TAX CASE DIGESTS (J.

BOLLOZOS) Civil Code, and both debts are extinguished to their obligation had been set-off by operation of law as of
concurrent amounts. If the obligation to pay taxes and October 15, 1977.
1. DOMINGO v GARLITOS the taxpayer’s claim against the government are both
overdue, demandable, as well as fully liquidated, •RTC- Held that the auction was valid and ordered the
G.R. No. L-18994 June 29, 1963 ROD to issue a new title in favor of Ho.
compensation takes place by operation of law and
FACTS: both obligations are extinguished to their concurrent
• IAC- Affirmed.
In the 1960 case of Domingo v Moscoso, the Supreme amounts.
Court declared as final and executory the order for the ISSUE: WON Francia's contention is tenable.
payment by the estate of the late Walter Scott Price of
estate and inheritance taxes, charges and penalties, HELD: NO. There can be no off-setting of taxes against
2. Engracio Francia vs IAC (Rule on Set-Off)
amounting to P40,058.55 issued by the Court of First the claims that the Francia may have against the
Instance – Leyte. The fiscal then presented a petition GR No L-67649, June 28, 1988 government.
for the execution of the judgment before the Court of
Facts: In the case of Republic v. Mambulao Lumber Co. (4
First Instance – Leyte.
SCRA 622), the Court ruled that Internal Revenue Taxes
The petition was denied as the execution is not • Petitioner owned a residential lot and a two-story can not be the subject of set-off or compensation by
justifiable as the government is indebted to the estate house covered by TCT 4739 (37795) in Pasay City. stating "The general rule based on grounds of public
under administration in the amount of P 262,200. policy is well-settled that no set-off admissible against
• 125 sq. ft. portion of the land was expropriated by the demands for taxes levied for general or local
Hence, the present petition for certiorari and
government for the sum of P4,116. governmental purposes. The reason on which the
mandamus.
general rule is based, is that taxes are not in the nature
•Since 1963 up to 1977, Francia failed to pay his real
ISSUE: of contracts between the party and party but grow out
estate taxes. On December 5, 1977, his property was
of duty to, and are the positive acts of the government
sold at public auction by the City Treasurer of Pasay
Is the execution proper? to the making and enforcing of which, the personal
City pursuant to Section 73 of Presidential Decree No.
consent of individual taxpayers is not required. ..."
RULING: 464 known as the Real Property Tax Code in order to
No. The tax and the debt are compensated. The court satisfy a tax delinquency of P2,400.00. Ho Fernandez This rule was reiterated in the case of Corders v. Gonda
having jurisdiction of the estate had found that the was the highest bidder for the property. (18 SCRA 331) where we stated that: "... internal
claim of the estate against the government has been revenue taxes can not be the subject of
• Petitoner was not present during the auction and
recognized and an amount of P262,200 has already compensation: Reason: government and taxpayer are
knew of it when he received a Notice of hearing for
been appropriated by a corresponding law (RA 2700). not mutually creditors and debtors of each other' under
cancellation of his title over his property. He filed a
Under the circumstances, both the claim of the Article 1278 of the Civil Code and a "claim for taxes is
complaint to annul the auction sale.
Government for the inheritance taxes and the claim of not such a debt, demand, contract or judgment as is
the intestate for services rendered have already •Francia contends that his tax delinquency of allowed to be set-off."
