal of the franchises tax exemption violates the non-impairment clause of
the
Constitution.
Held: Congress could impair the companys legislative franchise by making it liable for income tax.
The
Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when
the
public interest so requires. RA 3247 itself provides that the franchise is subject to amendment, etc. by
Congress. The enactment of RA 5431 had the effect of withdrawing the companys exemption from
income
tax. The exemption was restored by the enactment of RA 6020. The company is liable only for the income
tax

fpr the period of 1 January to 3 August 1969.

Casanovas vs. Hord
GR L-3473, 22 March 1907
Facts: In 1897, the Spanish Government, in accordance with the provisions of the royal decree of 14
may
1867, granted J. Casanovas certain mines in the province of Ambos Camarines, of which mines the latter
is
now the owner. That these were validly perfected mining concessions granted to prior to 11 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 1189 (Internal Revenue Act). The Commissioner, JNO S. Hord,
imposed
upon these properties the tax mentioned in Section 134, which Casanovas paid under protest.
Issue: Whether Section 134 of Act 1189 is valid.
Held: The deed constituted a contract between the Spanish Government and Casanovas. The obligation
in the
contract was impaired by the enactment of Section 134 ofthe Internal Revenue La, thereby infringing the
provisions of Section 5 of the Act of Congress of 1 July 1902. Furthermore, the section conflicts with
Section
60 of the Act of Congress of 1 July 1902, which indicate that concessions can be cancelled only by reason
of
illegality in the procedure by which they wer obtained, or for failure to comply with the conditions
prescribed
as requisites for their retention in the laws under which they wer granted. The grounds were not shown or
claimed in the case. As to the allegation that the section violates uniformity of taxation, the Court found it
unnecessary to consider the claim in view of the result at which the Court has arrived.
Reyes vs. Almanzor
GR 49839-46, 26 April 1991
En Banc, Paras (J): 15 concur
Facts: JBL, Edmundo and Milagros Reyes are owners of parcels of land in Manila which are leased
and
occupied as dwelling sites by tenants. In 1971, RA 6359 was passed prohibiting an increase of monthly
rentals of dwelling units or of land on which another dwelling is located for one year after effectivity for
rentals not exceeding P300 but allowing an increase of rent thereafter by not more than 10%. The Act also
suspended the operation of Article 1673 of the Civil Code (ejectment of lessess). PD 20 amended RA
6359 by
absolutely prohibiting the increase and indefinitely suspending Article 1673. The Reyeses, thus, were
precluded from raising the rentals and from ejecting the tenants. In 1973, the City Assessor of Manila
reclassified and reassessed the value of the properties based on the schedule of market values duly
reviewed
by the Secretary of Finance. As it entailed an increase of the corresponding tax rates, the Reyeses filed a
memorandum of disagreement with the Board of Tax Assessment Appeals and averring therein that the
reassessments were excessive, unwarranted, unequitable, confiscatory and unconstitutional inasmuch as
the
taxes imposed exceeded the annual income derived from their properties; and that the income approach
should have been used in determining land values instead of the comparative sales approach which the
assessor adopted.
Issue: Whether the reassessment is unequitable.

Held: Taxation is equitable when its burden falls on those better able to pay. Taxation is progressive
when its
rate goes up depenfing on the resources of the person affected. Taxes are uniform when all taxable articles
or
kinds of property of the same class are taxed at the same rate. The taxing power has the authority to make
reasonable and natural classification for purposes of taxation. Laws should operate equally and uniformly,
however, on all persons under similar circumstances or that all persons mus t be treated in the same
manner,
the conditiions not being different both in the privileges conferred and liabilities imposed. Finally, under
the
Real Property Tax Code (PD 464), property must be appraised at its cuurent and fair market value. The
market
value of the properties covered by PD 20, thus cannot be equated with the market value of properties not
so
covered. Shcu property covered by PD 20 has naturally a much lesser market value in view of the rental
restrictions. Although taxes are the lifeblood of the government and should be collected without
unnecessary
hindrance, such collection should be made in accordance with law as any arbitrariness will negate the
very
reason for government itself. As teh Reyeses are burdened by the Rent Freeze Laws (RA 6359 and PD
20),
they should not be penalized by the same government by the imposition of excessive taxes they cancan ill
afford and would eventually result in the forfeiture of their properties, under the principle of social justice.
Abra Valley College vs. Aquino
GR L-39086, 15 June 1988
Facts: Abra Valley College rents out the ground floor of its college building to Northern Marketing
Corporation while the second floor thereof is used by the Director of the College for residential purposes.
The
municipal and provincial treasurers served upon the College a notice of seizure and later a notice of
sale
due to the alleged failure of the College to pay real estate taxes and penalties thereon. The school filed
suit to
annul said notices, claiming that it is tax-exempt.
Issue: Whether the College is exempt from taxes.
Held: While the Court allows a more liberal and non-restrictive interpretation of the phrase exclusively
ised
for educational purposes, 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. While the
second floors use, as residence of the director, is incidental to education; the lease of the first floor
cannot by
any stretch of imagination be considered incidental to the purposes of education. The test of exemption
from
taxation is the use of the property for purposes mentioned in the Constititution.
Lladoc vs. Commissioner
GR L-19201, 16 June 1965
En Banc, Paredes (J): 9 concur, 1 took no part
Facts: In 1957, the MB Estate Inc. of Bacolod City donated P10,000 in cash to the parish priest of
Victorias,
Negros Occidental; the amount spent for the construction of a new Catholic Church in the locality,m as

