[CHAPTER)II:)LIMITATION)UPON)THE)POWER)OF)TAXATION! 1!!

Taxation!1*!SY!2015*2016!(Zarate)!

Pascual)v.)Sec.)of)Public)Works)(1960))FACTS:)CONCEPCION,(J.:!Congress!passed!an!RA!appropriating!P85K!for!the!construction!of!Pasig!feeder!road!terminals.!Wenceslao! Pascual,! the! Governor! of! Rizal! filed! an! action! for!declaratory! relief!and! injunction,!claiming! that!at! the! time!of!the!passage!and!approval!of! the!Act,! these! feeder! roads!had!not! yet! been! constructed! and! were! not! connected! to! any!government!property!or!main!highway.!The!feeder!roads!were!actually!within!the!Antonio!Subdivision,!which!was!owned!by!Jose! Zulueta,! a! member! of! the! Senate! of! the! Philippines.!Zulueta,!before!the!passage!of!the!Act,!had!offered!to!donate!the! property! to! the! municipality! of! Pasig,! but! the! deed! of!donation!was!executed!only!several!months!after(the!RA!was!passed.! Hence,! Congress! appropriated! public! funds! for! the!construction! of! feeder! roads! that! were,! at! the! time! the! law!was!passed,!private!property.!)ISSUE:)Whether!the!appropriation!is!valid.!)HELD:)The!appropriation!is!invalid.!The!taxing!power!must!be!exercised!for!public!purposes!only!and!not! for! the!advantage!of!private! individuals.!The!right!of!the! legislature! to!appropriate!public! funds! is! correlative!with!its! right! to! tax.! As! the! Constitution! prohibits! taxation! except!for! a!public!purpose,! so!also!no!appropriation!of! state! funds!can!be!made!other!than!for!a!public!purpose.!The!test!of!the!constitutionality!of!a!statute!requiring!the!use!of!public!funds!is!whether!the!statute!is!designed!to!promote!

the! public! interests! as! opposed! to! the! furtherance! of! the!advantage! of! individuals,! although! such! advantage! to!individuals!might!incidentally(serve!the!public.!Even! if! subsequently,!Zulueta!executed! the!deed!of!donation!in!favor!of!the!municipality,!making!the!roads!public!property,!the! appropriation! is! still! invalid.! The! validity! of! the! statute!depends! upon! the! powers! of! Congress! at! the! time! of! its!passage,!not!upon!events!occurring!after.!At!the!time!the!bill!was!passed,!the!road!was!still!private!property.!Therefore,! the! appropriation! sought! a! private! purpose! and!was! null! and! void.! The! subsequent! donation! could! not! have!cured!this!nullity.!)))TIO) VS.) VIDEOGRAM) REGULATORY) BOARD) [151) SCRA) 208;)G.R.)No.)LR75697;)18)Jun)1987])!Facts:! The! case! is! a! petition! filed! by! petitioner! on! behalf! of!videogram! operators! adversely! affected! by! Presidential!Decree!No.!1987,!“An!Act!Creating!the!Videogram!Regulatory!Board"! with! broad! powers! to! regulate! and! supervise! the!videogram!industry.!!A! month! after! the! promulgation! of! the! said! Presidential!Decree,! the! amended! the! National! Internal! Revenue! Code!provided!that:!!

"SEC.! 134.! Video! Tapes.!—! There! shall! be! collected! on! each!processed!video[tape!cassette,! ready! for!playback,! regardless!of! length,! an! annual! tax! of! five! pesos;! Provided,! That! locally!manufactured!or! imported!blank!video!tapes!shall!be!subject!to!sales!tax."!!"Section!10.!Tax!on!Sale,!Lease!or!Disposition!of!Videograms.!—!Notwithstanding!any!provision!of! law! to! the! contrary,! the!province! shall! collect! a! tax! of! thirty! percent! (30%)! of! the!purchase! price! or! rental! rate,! as! the! case!may! be,! for! every!sale,! lease! or! disposition! of! a! videogram! containing! a!reproduction!of!any!motion!picture!or!audiovisual!program.”!!“Fifty!percent!(50%)!of!the!proceeds!of!the!tax!collected!shall!accrue!to!the!province,!and!the!other!fifty!percent!(50%)!shall!accrue! to! the! municipality! where! the! tax! is! collected;!PROVIDED,! That! in! Metropolitan! Manila,! the! tax! shall! be!shared!equally!by!the!City/Municipality!and!the!Metropolitan!Manila!Commission.”!!The! rationale! behind! the! tax! provision! is! to! curb! the!proliferation! and! unregulated! circulation! of! videograms!including,! among! others,! videotapes,! discs,! cassettes! or! any!technical! improvement! or! variation! thereof,! have! greatly!prejudiced!the!operations!of!movie!houses!and!theaters.!Such!unregulated! circulation! have! caused! a! sharp! decline! in!theatrical! attendance! by! at! least! forty! percent! (40%)! and! a!tremendous! drop! in! the! collection! of! sales,! contractor's!specific,! amusement! and! other! taxes,! thereby! resulting! in!

