REPUBLIC OF THE PHILIPPINES

Court ofTax Appeals

QUEZON CITY

Third Division

THE CITY OF MAKATI and NELIA A. CTA AC NO. 143

BARLIS, in her capacity as Incumbent (RTC Civil Case No. 13-084)
City Treasurer of Makati City,
Petitioner, Members:

Bautista, Chairperson
-versus- Fa bon-Victorino, and
Ringpis-Liban, 11.

METRO PACIFIC INVESTMENTS Promulgated:

CORPORATION,
Respondent. J Ul 2 U 2016
X ----------------------------------------------------------~--~~~~-~~~~------ X

DECISION

BAUTISTA, J:

The Case1

This is a Petition for Review filed on July 8, 2015, pursuant to

Section 7(a)(3)2 of Republic Act ("RA") No. 11253, as amended by RA No.
92824 and RA No. 95035, and Section 3(a)(3)6, Rule IV of the Revised Rules

1 Records, CTA AC No. 143, Petition for Review, pp. 1, 22.

2 Sec. 7. Jurisdiction. - The Court of Tax Appeals shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided.
XXX XXX XXX
(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction;
3 An Act Creating the Court of Tax Appeals.
4 An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of

a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for the Purpose
Certain Sections of Republic Act No. 1125, as amended, Otherwise Known as the Law Creating the Court
ofTax Appeals, and for Other Purposes.
sAn Act Enlarging the Organizational Structure of the Court of Tax Appeals, Amending for the Purpose
Certain Sections of the Law Creating the Court of Tax Appeals, and for Other Purposes.
6 SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. - The Court in Divisions shall
exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
XXX XXX XXX

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DECISION
CTA AC NO. 143
Page2of24

of the Court of Tax Appeals ("RRCTA"), seeking for the Court to render
a judgment reversing and setting aside the Regional Trial Court,
Branch 146, Makati City ("RTC")'s Decision dated March 31,2015 and
Order dated June 22,2015, and finding respondent not entitled to the
refund claimed.

The Parties

Petitioner City of Makati is empowered to levy business taxes,

within the parameters set by law.

Respondent Metro Pacific Investments Corporation is a holding

company, as defined in Section 3A.Ol(dd) of the Revised Makati Revenue
Code ('MRC").7

The FactsB

In early 2011, respondent was issued a billing assessment for

various taxes, fees and charges in the total amount of Php4,513,818.19,
inclusive of Local Business Tax ("LBT") in the amount of
Php4,499,653.19, computed based on the income reported in
respondent's financial statements for the year ending December 31,
2010. 9

On January 31, 2011, respondent fully paid the amount of the

assessment. 10

On January 25, 2013, respondent filed an administrative claim

for refund with petitioner Treasurer of Makati City, maintaining that
the aggregate interest, rental and dividend income and gain on sale of
fixed assets for the year 2010 does not constitute gross receipts as
defined in Section 131(h) of the Local Government Code ('LGC"), or Section
lB.Ol(g) of the MRC, as amended.n

(3) Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided or
resolved by them in the exercise of their original jurisdiction;
7 RTC Records, Civil Case No. 13-084, Vol. 1, March 31,2015 Decision, p. 400.
s Considering that the facts are undisputed, the Court adopts most of the facts in the Assailed
Decision.
9 RTC Records, Vol. 1, March 31,2015 Decision, p. 398. ~
10 Id.
11 Id.
DECISION
CTAACNO.l43
Page3of24

On January 29, 2013, respondent filed with RTC a Complaint for

refund of erroneously paid LBT in the amount of Php4,499,653.19, the
case was assigned to Branch 137 on January 31, 2013.12

On March 31,2014, the case was re-raffled and received by RTC

Branch 146 due to the parties' failure to amicably settle through the
Judicial Dispute Resolution Conferences.13

During the pre-trial, the following issues were delineated:14

1. Whether the assessment of LBT against respondent is

correct, specifically whether a holding company such as respondent
may be taxed under Section 3A.02(p) of the MRC, in relation to Section
3A.02(h), without reference to Section 3.A02(g) of the same Code;

2. Whether respondent's dividend income, aggregate interest

income, and rental income constitute taxable gross receipts;

3. If respondent is a holding company, whether is it only

liable to pay LBT on the basis of management fees for services
rendered, if any;

4. Whether the case of Orleyte Company (Philippine Branch) v.

The City of Makati, is applicable to the case at bar; and

5. Whether, in the event that respondent will be granted its

refund, it may only be granted in a form of tax credit, by express
provision of law.

In the Assailed Decision, the RTC found for respondent, the

dispositive portion of the same reads as follows:

WHEREFORE, in view of all the foregoing, the court

finds for the plaintiff. Defendant City of Makati and Hon. Nelia
A. Barlis, in her capacity as incumbent City Treasurer of the
City of Makati, are hereby ordered to return the erroneously
collected tax in the amount of Four Million Four Hundred

12 RTC Records, Vol. 1, Complaint, pp. 1-176, with annexes.

13 Id., Vol. 1, Order, p. 247.
14 Id., Vol. 1, March 31,2015 Decision, p. 400.
/
DECISION
CTA AC NO. 143
Page4of24

Ninety Nine Thousand Six Hundred Fifty Three Pesos and

Nineteen Centavos ([Php]4,499,653.19) by way of tax refund to
the plaintiff, Metro Pacific Investments Corporation.