intended. In1958, MB Estate filed the donors gift tax return. In 1960, the Commissioner issued an
assessment
for donees gift tax against the parish. The priest lodged a protest to the assessment and requested the
withdrawal thereof.
Issue: Whether the Catholic Parish is tax exempt.
Held: The phrase exempt from taxation should not be interpreted to mean exemption from all kinds
of
taxes. The exemption is only from the payment of taxes assessed on such properties as property taxes as
contradistinguished from excise taxes. A donees gift tax is not a property tax but an excise tax imposed
on the
transfer of property by way of gift inter vivos. It does not rest upon general ownership, but an excise upon
the
use made of the properties, upon the exercise of the privilege of receiving the properties. The imposition
of
such excise tax on property used for religious purpose do not constitute an impairment of the
Constitution.
The tax exemption of the parish, thus, does not extend to excise taxes.
Meralco vs. Vera
GR L-29987, 22 October 1975
Facts: Meralco is the holder of a franchise to construct, maintain, and operate an electric light, heat ,
and
power system in the City of Manila and its suburbs. In 1962 and 1963, Meralco imported and received
from
abroad copper wires, transformers, and insulators for use in the operation of its business. The Collector of
Customs, as deputy of the Commissioner of Internal Revenue, levied and collected a compensating tax.
Meralco claimed for refund for the said yeares, but such claims were either not acted upon or denied by
the
Commissioner.
Issue: Whether Meralco is exempt from payment of a compensating tax on poles, wires, transformers
and
insulators imported by it for use in the operation of its electric light, heat, and power system.
Held: Meralco is not exempt from paying the compensationg tax provided for in Section 190 of the Tax
Code,
the prupose of which is to place casual importers, who are not merchants on equal forring with
established
merchants who pay sales tax on articles imported by them. Meralcos claim for exemption from payment
of
the compensating tax is not clear or expressed, contrary to the rule that exemptions from taxation are
highly
disfavored in law, and he who claims exemption must be able to justify his claim by the clearest grant of
organic or statute law. Tax exemptiion are strictly construed against the taxpayer, they being highly
disfavored and may almost be said to be odious to the law. When exemption is claimed, it must be
shown
indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim.
Commissioner vs. Robertson
GR L-70116-19, 12 August 1986
Facts: Frank and James Robertson, Robert Cathey, and John Garrison are citizens of the United States,

holders of American passports, and admitted as Special Termporary Visitors under Section 9 (a) visa of
the
Philippine Immigration Act of 1940, and are civilian employees in a US Military Base in the Philippines
in
connection with its construction, maintenance, operation and defense (The Roberstons and Garrison were
born in the Philippines). Their incomes are solely derived from salaries from the US Government by
reason of
their employment in the US Bases in the Philippines. The Commissioner of Internal Revenue assessed
deficiency income tax against them from taxable years 1969 to 1972.
Issue: Whether Robertson, et. al., are exempted from tax.
Held: In order to avail oneself of the tax exemption under the RP-US Military Bases Agreement
(Article XIII,
Paragraph a), one must be a national of the United States employed in connection with the construction,
maintenance, operation or defense, of the bases, residing in the Philippines by reason of such
employment,
and the income derived is from the US Government. Said circumstances are all present in the present
case.
The basic intendment is to exempt all US citizens working in the military bases from the burden of paying
Philippine Income Tax without distinction as to those born locally or born in their country of origin.
Where
the law does not distinguish, one must not distinguish. Ubi lex non ditinguit nec nos tinguere
debemos.
Reagan vs. Commissioner
GR L-26379, 27 December 1969
Facts: William Reagan imported a tax-free 1960 Cadillac car with accessories valued at US $ 6,443.83,
including freight, insurance and other charges. After acquiring a permit to sell the car from the base
commander of Clark Air Base, Reagan sold the car to a certain Willie Johnson Jr. of the US Marine Corps
stationed in Sangley Point, Cavite for US$ 6,600. Johnson sold the same, on the same day to Fred
Meneses, a
Filipino. As a result of the transaction, the Commissioner rendered Reagan liable for income tax in the
sum of
P2,970. Reagan claimed that he was exempt as the transaction occurred in Clark Air Base, a base outside
the
Philippines.
Issue: Whether Reagan was tax-exempt.
Held: The Philippines, as an independent and sovereign country, exercises its authority over its entire
domain.
Any state may, however, by its consent, express or implied, submit to a restriction of its sovereign rights.
It
may allow another power to participate in the exercise of jurisdictional right over certain portions of its
territory. By doing so, it by no means follows that such areas become impressed with an alien character.
The
areas retain their status as native soil. Clark Air Base is within Philippine territorial jurisdiction to tax, and
thus, Reagan was liable for the income tax arising from the sale of his automobile in Clark. The law does
not
look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by
words
too plain to be mistaken and too categorical to be misinterpreted. Reagan has not done so, and cannot do
so.