substantial! losses! estimated! at! P450! Million! annually! in!government!revenues.!!Videogram(s)! establishments! collectively! earn! around! P600!Million! per! annum! from! rentals,! sales! and! disposition! of!videograms,! and! these! earnings! have! not! been! subjected! to!tax,!thereby!depriving!the!Government!of!approximately!P180!Million!in!taxes!each!year.!!The! unregulated! activities! of! videogram! establishments! have!also!affected!the!viability!of!the!movie!industry.!!!Issues:))!(1)! Whether! or! not! tax! imposed! by! the! DECREE! is! a! valid!exercise!of!police!power.!!!(2)!Whether!or!nor!the!DECREE!is!constitutional.!!!Held:) Taxation! has! been!made! the! implement! of! the! state's!police!power.!The!levy!of!the!30%!tax!is!for!a!public!purpose.!It!was! imposed!primarily! to!answer!the!need!for! regulating!the!video!industry,!particularly!because!of!the!rampant!film!piracy,!the! flagrant! violation! of! intellectual! property! rights,! and! the!proliferation! of! pornographic! video! tapes.! And! while! it! was!also!an!objective!of!the!DECREE!to!protect!the!movie!industry,!the!tax!remains!a!valid!imposition.!

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Taxation!1*!SY!2015*2016!(Zarate)!

!We! find! no! clear! violation! of! the! Constitution! which! would!justify! us! in! pronouncing! Presidential! Decree! No.! 1987! as!unconstitutional! and! void.!While! the! underlying! objective! of!the!DECREE! is! to!protect!the!moribund!movie! industry,! there!is! no! question! that! public! welfare! is! at! bottom! of! its!enactment,! considering! "the! unfair! competition! posed! by!rampant! film! piracy;! the! erosion! of! the! moral! fiber! of! the!viewing!public!brought!about!by!the!availability!of!unclassified!and! unreviewed! video! tapes! containing! pornographic! films!and! films! with! brutally! violent! sequences;! and! losses! in!government! revenues! due! to! the! drop! in! theatrical!attendance,!not!to!mention!the!fact!that!the!activities!of!video!establishments! are! virtually! untaxed! since! mere! payment! of!Mayor's! permit! and! municipal! license! fees! are! required! to!engage!in!business."!!!WHEREFORE,! the! instant! Petition! is! hereby! dismissed.! No!costs.!))))))))))

Local)Government)Units))G.R.)No.)162015)))))))))))))March)6,)2006!THE) CITY) GOVERNMENT) OF) QUEZON) CITY,) AND) THE) CITY)TREASURER)OF)QUEZON)CITY,)DR.)VICTOR)B.)ENRIGA,)Petitioners,!!vs.!BAYAN)TELECOMMUNICATIONS,)INC.,)Respondent.!!FACTS:!Bayantel! is! a! legislative! franchise! holder! under! RA! No.! 3259! to!establish! and! operate! radio! stations! for! domestic!telecommunications,!radiophone,!broadcasting!and!telecasting.!Of!relevance!to!this!controversy!is!the!tax!provision!of!Rep.!Act!No.!3259,!embodied!in!Section!14!thereof,!which!reads:!SECTION!14.!(a)!The!grantee!shall!be!liable!to!pay!the!same!taxes!on!its! real! estate,! buildings! and! personal! property,! exclusive! of! the!franchise,! as! other! persons! or! corporations! are! now! or! hereafter!may!be!required!by!law!to!pay.!(b)!The!grantee!shall!further!pay!to!the!Treasurer!of!the!Philippines!each!year,!within!ten!days!after!the!audit!and!approval!of!the!accounts!as!prescribed!in!this!Act,!one!and!one[half! per! centum! of! all! gross! receipts! from! the! business!transacted!under!this!franchise!by!the!said!grantee.!RA!No.! 7160,! otherwise! known!as! the! "Local!Government!Code!of!1991"!took!effect.!Section!232!of!the!Code!grants!local!government!units!within! the!Metro!Manila! Area! the! power! to! levy! tax! on! real!properties,!thus:!SEC.!232.!–!Power!to!Levy!Real!Property!Tax.!–!A!province!or!city!or!a! municipality! within! the! Metropolitan! Manila! Area! may! levy! an!annual! ad! valorem! tax! on! real! property! such! as! land,! building,!machinery! and! other! improvements! not! hereinafter! specifically!exempted.!