become overdue and demandable as well as fully P2,400.00 has been extinguished by legal
liquidated. At bar, The tax was due to the city government while
compensation. He claims that the government owed
the expropriation was effected by the national
him P4,116.00 when a portion of his land was
Compensation, therefore, takes place by operation of government. Moreover, the amount of P4,116.00 paid
expropriated on October 15, 1977. Hence, his tax
law, in accordance with Article 1279 and 1290 of the by the national government for the 125 square meter
portion of his lot was deposited with the Philippine for P3,928.30, also covered by a bond dated July 20, Company owed the Republic of the Philippines for
National Bank long before the sale at public auction of 1954. reforestation charges. In line with this thought,
his remaining property. Notice of the deposit dated defendant Mambulao Lumber Company wrote the
September 28, 1977 was received by the petitioner on These three liabilities aggregate to P4,802.37. If the director of forestry, on February 21, 1957 letter Exh. 1, in
September 30, 1977. The petitioner admitted in his liability of defendants in favor of plaintiff in the amount paragraph 4 of which said defendant requested "that
testimony that he knew about the P4,116.00 deposited already mentioned is admitted, then what is the our account with your bureau be credited with all the
with the bank but he did not withdraw it. It would have defense interposed by the defendants? The defense reforestation charges that you have imposed on us
been an easy matter to withdraw P2,400.00 from the presented by the defendants is quite unusual in more from July 1, 1947 to June 14, 1956, amounting to around
deposit so that he could pay the tax obligation thus ways than one. It appears from Exh. 3 that from July 31, P2,988.62 ...". This letter of defendant Mambulao
aborting the sale at public auction. 1948 to December 29, 1956, defendant Mambulao Lumber Company was answered by the director of
Lumber Company paid to the Republic of the forestry on March 12, 1957, marked Exh. 2, in which the
Therefore, the petition was dismissed. Philippines P8,200.52 for 'reforestation charges' and for director of forestry quoted an opinion of the secretary
the period commencing from April 30, 1947 to June 24, of justice, to the effect that he has no discretion to
1948, said defendant paid P927.08 to the Republic of extend the time for paying the reforestation charges
the Philippines for 'reforestation charges'. These and also explained why not all denuded areas are
3. REPUBLIC VS MAMBULAO
reforestation were paid to the plaintiff in pursuance of being reforested.
G.R. No. L-18942 November 30, 1962 Section 1 of Republic Act 115 which provides that there
shall be collected, in addition to the regular forest Issue:
Facts: charges provided under Section 264 of
Commonwealth Act 466 known as the National Internal whether the sum of P9,127.50 paid by defendant-
The facts of this case are not contested and may be appellant company to plaintiff-appellee as
Revenue Code, the amount of P0.50 on each cubic
briefly summarized as follows: reforestation charges from 1947 to 1956 may be set off
meter of timber... cut out and removed from any public
forest for commercial purposes. The amount collected or applied to the payment of the sum of P4,802.37 as
(a) under the first cause of action, for forest charges
shall be expended by the director of forestry, with the forest charges due and owing from appellant to
covering the period from September 10, 1952 to May
approval of the secretary of agriculture and appellee. It is appellant's contention that said sum of
24, 1953, defendants admitted that they have a liability
commerce, for reforestation and afforestation of P9,127.50, not having been used in the reforestation of
of P587.37, which liability is covered by a bond
watersheds, denuded areas ... and other public forest the area covered by its license, the same is refundable
executed by defendant General Insurance & Surety
lands, which upon investigation, are found needing to it or may be applied in compensation of said sum of
Corporation for Mambulao Lumber Company, jointly
reforestation or afforestation .... The total amount of the P4,802.37 due from it as forest charges.
and severally in character, on July 29, 1953, in favor of
herein plaintiff; reforestation charges paid by Mambulao Lumber
Ruling:
Company is P9,127.50, and it is the contention of the
(b) under the second cause of action, both defendant Mambulao Lumber Company that since No. Section 1 of Republic Act No. 115, provides:
defendants admitted a joint and several liability in the Republic of the Philippines has not made use of
favor of plaintiff in the sum of P296.70, also covered by those reforestation charges collected from it for SECTION 1. There shall be collected, in addition to the
a bond dated November 27, 1953; and reforesting the denuded area of the land covered by regular forest charges provided for under Section two
its license, the Republic of the Philippines should refund hundred and sixty-four of Commonwealth Act
(c) under the third cause of action, both defendants said amount, or, if it cannot be refunded, at least it Numbered Four Hundred Sixty-six, known as the
admitted a joint and several liability in favor of plaintiff should be compensated with what Mambulao Lumber National Internal Revenue Code, the amount of fifty
centavos on each cubic meter of timber for the first with the approval of the Secretary of Agriculture and Company has paid to the government, they are in the
and second groups and forty centavos for the third Natural Resources for the reforestation or afforestation, coffers of the government as taxes collected, and the
and fourth groups cut out and removed from any among others, of denuded areas which, upon government does not owe anything, crystal clear that
public forest for commercial purposes. The amount investigation, are found to be needing reforestation or the Republic of the Philippines and the Mambulao
collected shall be expended by the Director of Forestry, afforestation. Note that there is nothing in the law Lumber Company are not creditors and debtors of
with the approval of the Secretary of Agriculture and which requires that the amount collected as each other, because compensation refers to mutual
Natural Resources (commerce), for reforestation and reforestation charges should be used exclusively for the debts. ..