SO ORDERED.

Makati City, March 31,2015.

On April 27, 2015, petitioners filed their Motion for

Reconsideration (of the Decision dated March 31, 2015).15

In the Assailed Order, the RTC denied petitioner's Motion for

Reconsideration in the following manner:

WHEREFORE, the Motion for Reconsideration is denied

for lack of merit.

SO ORDERED.

June 22,2015, Makati City

On July 8, 2015, petitioners appealed to the Court via the present

Petition for Review.16

On August 6, 2015, respondent filed its Comment.1 7

On August 24, 2015, the Court required the parties to file their
respective memoranda within a period of thirty (30) days from receipt
thereof,18 petitioners and respondent then filed their Memoranda on
October 6, 201619, and October 14,201520, respectively.

On October 21, 2015, the Court promulgated a Resolution21

submitting the case for Decision, hence, this Decision.

The Issues 22
15 RTC Records, Vol. 1, Motion for Reconsideration, pp. 407-419.
16 Records, Petition for Review, pp. 1-136, with annexes.
17 Id., Comment, pp. 139-155.
1s Id., Resolution, pp. 158-159.
19 Id., Memorandum for Petitioners, pp. 165-180.
2o Id., Memorandum for Respondent, pp. 189-205.
21 Id., Resolution, p. 207.
/
22 Id., Petition for Review, pp. 11-12.
DECISION
CTAACN0.143
Page5of24

Petitioners submit the following assignment of errors to be

resolved:

WHETHER THE RTC GRAVELY ERRED IN RULING THAT

RESPONDENT IS ENTITLED TO A REFUND OF LBT IN THE
AMOUNT OF PHP4,499,653.19 ALLEGEDLY DUE TO THE INVALID
IMPOSITION BY PETITIONERS OF THE TAX RATE OF 20% of 1%
UNDER SECTION 3A.02(H) OF THE MRC ON A HOLDING
COMPANY SUCH AS RESPONDENT;

WHETHER THE RTC GRAVELY ERRED IN USING THE

DEFINITION OF uGROSS SALES OR RECEIPTS" UNDER SECTION
lB.Ol OF THE MRC INSTEAD OF THE CLEAR AND DISTINCT
DEFINITION UNDER SECTION 3A.02(H) OF THE SAME CODE;

WHETHER THE RTC GRAVELY ERRED IN RULING THAT

THE ALLEGED REFUNDABLE AMOUNT SHOULD BE MADE IN
CASH AND NOT VIA TAX CREDIT; AND

WHETHER THE RTC GRAVELY ERRED WHEN IT FAILED TO

STATE IN ITS DECISION THAT RESPONDENT WAS NOT ABLE TO
OVERCOME THE BURDEN OF PROVING ENTITLEMENT TO A
REFUND.

Petitioner's Arguments23

Petitioners aver that respondent is a holding company engaged

in activities enumerated under Section 3A.02(h) of the MRC; that its very
name suggests that it is an investment company under Section 3A.02(h)
of the MRC and not under Section 3A.2(g); that petitioners correctly
taxed respondent under Section 3A.2(p) in relation to Section 3A.02(h)
of the MRC; that the local tax rate is determined by the activity the
holding company is engaged in; that the activities of respondent can
be found in its Financial Statements; that respondent's primary
purpose provides that it is engaged in activities which would qualify
it to be taxed under Section 3A.02(h) of the MRC; that its Statement of
Income shows that it earned interest, rental, dividend and other
income from various sources in 2010; that it is clearly not engaging in

23 Records, Memorandum for Petitioners, pp. 168-177.

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DECISION
CfAACN0.143
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management of companies but in investment/ financial activities

similar to bank and financial institutions; that the management and
miscellaneous income are only inherent to its main investment
activities; that it was incorporated under Section 3A.02(h) of the MRC;
and that its rental income is a separate activity requiring a separate
permit and license tax and a different tax rate.

They further claim that in the context of Section 3A.02(p) of the

MRC, "gross sales or receipts" refer to those earned from interest,
commissions, discounts from lending activities, income from leasing,
investments, dividends, insurance premiums, and profit from
exchange or sale of property, among others; that the RTC erred when
it applied Section 1B.01 of the MRC instead; that Section 3A.02(p) of the
MRC clearly state that a holding company shall be taxed as provided
by Section (h) thereof at the rate of 20% of 1%, which should apply to
the gross receipts of the holding company from the preceding year
derived from the above-stated income; that the definition of gross
receipts in Section 3A.02(h) of the MRC is similar to Section 143(/) of the
LGC; that Section 133 of the LGC does not prohibit an LGU like Makati
from imposing taxes on holding companies which are similar to banks
and other financial institutions [Section 133(A)]; and that Section 7B.14
of the MRC is clear that a claim for refund or credit shall not be
refundable in cash.

Petitioners ended with the statements that tax refunds partake

the nature of tax exemptions and are construed strictissimi juris against
the person claiming the same; and that having failed to overcome the
burden of proof of its entitlement to refund, respondent's claim must
fail.