Hilado vs. Collector

GR L-9408, 31 October 1956
Facts: Emilio Hilado filed his income tax return for 1951 with the treasurer of Bacolod City, claiming
a deductible item of P12,837.65 from his gross income pursuant to General Circular V-123 issued by the
Collector of Internal Revenue. The Secretary of Finance, through the Collector, issued General Circular
V139 which revoked and declared void Circular V-123; and laid down the rule[s] that losses of property
which
occurred in World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or
embezzlement are deductible in the year of actual loss or destruction of said property. The deductions
were
disallowed.
Issue: Whether Internal Revenue Laws were enforced during the war and whether Hilado can claim
compensation for destruction of his property during the war.
Held: Philippines Internal Revenue Laws are not political in nature and as such were continued in force
during the period of enemy occupation and in effect were actually enforced by the occupation
government.
Such tax laws are deemed to be laws of the occupied territory and not of the occupying enemy. As of the
end
of 1945, there was no law which Hilado could claim for the destruction of his properties during the battle
for
the liberation of the Philippines. Under the Philippine Rehabilitation Act of 1948, the payment of claims
by
the War Damage Commission depended upon its discretions non-payment of which does not give rise to
any
enforceable right. Assuming that the loss (deductible item) represents a portion of the 75% of his war
damage
claim, the amount would be at most a proper deduction of his 1950 gross income (not on his 1951 gross
income) as the last installment and notice of discontinuation of payment by the War Damage Commission
was
made in 1950.
Maceda vs. Macaraig
GR 88291, 31 May 1991
En Banc, Gancayco (J): 6 concur, 2 took no part, 1 dissents
Facts: Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the
development of
hydraulic power and the production of power from other sources. RA 358 (1949) granted NAPOCOR tax
and
duty exemption privileges. RA 6395 (1971) revised the charter of the NAPOCOR, tasking it to carry out
the
policy of the national electrification, and provided in detail NAPOCORs tax exceptions. PD 380 (1974)
specified that NAPOCORs exemption includes all taxes, etc. imposed directly or indirectly. PD 938
integrated the exemptions in favor of GOCCs including their subsidiaries; however, empowering the
President
or the Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to
restore,
partially or completely, the exemptions withdrawn or revised. The FIRB issued Resolution 10-85 (7
February

1985) restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June
1985.
Resolution 1-86 (1January 1986) restored such exemption indefinitely effective 1 July 1985. EO 93
(1987)
again withdrew the exemption. FIRB issued Resolution 17-87 (24 June 1987) restoring NAPOCORs
exemption, which was approved by the President on 5 October 1987.
Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and
delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sales of oil
products to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58 million). Only portion
thereof, corresponding to Caltex, was approved and released by way of a tax credit memo. The claim for
refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58 million was denied.
NAPOCOR
moved for reconsideration, starting that all deliveries of petroleum products to NAPOCOR are tax
exempt,
regardless of the period of delivery.
Issue: Whether NAPOCOR cease to enjoy exemption from indirect tax when PD 938 stated the
exemption in
general terms.
Held: NAPOCOR is a non-profit public corporation created for the general good and welfare, and
wholly
owned by the government of the Republic of the Philippines. From the very beginning of the
corporations
existence, NAPOCOR enjoyed preferential tax treatment to enable the corporation to pay the indebtness
and
obligation and effective implementation of the policy enunciated in Section 1 of RA 6395. From the
preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be strictly construed
against NAPOCOR. On the contrary, the law mandates that it should be interpreted liberally so as to
enhance
the tax exempt status of NAPOCOR. It is recognized principle that the rule on strict interpretation does
not
apply in the case of exemptions in favor of government political subdivision or instrumentality. In the
case of
property owned by the state or a city or other public corporations, the express exception should not be
construed with the same degree of strictness that applies to exemptions contrary to the policy of the state,
since as to such property exception is the rule and taxation the exception.
Commissioner vs. Cebu Portland Cement
GR L-29059, 15 December 1987
Facts: By virtue of a decision of the Court of Tax Appeals, modified by the Supreme Court, the
Commissioner was ordered to refund overpayments of ad valorem taxes on cement produced and sold by
the
company after October 1957. The company moved for a writ of execution, which was opposed by the
Commissioner on the ground that the company had an outstanding sales tax liability to which the
judgment
debt had already been credited. The Court of Tax Appeals held that the alleged sales tax liability was still
being questioned and therefore cannot be set-off against the refund.
Issue: Whether the assessment of sales tax liability may be enforced, i.e. to set off against the refund.
Held: The argument, that the assessment cannot as yet be enforced because it is still being contested,
loss
sight of the urgency of the need to collect taxes as the life blood of the government. If the payment of
taxes

could be postponed by simply questioning their validity, the machinery of the state would grind to a halt
and
all government functions would be paralyzed. To require the Commissioner to actually refund to the
company the amount of the judgment debt. Which he will later have the right to distrait for payment of its
sales tax liability, is an idle ritual.