afforestation of watersheds, denuded areas and reforestation of the area covered by the license of a
cogon and open lands within forest reserves, licensee or concessionaire, and that if not so used, the And the weight of authority is to the effect that internal
communal forest, national parks, timber lands, sand same should be refunded to him. Observe too, that the revenue taxes, such as the forest charges in question,
dunes, and other public forest lands, which upon licensee's area may or may not be reforested at all, can be the subject of set-off or compensation.
investigation, are found needing reforestation or depending on whether the investigation thereof by the
A claim for taxes is not such a debt, demand, contract
afforestation, or needing to be under forest cover for Director of Forestry shows that said area needs
or judgment as is allowed to be set-off under the
the growing of economic trees for timber, tanning, oils, reforestation. The conclusion seems to be that the
statutes of set-off, which are construed uniformly, in the
gums, and other minor forest products or medicinal amount paid by a licensee as reforestation charges is
light of public policy, to exclude the remedy in an
plants, or for watersheds protection, or for prevention in the nature of a tax which forms a part of the
action or any indebtedness of the state or municipality
of erosion and floods and preparation of necessary Reforestation Fund, payable by him irrespective of
to one who is liable to the state or municipality for taxes.
plans and estimate of costs and for reconnaisance whether the area covered by his license is reforested or
Neither are they a proper subject of recoupment since
survey of public forest lands and for such other not. Said fund, as the law expressly provides, shall be
they do not arise out of the contract or transaction
expenses as may be deemed necessary for the proper expended in carrying out the purposes provided for
sued on. ... (80 C.J.S. 73-74. ) .
carrying out of the purposes of this Act. thereunder, namely, the reforestation or afforestation,
among others, of denuded areas needing The general rule, based on grounds of public policy is
All revenues collected by virtue of, and pursuant to, the reforestation or afforestation. well-settled that no set-off is admissible against
provisions of the preceding paragraph and from the
demands for taxes levied for general or local
sale of barks, medical plants and other products Appellant maintains that the principle of a
governmental purposes. The reason on which the
derived from plantations as herein provided shall compensation in Article 1278 of the new Civil Code2 is
general rule is based, is that taxes are not in the nature
constitute a fund to be known as Reforestation Fund, to applicable, such that the sum of P9,127.50 paid by it as
of contracts between the party and party but grow out
be expended exclusively in carrying out the purposes reforestation charges may compensate its
of a duty to, and are the positive acts of the
provided for under this Act. All provincial or city indebtedness to appellee in the sum of P4,802.37 as
government, to the making and enforcing of which,
treasurers and their deputies shall act as agents of the forest charges. But in the view we take of this case,
the personal consent of individual taxpayers is not
Director of Forestry for the collection of the revenues or appellant and appellee are not mutually creditors and
required. ... If the taxpayer can properly refuse to pay
incomes derived from the provisions of this Act. debtors of each other. Consequently, the law on
his tax when called upon by the Collector, because he
(Emphasis supplied.) compensation is inapplicable. On this point, the trial
has a claim against the governmental body which is
court correctly observed: .