Respondent's Counter-Arguments24

Respondent counters that that Section 3A.02(p) of the MRC clearly

imposes LBT on respondent's gross receipts; that Sections 3A.02 (g) or
(h) in relation to Section 3A.2(p) pertains only to the rates to be imposed
and not to what constitutes gross receipts; that it is a holding company,
hence, not subject to LBT imposed on banks and other financial
institutions under Section 3A.02(h) of the MRC; that a "holding
company" is defined under Section 3A.01 (dd) of the MRC as a
controlling company that has one or more subsidiaries and confines its
activities primarily to its management; that holding companies are

24 Records, Memorandum for Respondent, pp. 191-203. ~·

DECISION
CTAACN0.143
Page 7of24

taxed under Section 3A.01(p) of the MRC, which provides the rates in
subsection (g) or (h), of the gross sales and/ or receipts of the preceding
calendar year; that nowhere was it stated that a holding company shall
be taxed as a financial institution; and that the reference to subsections
(g) or (h) of Section 3A.02 merely pertains to the tax rate and not to the
gross sales and/ or receipts.

Respondent likewise alleges that the imposition of LBT on

passive income is only allowed with respect to banks and financial
institutions; that to impose the said tax on holding companies is
considered a tax on income proscribed by Section 133(a) of the LGC, as
implemented in Article 221 (a) of the Implementing Rules and Regulations
('IRR") of the LGC; that respondent's rental, dividend and interest
income are considered passive income in the active pursuit and
performance of its business; that being passive income, the same is
only subject to LBT if earned by banks and financial institutions under
Section 233(j) of the IRR, otherwise, the imposition of LBT thereon is
considered income tax prohibited by the LGC and its IRR; that in a
Bureau of Local Government Finance (uBLGF") Opinion dated February 22,
2011, it was held that the tax imposed on interest, dividends and gains
from sales of shares u assume the nature of income tax" unless imposed
on banks and other financial institutions; that in the case of Orleyte
Company v. City of Makati, the CTA confirmed that a non-bank, non-
financial institution is subject to LBT only on amounts received for
services performed; that in Michigan Holdings, Inc. v. City treasurer of
Makati, Nelia A. Barlis, the CTA En Bane ruled that dividend income is
not subject to LBT except when levied on banks and other financial
institutions, and that the act of imposing LBT on dividend income of a
holding company is ultra vires; that the RTC did not err in ruling that
the term u gross receipts" pertain only to fees for services rendered and
does not include respondent's rental, dividend and interest income;
and that the express provision of Section 133 of the LGC disallowing the
levy of income taxes by LGUs except upon a select and exclusive group
of taxpayers, coupled with the express mention of the items of gross
income which may be taxed against banks and other financial
institutions under Section 3A.02(h) of the MRC, implies that the
enumerated items are in fact considered income which, if earned by
non-bank and non-financial institutions, are outside the taxing power
of LGUs like Makati City.

Lastly, respondent states that the MRC is strictly construed

against petitioner and liberally in favor of respondent under Section
S(b) of the LGC; that the rule that exemption from taxes is construed
,/
DECISION
CTAACN0.143
Page 8 o£24

strictly upon the one claiming it applies only when it has been shown
that a particular tax is applicable, otherwise, the rule does not apply
and the tax statute shall be construed strictly against the government
as provided in the cases of Philippine Health Care Providers, Inc. v. CIR,
CIR v. CA, CTA and Ateneo de Manila University and CIR v. PAL; and
that petitioners have not shown that respondent's passive income is
subject to LBT. It is also averred that respondent was able to
sufficiently show entitlement to refund.

The Ruling of the Court

In granting the tax refund in the Assailed Decision, the RTC

explained, as follows:zs

There is no dispute the plaintiff is a holding company as

defined in Section 3A.Ol(dd) of the [MRC] and the local
government is empowered to levy taxes on its income as such
holding company. Also not disputed is the assessment and
payment of [LBT] in the amount of [Php]4,499,653.19. What is
put in issue is the propriety of the assessment made and
whether a refund is warranted. Essential to the resolution of
this case is the determination of what constitutes taxable
income of a holding company and which tax rate is applicable.

According to the express provision of the [MRC], a

holding company is taxed as follows:

Section 3A.02 Imposition of Tax. There is

hereby levied an annual tax on the following
businesses at the rates prescribed therefore:

XXX

(p) On Holding Company shall be taxed at

the rate prescribed either under subsection (g) or
(h), of the gross sales and/ or receipts during the
preceding calendar year.

A reading of both of the cited paragraphs would show

that paragraph (g) is a graduated tax rate, while paragraph (h)
shows a rate at 20% of 1% of the taxable amount. Thus, the
question is which between these two rates should be applied to

25 RTC Records, Vol. 1, March 31,2015 Decision, pp. 400-405; emphases retained.
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DECISION
CTA AC N0.143
Page9of24

the plaintiff. However, the [MRC] is silent on how the

determination should be made.