Months! before! it! took! effect,! Congress! enacted! RA! No.! 7633,!amending!Bayantel’s!original!franchise.!SEC.!11.!The!grantee,!its!successors!or!assigns!shall!be!liable!to!pay!the!same!taxes!on!their!real!estate,!buildings!and!personal!property,!exclusive!of!this!franchise,!as!other!persons!or!corporations!are!now!or!hereafter!may!be!required!by!law!to!pay.!In!addition!thereto,!the!grantee,!its!successors!or!assigns!shall!pay!a!franchise!tax!equivalent!to!three!percent!(3%)!of!all!gross!receipts!of!the!telephone!or!other!telecommunications! businesses! transacted! under! this! franchise! by!the!grantee,! its!successors!or!assigns!and!the!said!percentage!shall!be!in!lieu!of!all!taxes!on!this!franchise!or!earnings!thereof.!Provided,!That!the!grantee,!its!successors!or!assigns!shall!continue!to!be!liable!for!income!taxes!payable!under!Title!II!of!the!NIRC.!It!is!undisputed!that!within!the!territorial!boundary!of!Quezon!City,!Bayantel! owned! several! real! properties! on! which! it! maintained!various!telecommunications!facilities.!!QC!enacted!City!Ordinance!No.!SP[91,!S[93,!otherwise!known!as!the!Quezon!City!Revenue!Code,!imposing,!a!real!property!tax!on!all!real!properties! in! Quezon! City,! and,! reiterating! in! its! Section! 6,! the!withdrawal!of!exemption!from!real!property!tax!under!Section!234!of!the!LGC.!New! tax! declarations!were! issued! for! Bayantel’s! real! properties! in!QC.! Bayantel! wrote! the! office! of! the! City! Assessor! seeking! the!exclusion! of! its! real! properties.! On! its! firm! belief! of! its! exempt!status,!Bayantel!did!not!pay!the!real!property!taxes!assessed!against!it!by!the!Quezon!City!government.!RTC:! real! properties! of! Bayantel! used! in! the! operation! of! its!franchise!are!tax!exempted.!!CA:!affirmed.!!ISSUE:!Whether!or!not!Bayantel’s!real!properties!in!Quezon!City!are!exempt!from!real!property!taxes!under!its!legislative!franchise.!

!HELD:!Yes.!There! seems! to! be! no! issue! as! to! Bayantel’s! exemption! from! real!estate! taxes! by! virtue! of! the! term! "exclusive! of! the! franchise"!qualifying! the! phrase! "same! taxes! on! its! real! estate,! buildings! and!personal!property,"!found!in!Section!14,!supra,!of!its!franchise,!Rep.!Act!No.!3259,!as!originally!granted.!The! legislative! intent! expressed! in! the! phrase! "exclusive! of! this!franchise"! cannot! be! construed! other! than! distinguishing! between!two! (2)! sets!of!properties,!be! they! real!or!personal,! owned!by! the!franchisee,!namely,! (a)!those!actually,!directly!and!exclusively!used!in! its! radio! or! telecommunications! business,! and! (b)! those!properties! which! are! not! so! used.! It! is! worthy! to! note! that! the!properties!subject!of!the!present!controversy!are!only!those!which!are!admittedly!falling!under!the!first!category.!To!the!mind!of!the!Court,!Section!14!of!Rep.!Act!No.!3259!effectively!works! to! grant! or! delegate! to! local! governments! of! Congress’!inherent!power! to! tax! the! franchisee’s!properties!belonging! to! the!second! group! of! properties! indicated! above,! that! is,! all! properties!which,! "exclusive! of! this! franchise,"! are! not! actually! and! directly!used! in! the! pursuit! of! its! franchise.! The! taxing! power! of! local!governments!under!both!the!1935!and!the!1973!Constitutions!solely!depended! upon! an! enabling! law.! Absent! such! enabling! law,! local!government! units! were! without! authority! to! impose! and! collect!taxes! on! real! properties! within! their! respective! territorial!jurisdictions.!While!Section!14!of!Rep.!Act!No.!3259!may!be!validly!viewed! as! an! implied! delegation! of! power! to! tax,! the! delegation!under! that! provision,! as! couched,! is! limited! to! impositions! over!properties! of! the! franchisee! which! are! not! actually,! directly! and!exclusively! used! in! the! pursuit! of! its! franchise.! Necessarily,! other!properties!of!Bayantel!directly!used!in!the!pursuit!of!its!business!are!beyond! the! pale! of! the! delegated! taxing! power! of! local!