Under this provision, it seems quite clear that the not included in the tax levy, it is plain that some
amount collected as reforestation charges from a Under Article 1278, NCC, compensation should take legitimate and necessary expenditure must be
timber licenses or concessionaire shall constitute a fund place when two persons in their own right are creditors curtailed. If the taxpayer's claim is disputed, the
to be known as the Reforestation Fund, and that the and debtors of each other. With respect to the forest collection of the tax must await and abide the result of
same shall be expended by the Director of Forestry, charges which the defendant Mambulao Lumber
a lawsuit, and meanwhile the financial affairs of the and nondelegation the exception. The legislature may wherein the surviving widow was appointed
government will be thrown into great confusion. not have the competence, let alone the interest and administratix. When the proceeding was terminated in
the time, to provide direct and efficacious solutions to 1948, and the estate was divided among the heirs,
many problems attendant upon present day Manuel Pineda received a share of P 2,500.00. After the
undertakings. The legislature could not be expected to close of the estate proceedings, BIR investigated the
4. ERNESTO M. MACEDA, petitioner, vs. HON. CATALINO state all the detailed situations wherein the tax income tax liability of the estate for years 1945-1948
MACARAIG, JR exemption privilege would be restored. The task may and found that income tax returns were not filed during
be assigned to an administrative body like the Fiscal those years. Therefore, the collector of BIR assessed the
G.R. No. 88291 May 31, 1991; G.R. No. 88291 June 8,
Incentives Review Board (FIRB). estate of the deceases on the basis of the information
1993
gathered from the estate proceedings. The respondent
When E.O No. 93 (S'86) was issued, President Aquino
contested the assessment and subsequently appealed
was exercising both Executive and Legislative powers.
to the CTA alleging that he is only appealing for his
FACTS: On November 3, 1986, Commonwealth Act No. Thus, there was no power delegated to her, rather it
proportionate part.
120 created the NPC as a public corporation to was she who was delegating her power. She
undertake the development of hydraulic power and delegated it to the FIRB, which, for purposes of E.O No. CTA: reversed decision of CIR on the ground that his
the production of power from other sources. Effective 93 (S'86), is a delegate of the legislature. Clearly, she right to collect and assess has already prescribed.
March 10, 1987, Executive Order No. 93 once again was not sub-delegating her power.
CIR appealed the decision to the SC.
withdrew all tax and duty incentives granted to
And E.O. No. 93 (S'86), as a delegating law, was
government and private entities which had been SC: affirmed the findings of CTA in respect to the
complete in itself — it set forth the policy to be carried
restored under Presidential Decree Nos. 1931 and 1955 assessment for 1947 because the income tax returns for
out 85 and it fixed the standard to which the delegate
but it gave the authority to FIRB to restore, revise the this year was filed on March 1, 1948 and the assessment
had to conform in the performance of his functions, 86
scope and prescribe the date of effectivity of such tax was made on October 19, 1953 which is more than 5
both qualities having been enunciated by this Court in
and/or duty exemptions. years from date return was filed; while the right to assess
Pelaez vs. Auditor General. 87 For delegation to be
for taxable years 1945 and 1946 were held because the
On June 24, 1987 the FIRB issued Resolution No. 17-87 constitutionally valid, the law must be complete in itself
returns for 1945 and 1946 were filed on August 24, 1953
restoring NPC's tax and duty exemption privileges and must set forth sufficient standards.
and assessment for both years were made within 5
effective March 10, 1987. On October 5, 1987, the
Certain aspects of the taxing process that are not really years therefrom or on October 19, 1953. SC remanded
President, through respondent Executive Secretary
legislative in nature are vested in administrative the case to CTA for further proceedings.
Macaraig, Jr., confirmed and approved FIRB Resolution
agencies. In this case, there really is no delegation, to
No. 17-87. Though the issues raised was resolved by the CTA: held Manuel Pineda liable for payment
wit: a) power to value property; b) power to assess and
Supreme Court in G.R. No. 88291, the issues was again corresponding to his share of the deficiency income
collect taxes; c) power to perform details of
brought to the Supreme Court for the second time by tax which the CIR appealed and proposed to hold him
computation, appraisement or adjustment; among
the petitioner in G.R. No. 88291. liable for the payment of all taxes amounting to P760.28
others.
Pineda opposed on the ground that as an heir he is
liable up to the extent of an in proportion to the share
ISSUE: Whether or not the powers conferred upon the
5. COMMISSIONER OF INTERNAL REVENUE vs MANUEL he received
FIRB by Section 2(a), (b), and (c) and (4) of Executive
PINEDA, one of heirs of ATANASIO PINEDA
Order No. 93 "constitute undue delegation of legislative
power and is, therefore, unconstitutional.” L-22734, September 15, 1967
ISSUES: Whether or not Pineda is liable for and in
proportion to the share he received only.