Basic is the rule in statutory construction that where a

statute is susceptible of more than one interpretation, the court
should adopt such reasonable and beneficial construction as
will render the provision thereof operative and effective and
harmonious with each other. Following the principle of noscitur
a sociis, where a particular word or phrase is ambiguous in itself
or is equally susceptible of various meanings, its correct
construction may be made clear and specific by considering the
company of words in which it is founded or with which it is
associated. This is because a word or phrase in a statute is
always used in association with other words or phrases, and its
meaning may, thus, be modified or restricted by the latter.

Applying the above principles, a determination should

be made on which type of business the plaintiff, as a holding
company is most related to, that is, a comparison should be
made on the kinds of businesses that the rates in paragraphs (g)
and (h) of Section 3A.02 are made to apply.

The businesses being taxed in Section 3A.02 paragraph

(g) [of] the [MRC] are:

"(g) On Contractors and other independent

contractors defined in SEC. 3A-01 (t) of chapter III
of this Code; and on owners or operators of
business establishments rendering or offering
services such as; advertising agencies; rental of
space of signs, signboards, billboard or
advertisements; animal hospitals; assaying
laboratories; belt and buckle shops; blacksmith
shops; bookbinders; booking offices for film
exchange; booking offices for transportation on
commission basis; breeding of game cocks and
other sporting animals belonging to others;
business management services; collecting
agencies; escort services; feasibility studies,
consultancy services; garages; garbage disposal
contractors; gold and silversmith shops;
inspection services for incoming and outgoing
cargoes; interior decorating services; janitorial
services; job placements or recruitment agencies;
landscaping contractors; lathe machine shops;
management consultants not subject to
professionals tax; medical and dental laboratories;
mercantile agencies; messengerial services;
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DECISION
CTAACN0.143
Page10of24

operators of shoe shine stands; painting shops;

perma press establishments; rent-a-plant services;
polo players; school for and/ or horse-back riding
academy; real estate appraisers; real estate
brokerages; photostatic; white/blue printing,
photocopying, typing and mimeographing
services; car rental, rental of heavy equipment,
rental of bicycles and/ or tricycles; furniture,
shoes, watches, household appliances, boats,
typewriters, etc.; roasting of pigs, fowls, etc.;
shipping agencies; shipyard for repairing ships for
others; shops for hearing animals; silkscreen or T-
shirt printing shops; stables; travel agencies;
vaciador shops; veterinary clinics; video rentals
and/ or coverage services; dancing school/ speed
reading/EDP; nursery, vocational and other
schools not regulated by the Department of
Education (DepEd), day care centers; etc."

In contrast, the businesses being taxed under Section

3A.02 paragraph (h) the [MRC] are:

"(h) On owners or operators of banks and other

financial institutions which include offshore
banking, non-bank, financial intermediaries,
lending investors, finance and investment
companies, investment house, pawnshops, money
shops, insurance companies, stock markets, stock
brokers, dealers in securities including pre-need
companies, foreign exchange"

By definition of the [MRC], a holding company confines

its activities primarily to the management of its subsidiaries.
On the other hand, a reading of the Articles of Incorporation of
the plaintiff will show that its primary purpose is:

"To purchase, subscribe for, or otherwise

acquire and own, hold, use, invest in, develop, sell,
assign, transfer lease take options to, mortgage,
pledge, exchange, and in all ways, deal with,
personal and real property of every kind and
description, including shares of the capital stock
of corporations, bonds, notes, evidence of
indebtedness and other securities, contracts or
obligations of any corporation domestic, or
foreign, without however, engaging in dealership
in securities, in the stock brokerage business or in
the business of an investment company."
(
DECISION
CTA AC NO. 143
Page 11 of24

In other words, plaintiff holds stocks and properties of

its subsidiaries. Comparing the plaintiff on the classifications in
paragraphs (g) and (h), it can be inferred that plaintiff is more
analogous to the businesses in paragraph (g), that is, to owners
or operators of business establishments rendering or offering
its services, particularly to "business management services",
which is identical to plaintiff's management of its subsidiaries.
11
It cannot be considered to be similar to other financial
institutions" under paragraph (h) that are finance and II

investment companies" considering that the primary purpose

of the plaintiff specifically mentions that it is "without however,
engaging in dealership in securities, in the stock brokerage business
or in the business of an investment company". From the foregoing,
plaintiff should be taxed on the rate referred to in paragraph
(g), that is, the graduated rate. Hence, the imposition of 20% of
1% as referred in paragraph (h) by the defendants is erroneous.

On the question of what constitutes taxable income of a

holding company, Section 3A.02 (p) of the [MRC] provides that
it shall be taxed on the gross sales and/ or receipts during the
preceding calendar year. Section lB.Ol of [MRC] outlines what
constitute gross receipts in this manner:

Sec. lB.Ol. Words Defined in this Code -

When used in the Code:-
xx
(g) Gross Sales or Receipts include the total
amount of money or its equivalent representing
the contract price, compensation or service fee,
including the amount charged or materials
supplied with the services and deposits or advance
payments actually or constructively received
during the taxable year for the services performed
or to be performed for another person excluding
discounts if determinable [at] the time of sales,
sales return, excise tax, and value-added tax (VAT)
paid by the taxpayer.

The above provision is clear, and no interpretation is

needed on what items are included in gross receipts. Simply
put, gross receipts are the amount or fee for the services
rendered. Nowhere does the provision state that it includes
dividend income, interest income, rental income or gain from
the sale of fixed assets.

A perusal of the Financial Statement of the plaintiff

reveals that it derives its revenues from dividend income,
r
DECISION
CTAACN0.143
Page12of24

interest income, rental, management fees, and other income.

The Statement of Income for the year ending 2010 shows that
plaintiff earned income from dividends and interest, gain on
disposal of investments, foreign exchange gain and other
income. The Statement of Income does not show that the
plaintiff earned any management fees for 2010. While plaintiff
should be taxed only on its earnings from services rendered,
and considering that plaintiff did not report any management
fees earned, plaintiff should not have been imposed with [LBT]
on its other income, since these items are not taxable under the
[MRC].

Moreover, under the National Internal Revenue Code

[("NIRC")], the general definition of a gross income
enumerates the different kinds of income, which includes
compensation, income from the conduct of trade, business or
profession, gains derived from dealings in property, interests,
rents, and dividends, among others. It is observed that the
disputed income in this case, that is, interests, rents, dividends
and income from sale of properties are under a category of their
own, and not included in the income from the conduct of
business. Also, separate provisions were provided for certain
passive income that includes interests, capital gains tax for the
sale of real property, and dividends. From the general
definition of the term, these kinds of income are excluded in the
computation of the gross income, or gross sales or receipts, of a
taxpayer.

Similarly, the same definition in the NIRC should be

applied to the income in this case, and should be excluded in
the computation of gross receipts of a holding company. The
plaintiff should be taxed only on its earnings from management
fees, or the fees for services it performed to its subsidiaries. The
defendants erroneously imposed taxes on plaintiff's income
which are not covered by the law, hence, the [LBT] paid should
be returned to the plaintiff. This leads to the question in what
form should the tax paid be returned. Plaintiff prays that it be
refunded the whole amount erroneously paid, while
defendants submit that only tax credit is allowed by law.

Looking into the provision of a Taxpayers Remedies in

the [MRC], a taxpayer is given the option to recover the amount
it erroneously paid, in this manner:

"Section 7B.14. Taxpayer's Remedies.-

(d) Claim for Refund of Tax Credit. -No case or

proceeding shall be maintained in any court for the
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DECISION
CTAACN0.143
Page 13 of24

recovery of any tax, fee, or charge erroneously or

illegally collected until a written claim of refund
or credit has been filed with the City Treasurer. No
case or proceeding shall be entertained in any
court after the expiration of two (2) years from the
date of the payment of such tax, fee, or charge, or
from the date the taxpayer is entitled to a refund
or credit.

The tax credit granted a taxpayer shall not

be refundable in cash but shall only be applied to
future tax obligations of the same taxpayer for the
same business. If a taxpayer has paid in full the tax
due for the entire year and he shall have no other
tax obligations payable to the Local Government
of the City of Makati during the year, his tax credit,
if any, shall be applied in full during the first
quarter of the next calendar year or the tax due
from him for the same business if said calendar
year.
xxx"

The above provision implies that a taxpayer can recover

any tax, fee or charge erroneously or illegally collected by
making a written claim, either for a refund or credit. Meaning,
there are two options to choose from by the taxpayer for the
recovery of erroneously paid amount: refund or credit.
However, once a tax credit is granted to the taxpayer, the same
cannot be refunded in cash, but can only be applied to future
taxes. It is erroneous for the defendants to say that plaintiff
cannot claim for tax refund in this case, and that it is only
allowed tax credit when Section 7B.14 itself provides otherwise.
For which reason, the written claim of the plaintiff to the
defendants in January 23,2013, was a claim for a refund.

The court need not go into the merit of the applicability

of the ruling of the Honorable Court of Appeals in the Oleyte
case to the instant complaint, since there is no dispute that
plaintiff is a holding company, and the tax provision prevailing
during the said case was the old [MRC].

In light of all the foregoing, the court is of the view that

the defendants misconstrued the provisions of the MRC in
imposing [LBT] on the interest, rental and dividend income and
gain on sale of fixed assets for the year 2010, considering that
these income does not constitute gross receipts of a holding
company. Hence, the erroneously paid taxes should be

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DECISION
CTAACN0.143
Page 14of24

returned by the defendant City of Makati to the plaintiff, by

way of the option taken by the taxpayer, by tax refund.

The Court finds no merit in the Petition for Review.

The RTC did not err in ruling that

respondent is entitled to a refund,
but for different reasons.

From the outset, we first look into the pertinent provisions of the
1991 LGC. The legislature, through the LGC, granted LGUs the power
to impose the business taxes, within the parameters set by law, as
follows: 26

SECTION 129. Power to Create Sources of Revenue. -

Each local government unit shall exercise its power to create its
own sources of revenue and to levy taxes, fees, and charges
subject to the provisions herein, consistent with the basic policy
of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local government units.

XXX XXX XXX

ARTICLE II
Municipalities

SECTION 143. Tax on Business. -The municipality may

impose taxes on the following businesses:

XXX XXX XXX

(h) On any business, not otherwise specified in the

preceding paragraphs, which the sanggunian concerned may
deem proper to tax: Provided, That on any business subject to
the excise, value-added or percentage tax under the National
Internal Revenue Code, as amended, the rate of tax shall not
exceed two percent (2%) of gross sales or receipts of the
preceding calendar year.