RULING: No. With the growing complexities of modern FACTS: On May 23, 1945 Atanasio Pineda died, survived
life and the many technical fields of governmental by wife Felicisima Bagatas and 15 children, the eldest
functions, as in matters pertaining to tax exemptions, of whom is Manuel Pineda, a lawyer, who then
delegation of legislative powers has become the rule commenced the estate proceeding of the decedent,
RATIO: No. The SC holds that the Government can companies for possible cost underrecovery incurred as taxed (and) what the tax is for, but also impose a
require Manuel Pineda to pay the full amount if a result of the reduction of domestic prices of specific limit on how much to tax."
assessed taxes. petroleum products, the amount of the underrecovery
Issues:
being left for determination by the Ministry of Finance.
Pineda is liable as an heir and as a holder-transferee of
(1) Whether or Not the invalidity of the "TRUST
the property belonging to the estate/taxpayer. As an The petition avers that the creation of the trust fund
ACCOUNT" in the books of account of the Ministry of
heir, he is individually liable for the part of the tax violates 29(3), Article VI of the Constitution, reading as
Energy (now, the Office of Energy Affairs), created
proportionate to the share he received from the follows:
pursuant to § 8, paragraph 1, of P.D. No. 1956, as
inheritance. His liability cannot exceed the amount of
(3) All money collected on any tax levied for a amended, "said creation of a trust fund being contrary
his share.
special purpose shall be treated as a special to Section 29 (3), Article VI of the Constitution.
As a holder of a property belonging to the estate, fund and paid out for such purposes only. If the
(2) Whether or Not the unconstitutionality of 8,
Pineda is liable for the tax up to the amount of the purpose for which a special fund was created
paragraph 1 (c) of P.D. No. 1956, as amended by
property in his possession. Pursuant to Section 315 of the has been fulfilled or abandoned, the balance,
Executive Order No. 137, for "being an undue and
Tax Code which states that if any person, corporation, if any, shall be transferred to the general funds
invalid delegation of legislative power to the Energy
partnership, joint account or insurance company liable of the Government.
Regulatory Board.
to pay the income tax neglects or refuses to pay the
The petitioner argues that "the monies collected
same after demand, the amount shall be a lien in
pursuant to . . P.D. 1956, as amended, must be treated
favour of the Government of the Philippines … by virtue
as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust Held: The OPSF is a "Trust Account" which was
of such lien, the Government has the right to subject
fund,' and that "if a special tax is collected for a specific established "for the purpose of minimizing the frequent
the property in Pineda’s possession amounting to
purpose, the revenue generated therefrom shall 'be price changes brought about by exchange rate
2,500.00 to satisfy the income tax assessment in the sum
treated as a special fund' to be used only for the adjustment and/or changes in world market prices of
of P760.28. After that, Pineda will have right of
purpose indicated, and not channeled to another crude oil and imported petroleum products." Under
reimbursement from his co-heirs.
government objective." Petitioner further points out P.D. No. 1956, as amended by Executive Order No. 137
that since "a 'special fund' consists of monies collected dated 27 February 1987, this Trust Account may be
through the taxing power of a State, such amounts funded from any of the following sources:
6. OSMEÑA VS. ORBOS [220 SCRA 703; G.R. NO. 99886;
belong to the State, although the use thereof is limited
31 MAR 1993] a) Any increase in the tax collection from ad valorem
to the special purpose/objective for which it was
tax or customs duty imposed on petroleum products
Facts: On October 10, 1984, Pres. Marcos issued P.D. created."
subject to tax under this Decree arising from exchange
1956 creating a Special Account in the General Fund,
He also contends that the "delegation of legislative rate adjustment, as may be determined by the Minister
designated as the Oil Price Stabilization Fund (OPSF).