The sanggunian concerned may prescribe a schedule of

graduated tax rates but in no case to exceed the rates prescribed
herein.

26 Underscoring ours.
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DECISION
CTAACN0.143
PagelS o£24

XXX XXX XXX

ARTICLE III
Cities

SECTION 151. Scope of Taxing Powers. - Except as

otherwise provided in this Code, the city, may levy the taxes,
fees, and charges which the province or municipality may
impose: Provided, however, That the taxes, fees and charges
levied and collected by highly urbanized and independent
component cities shall accrue to them and distributed in
accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province or municipality by not
more than fifty percent (50%) except the rates of professional
and amusement taxes.

Pursuant to the LGC, petitioner City of Makati adopted the MRC

imposing LBT, as follows:27

CHAPTER III
City Taxes

ARTICLE A
Business Tax

SECTION 3A.02 Imposition of Tax. - There is hereby

levied an annual tax on the following businesses at rates
prescribed therefore:

XXX XXX XXX

(g) On Contractors and other independent contractors

defined in SEC. 3A-01(t) of chapter III of this Code; and on
owners or operators of business establishments rendering or
offering services such as; advertising agencies; rental of space
of signs, signboards, billboard or advertisements; animal
hospitals; assaying laboratories; belt and buckle shops;
blacksmith shops; bookbinders; booking offices for film
exchange; booking offices for transportation on commission
basis; breeding of game cocks and other sporting animals
belonging to others; business management services; collecting
agencies; escort services; feasibility studies, consultancy
services; garages; garbage disposal contractors; gold and

27 Underscoring ours.
/
DECISION
CTA AC NO. 143
Page 16of24

silversmith shops; inspection services for incoming and

outgoing cargoes; interior decorating services; janitorial
services; job placements or recruitment agencies; landscaping
contractors; lathe machine shops; management consultants not
subject to professionals tax; medical and dental laboratories;
mercantile agencies; messengerial services; operators of shoe
shine stands; painting shops; perma press establishments; rent-
a-plant services; polo players; school for and/ or horse-back
riding academy; real estate appraisers; real estate brokerages;
photostatic; white/blue printing, photocopying, typing and
mimeographing services; car rental, rental of heavy equipment,
rental of bicycles and/ or tricycles; furniture, shoes, watches,
household appliances, boats, typewriters, etc.; roasting of pigs,
fowls, etc.; shipping agencies; shipyard for repairing ships for
others; shops for hearing animals; silkscreen or T-shirt printing
shops; stables; travel agencies; vaciador shops; veterinary
clinics; video rentals and/ or coverage services; dancing
school/ speed reading/EDP; nursery, vocational and other
schools not regulated by the Department of Education (DepEd),
day care centers; etc.

XXX XXX XXX

(h) On owners or operators of banks and other financial

institutions which include offshore banking, non-bank,
financial intermediaries, lending investors, finance and
investment companies, investment house, pawnshops, money
shops, insurance companies, stock markets, stock brokers,
dealers in securities including pre-need companies, foreign
exchange shall be taxed at the rate of twenty percent (20%) of
one percent (1%) of the gross receipts of the preceding calendar
year derived from interest, commissions, and discounts from
lending activities, income from financial leasing, investments,
dividends, insurance premium and profit from exchange or
sale of property, provided, however, on gross sales/receipts
derived from rental of property during the preceding calendar
year shall be subject to the business tax at the rate prescribed
under subsection (1) 1, as provided in this code.

XXX XXX XXX

(1) Real Estate Lessors and Real Estate Dealers shall pay
the annual tax in accordance with the following schedule:

1. On lessors or sub-lessors of real estate including

accessoria, appartelle, pension inns, lodging houses,
apartments, condominiums, houses for lease, rooms and
spaces for rent, and similar places shall pay the tax in

/
DECISION
CTA AC NO. 143
Page17 of24

accordance with the schedule shown here under. With

gross sales or receipts for the preceding calendar year in
the amount of: xxx

XXX XXX XXX

(p) On Holding Company shall be taxed at the rate

prescribed either under subsection (g) or (h), of the gross sales
and/ or receipts during the preceding calendar year.

Records reveal that respondent received Billing Assessment

Form No. 0021644 dated January 21,2011 assessing it for various items
including LBT as a holding company in the amount of Php4,499,653.19
based on the gross amount of Php2,249,826,598.71 at the rate of 20% of
1% (Php4,499,653.19/Php2,249,826,598.71) under 3A.02(h) in relation
to Section 3A.02(p) of the MRC.2s

The Php2,249,826,598.71 used as basis for the tax rate was taken
from the Unaudited Financial Statement of respondent, which was
attached to its application for the renewal of business permit for 2011,29
to wit: 30

Income Type Amount

Interest Income - financial (bank/ CN) 3,474,036.81
Interest Income - placement 92,050,085.16
Interest Income - other 134,073,236.30
Interest Income - ABHC 4,521,504.50
Interest Income - Landco 50,286,542.18
Other Income- (mgmt fee/mise) 5,311,679.26
Rental Income 130,800.00
Dividend Income 1,959,978,709.29
Total 2,249,826,593.50

Included in the computation are income from management fees

and rental, to which different rates are applicable under the MRC.
Nonetheless, petitioners still covered these under a blanket rate of 20%
of 1%, making the assessment thereon incorrect.

As to the assessment on interest and dividends, which appears

to fall under Section 3A.02(h) of the MRC to which the rate is 20% of 1%,
the recent similar case of Michigan Holdings, Inc. v. The City Treasurer of

28 RTC Records, Vol. 2, Exhibit "B," Billing Assessment, p. 20.

29 Id., Vol. 2, JA, A34 p. 7.
3° Id., Vol. 2, Exhibit "C," Statement of Income, p. 21; with a difference of Php5.21.
'/
DECISION
CIA AC NO. 143
Page 18of24

Makati City, Nelia A. Barlis, CTA EB No. 1093 (CTA AC No. 99)31 will
shed light on this, to wit:32

Dividend Income Not Subject

to Local Business Tax

Section 133(a) of the Local Government Code expressly

provides that the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
income tax, except when levied on banks and other financial
institutions.

Section 131(e) of the LGC defines "banks and other

financial institutions" to include "non-bank financial
intermediaries, lending investors, finance and investment
companies, pawnshops, money shops, insurance companies,
stock markets, stock brokers and dealers in securities and
foreign exchange, as defined under applicable laws, or rules
and regulations thereunder." This enumeration appears to be
exclusive of other entities. Nowhere in the entirety of Section
131 is a holding company mentioned. However, this, by itself,
does not place holding companies beyond the reach of local
taxation, except on their income.

Section 143 of the Local Government Code is the law on

local business taxes. Subsection (f) thereof expressly allows
local taxation on banks and other financial institutions on their
income from dividends, based on gross receipts of the
preceding calendar year. What Section 3A.02(h) of the Revised
Makati Revenue Code did was to expand the taxpayer base to
encompass "owners or operators of banks and other financial
institutions which include offshore banking, non-bank,
financial intermediaries, lending investors, finance and
investment companies, investment house, pawnshops,
moneyshops, insurance companies, stock markets, stock
brokers, dealers in securities, including pre-need companies,
foreign exchange." The Treasurer of Makati City, while
invoking this Section 3A.02(h), made it applicable to holding
companies, such as Michigan Holdings, by virtue of Section
3A.02(p), which provides that holding companies "shall be
taxed at the rate prescribed either under subsection (g) or (h),
of the gross sales and/ or receipts during the preceding
calendar year."

31 June 17, 2015.

32 Underscoring ours. /
DECISION
CTAACN0.143
Page 19of24

Section 3A.02(h) of the Revised Makati Revenue Code,

which took effect on January 1, 2006, imposes a local business
tax on the dividend income of certain taxable entities. Section
3A.02(p) makes holding companies liable for this business tax.

"Section 3A.02(p). On Holding Company

shall be taxed at the rate prescribed either under
subsection (g) or (h) of the gross sales and/ or
receipts during the preceding calendar year."

Thus, Section 3A.02(p) in relation to Section 3A.02(h),

both of the Revised Makati Revenue Code, violates the limit set
by Section 133(a) of the Local Government Code.

Indeed, if the business of a holding company is in the

same class as that of a bank or other financial institutions, the
Makati City tax ordinance could simply have included holding
companies in its Section 3A.02(h), instead of placing them all
by themselves in Section 3A.02(p) and then making the tax rates
in either Section 3A.02(h) or (g) applicable to them. That
holding companies, exclusively, were placed in a separate
section, shows that they comprise a category distinct from the
class of "banks and other financial institutions" as defined by
Section 13l(e) of the LGC. That holding companies were
subjected to a tax on dividend income which the LGU is not
authorized and is in fact prohibited from levying on businesses
other than banks and financial institutions, shows a deliberate
intent to circumvent the prohibition laid down by Section
133(a) that the taxing powers of LGUs shall not extend to the
levy of income tax, except on banks and other financial
institutions.

There is more.

Section 27 (D) of the National Internal Revenue Code

deals with rates of tax on certain passive incomes. Subsection
(4) thereof, covering intercorporate dividends, states that
"Dividends received by a domestic corporation from another
domestic corporation shall not be subject to tax" - meaning
corporate income tax. Dividends are instead subject, under
Section 27(D)(l), to "a final tax at the rate of twenty percent
(20%)."

"Under Section 27(D)(4) of the Tax Code,

dividends received by a domestic corporation
from another corporation are not subject to the
corporate income tax. Such intracorporate
dividends are some of the passive incomes that are
0
DECISION
CTAACN0.143
Page20of24

subject to the 20% final tax, just like interest on

bank deposits. Intracorporate dividends, being
already subject to the final tax on income, no
longer form part of the bank's gross income under
Section 32 of the Tax Code for purposes of the
corporate income tax."

Thus, Section 3A.02(p) in relation to Section 3A.02(h),

both of the Revised Makati Revenue Code, likewise violates
Section 27(D)(4) of the National Internal Revenue Code.