authority" to the ERB violates 28 (2). Article VI of the of Finance in consultation with the Board of Energy;
The OPSF was designed to reimburse oil companies for
Constitution, viz.:
cost increases in crude oil and imported petroleum b) Any increase in the tax collection as a result of the
products resulting from exchange rate adjustments (2) The Congress may, by law, authorize the President lifting of tax exemptions of government corporations,
and from increases in the world market prices of crude to fix, within specified limits, and subject to such as may be determined by the Minister of Finance in
oil. limitations and restrictions as it may impose, tariff rates, consultation with the Board of Energy;
import and export quotas, tonnage and wharfage
Subsequently, the OPSF was reclassified into a "trust c) Any additional amount to be imposed on petroleum
dues, and other duties or imposts within the framework
liability account," in virtue of E.O. 1024, and ordered products to augment the resources of the Fund through
of the national development program of the
released from the National Treasury to the Ministry of an appropriate Order that may be issued by the Board
Government; and, inasmuch as the delegation relates
Energy. of Energy requiring payment of persons or companies
to the exercise of the power of taxation, "the limits,
engaged in the business of importing, manufacturing
Pres. Aquino, amended P.D. 1956. She promulgated limitations and restrictions must be quantitative, that is,
and/or marketing petroleum products;
Executive Order No. 137 on February 27, 1987, the law must not only specify how to tax, who (shall) be
expanding the grounds for reimbursement to oil
d) Any resulting peso cost differentials in case the need to either augment or exhaust the Fund, do not office building because taxes or fees in connection
actual peso costs paid by oil companies in the conveniently permit the setting of fixed or rigid with the construction of the building is an indirect tax to
importation of crude oil and petroleum products is less parameters in the law as proposed by the petitioner. To WHO.
than the peso costs computed using the reference do so would render the ERB unable to respond
On January 17, 1961, the Commissioner of Internal
foreign exchange rate as fixed by the Board of Energy. effectively so as to mitigate or avoid the undesirable
Revenue sent a letter of demand to Gotamco
consequences of such fluidity. As such, the standard as
Hence, it seems clear that while the funds collected demanding payment of P 16,970.40, representing the
it is expressed suffices to guide the delegate in the
may be referred to as taxes, they are exacted in the 3% contractor’s tax plus surcharges on the gross
exercise of the delegated power, taking account of
exercise of the police power of the State. Moreover, receipts it received from the WHO in the construction
the circumstances under which it is to be exercised.
that the OPSF is a special fund is plain from the special of the latter’s building.
treatment given it by E.O. 137. It is segregated from the
Respondent Gotamco appealed the Commissioner’s
general fund; and while it is placed in what the law
7. CIR vs. JOHN GOTAMCO & SONS, INC. and THE decision to the Court of Tax Appeals, which after trial
refers to as a "trust liability account," the fund
COURT OF TAX APPEALS rendered a decision, in favor of Gotamco and
nonetheless remains subject to the scrutiny and review
reversed the Commissioner’s decision.
of the COA. The Court is satisfied that these measures G.R. No. L-31092 February 27, 1987
comply with the constitutional description of a "special
fund." Indeed, the practice is not without precedent.
Issues:
Facts: The World Health Organization (WHO), an
With regard to the alleged undue delegation of
international organization, entered into a Host Whether or not the 3% contractor’s tax assessed on
legislative power, the Court finds that the provision
Agreement with the Republic of the Philippines on July Gotamco is an “indirect tax”.
conferring the authority upon the ERB to impose
22, 1951. In the agreement, WHO’S assets, income and
additional amounts on petroleum products provides a Whether respondent John Gotamco & Sons, Inc. should
other properties shall be exempt from all direct and
sufficient standard by which the authority must be pay the 3% contractor’s tax under Section 191 of the
indirect taxes. WHO decided to construct a building to
exercised. In addition to the general policy of the law National Internal Revenue Code on the gross receipts
house its own offices, as well as the other United Nations
to protect the local consumer by stabilizing and it realized from the construction of the World Health
offices stationed in Manila. In inviting bids for the
subsidizing domestic pump rates, § 8(c) of P.D. 1956 Organization office building in Manila.
construction of the building, WHO informed the bidders
expressly authorizes the ERB to impose additional
that the building to be constructed belonged to an
amounts to augment the resources of the Fund.