Section 3A.02(p) of the Revised Makati Revenue Code is

thus an ultra vires exercise of local taxing power, and cannot be
given effect without violating the principle that an ordinance
can neither amend nor repeal but must conform to a statute.

XXX XXX XXX

Apropos to the instant case is Section S(b) of the Local

Government Code: "In case of doubt, any tax ordinance or
revenue measure shall be construed strictly against the local
government unit enacting it, and liberally in favor of the
taxpayer."

In the above-stated case, the Court En Bane held that Section

3A.02(p) in relation to Section 3A.02(h), which imposes LBT on the
income of certain taxable entities violates the limit set by Section 133(a)
of the LGC. Hence, Makati City's act in imposing LBT on therein
taxpayer's dividend income on which the National Government
already imposes an income tax, was made in excess of its powers,
making Section 3A.02(p) of the MRC invalid.

It must be emphasized that an ordinance (or part thereof) that

contravenes any statute is ultra vires and void.33

Just like dividend, interest income is likewise a passive income

on which the 1997 NIRC imposes income tax. Section 32 of the 1997
NIRC covers the definition of Gross Income for the purpose of the
imposition of the said income tax, viz.:

CHAPTER VI
Computation of Gross Income

33 Allied Banking Corporation as Trustee for the Trust Fund of CAP v. The Quezon City Government, et.
al., G.R. No. 154126, October 11, 2005, 472 SCRA 303.

v
DECISION
CTA AC N0.143
Page21 of24

SECTION 32. Gross Income. -

(A) General Definition. - Except when otherwise

provided in this Title, gross income means all income derived
from whatever source, including (but not limited to) the
following items:

XXX XXX XXX

(4) Interests; xxx

Moreover, Section 27 of the 1997 NIRC imposes final income tax

on interest income:

CHAPTER IV
Tax on Corporations

SECTION 27. Rates of Income Tax on Domestic

Corporations. -

XXX XXX XXX

(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
corporations, and royalties, derived from sources within the
Philippines: Provided, however, That interest income derived
by a domestic corporation from a depository bank under the
expanded foreign currency deposit system shall be subject to a
final income tax at the rate of seven and one-half percent (7
1/2%) of such interest income.

Following the ruling in the Michigan case and applying the same
to the dividend and interest income of respondent falling under Section
3A.02(h) in relation to Section 3A.02(p), the City of Makati's assessment
of the above-stated LBT using the rate applicable to banks and
financial institutions is, therefore, ultra vires and void.

J'
DECISION
CTA AC N0.143
Page22of24

Having discussed the foregoing, the Court finds it frivolous to

delve on the other errors raised by petitioners.

The RTC did not err in granting

respondent's claim for refund in
the form of cash.

The Court agrees with the RTC that Section 7B.14 of the MRC
clearly provides that the prohibition on the recovery in the form of cash
of any tax erroneously or illegally collected only applies to tax credits
and not to tax refunds, for reference:

SECTION 7B.14. Taxpayer's Remedies.-

XXX XXX XXX

(d) Claim for Refund of Tax Credit. - No case or

proceeding shall be maintained in any court for the recovery of
any tax, fee, or charge erroneously or illegally collected until a
written claim of refund or credit has been filed with the City
Treasurer. No case or proceeding shall be entertained in any
court after the expiration of two (2) years from the date of the
payment of such tax, fee, or charge, or from the date the
taxpayer is entitled to a refund or credit.

The tax credit granted a taxpayer shall not be refundable

in cash but shall only be applied to future tax obligations of the
same taxpayer for the same business. If a taxpayer has paid in
full the tax due for the entire year and he shall have no other
tax obligations payable to the Local Government of the City of
Makati during the year, his tax credit, if any, shall be applied in
full during the first quarter of the next calendar year or the tax
due from him for the same business of said calendar year.

XXX XXX XXX

On top of this and despite petitioners' contention otherwise,

respondent was able to prove payment of LBT in the amount of
Php4,499,653.19 on January 31,2011 for an assessment imposing tax on
its income at the rate applicable to banks and financial institutions on
which refund is being claimed, through its presentation of Official
Receipt No. MKTCF1194250 _34

34 RTC Records, Vol. 1, Exhibit "B," Official Receipt, p. 166.

J
DECISION
CTAACN0.143
Page23 o£24

WHEREFORE, in view of the foregoing, the present Petition for

Review is hereby DENIED. The assailed Decision dated March 31,
2015 and Order dated June 22, 2015 by the Regional Trial Court,
Branch 146, Makati City, ordering petitioners to return the erroneously
collected Local Business Tax in the amount of Four Million Four
Hundred Ninety-nine Thousand Six Hundred Fifty-three and 19/100
Pesos (Php4,499,653.19) by way of cash refund to respondent Metro
Pacific Investments Corporation, is hereby AFFIRMED.

SO ORDERED.

LOVELL~TA
Associate Justice

WE CONCUR:

I /

~. ~ --'3 '--
. FABON-VICTORINO MA. BELEN M. RINGPIS-LIBAN
Associate Justice
DECISION
CTA AC N0.143
Page24of24

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.

~
LOVELL R. BAUTISTA
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13 of Article VIII 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's
Division.

Presiding Justice