international organization with diplomatic status and
RULING:
What petitioner would wish is the fixing of some definite, thus exempt from the payment of all fees, licenses, and
quantitative restriction, or "a specific limit on how much taxes, and that therefore their bids “must take this into The Petitioner’s position is that the contractor’s tax “is in
to tax." The Court is cited to this requirement by the account and should not include items for such taxes, the nature of an excise tax which is a charge imposed
petitioner on the premise that what is involved here is licenses and other payments to Government upon the performance of an act, the enjoyment of a
the power of taxation; but as already discussed, this is agencies.” The construction contract was awarded to privilege or the engaging in an occupation. . . It is a tax
not the case. What is here involved is not so much the respondent John Gotamco & Sons, Inc. on February 10, due primarily and directly on the contractor, not on the
power of taxation as police power. Although the 1958. owner of the building. Since this tax has no bearing
provision authorizing the ERB to impose additional upon the WHO, it cannot be deemed an indirect
On June 3, 1958, the Commissioner of Internal Revenue
amounts could be construed to refer to the power of taxation upon it.”
stated that “as the 3% contractor’s tax is not a direct
taxation, it cannot be overlooked that the overriding
nor an indirect tax on the WHO, but a tax that is The Court agreed with the Court of Tax Appeals in
consideration is to enable the delegate to act with
primarily due from the contractor, the same is not rejecting this contention of the petitioner. The CA
expediency in carrying out the objectives of the law
covered by . . . the Host Agreement.” stated: The contractor’s tax is of course payable by the
which are embraced by the police power of the State.
contractor but in the last analysis it is the owner of the
On January 2, 1960, the WHO issued a certification that
The interplay and constant fluctuation of the various building that shoulders the burden of the tax because
the bid of Gotamco should be exempted from any
factors involved in the determination of the price of oil the same is shifted by the contractor to the owner as a
taxes in connection with the construction of the WHO
and petroleum products, and the frequently shifting matter of self-preservation. Thus, it is an indirect tax.
And it is an indirect tax on the WHO because, although RULING:
it is payable by the petitioner, the latter can shift its
No. Taxation is no longer envisioned as a measure
burden on the WHO. In the last analysis it is the WHO
merely to raise revenue to support the existence of
that will pay the tax indirectly through the contractor
government. Taxes may be levied with a regulatory
and it certainly cannot be said that ‘this tax has no
purpose to provide means for the rehabilitation and
bearing upon the World Health Organization.
stabilization of a threatened industry which is affected
The Host Agreement, in specifically exempting the with public interest as to be within the police power of
WHO from “indirect taxes,” contemplates taxes which, the State.
although not imposed upon or paid by the
PD 1956, as amended by EO 137, explicitly provides
Organization directly, form part of the price paid or to
that the source of OPSF is taxation. A taxpayer may not
be paid by it. The 3% contractor’s tax would be within
offset taxes due from the claims he may have against
this category and should be viewed as a form of an
the government. Taxes cannot be subject of
“indirect tax” On the Organization, as the payment
compensation because the government and taxpayer
thereof or its inclusion in the bid price would have
are not mutually creditors and debtors of each other
meant an increase in the construction cost of the
and a claim for taxes is not such a debt, demand,
building.
contract or judgment as is allowed to be set-off.
APPEALED DECISION AFFIRMED.
Hence, COA decision is affirmed except that Caltex’s
claim for reimbursement of under recovery arising from
sales to the National Power Corporation is allowed.
8. Caltex Philippines, Inc. v Commission on Audit GR
No. 92585, May 8, 1992
FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit
its collection to the Oil Price Stabilization Fund (OPSF),
excluding that unremitted for the years 1986 and 1988,
of the additional tax on petroleum products authorized
under the PD 1956. Pending such remittance, all of its
claims for reimbursement from the OPSF shall be held in
abeyance. The grant total of its unremitted collections
of the above tax is P1,287,668,820.
Caltex submitted a proposal to COA for the payment
and the recovery of claims. COA approved the
proposal but prohibited Caltex from further offsetting
remittances and reimbursements for the current and
ensuing years. Caltex moved for reconsideration but
was denied. Hence, the present petition.

ISSUE: Whether the amounts due from Caltex to the