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Taxation!1*!SY!2015*2016!(Zarate)!

governments.! In! a! very! real! sense,! therefore,! real! properties! of!Bayantel,!save!those!exclusive!of! its!franchise,!are!subject!to!realty!taxes.! Ultimately,! therefore,! the! inevitable! result! was! that! all!realties! which! are! actually,! directly! and! exclusively! used! in! the!operation!of!its!franchise!are!"exempted"!from!any!property!tax.!Bayantel’s! franchise! being! national! in! character,! the! "exemption"!thus!granted!under!Section!14!of!Rep.!Act!No.!3259!applies!to!all!its!real! or! personal! properties! found! anywhere! within! the! Philippine!archipelago.!The! grant! of! taxing! powers! to! local! government! units! under! the!Constitution!and!the!LGC!does!not!affect!the!power!of!Congress!to!grant! exemptions! to! certain! persons,! pursuant! to! a! declared!national!policy.! The! legal! effect!of! the! constitutional! grant! to! local!governments!simply!means!that!in!interpreting!statutory!provisions!on! municipal! taxing! powers,! doubts! must! be! resolved! in! favor! of!municipal!corporations.!)

Administrative)Rate)Fixing))G.R.)No.)84818)December)18,)1989)PHILIPPINE) COMMUNICATIONS) SATELLITE) CORPORATION,)petitioner,!!vs.!JOSE) LUIS) A.) ALCUAZ,) as) NTC) Commissioner,) and) NATIONAL)TELECOMMUNICATIONS)COMMISSION,)respondents.!!FACTS:!Since!1968,!the!petitioner!has!been!leasing!its!satellite!circuits!to:!1.!Philippine!Long!Distance!Telephone!Company;!2.!Philippine!Global!Communications,!Inc.;!3.!Eastern!Telecommunications!Phils.,!Inc.;!

4.!Globe!Mackay!Cable!and!Radio!Corp.!ITT;!and!5.!Capitol!Wireless,!Inc.!or! their! predecessors[in[interest.! The! satellite! services! thus!provided!by!petitioner!enable!said!international!carriers!to!serve!the!public!with!indispensable!communication!services,!such!as!overseas!telephone,! telex,! facsimile,! telegrams,! high! speed! data,! live!television! in! full! color,! and! television! standard! conversion! from!European!to!American!or!vice!versa.!Under! Section! 5! of! Republic! Act! No.! 5514,! petitioner!was! exempt!from! the! jurisdiction! of! the! then! Public! Service! Commission,! now!respondent! NTC.! However,! pursuant! to! Executive! Order! No.! 196!issued! on! June! 17,! 1987,! petitioner! was! placed! under! the!jurisdiction,!control!and!regulation!of!respondent!NTC,!including!all!its! facilities!and!services!and! the! fixing!of! rates.! Implementing!said!Executive!Order!No.!196,! respondents! required!petitioner! to!apply!for! the! requisite! certificate! of! public! convenience! and! necessity!covering! its! facilities! and! the! services! it! renders,! as! well! as! the!corresponding!authority!to!charge!rates!therefor.!Petitioner! was! granted! a! provisional! authority,! thrice,! to! continue!operating! its! existing! facilities,! to! render! the! services! it! was! then!offering,! and! to! charge! the! rates! it!was! then! charging.! But! on! the!last! one! NTC! directed! the! petitioner! to! charge! modified! reduced!rates! through! a! reduction! of! fifteen! percent! (15%)! on! the! present!authorized!rates.!Petitioner! asseverates! that!nowhere! in! the!provisions!of! Executive!Order! No.! 546,! providing! for! the! creation! of! respondent! NTC! and!granting! its! rate[fixing! powers,! nor! of! Executive! Order! No.! 196,!placing! petitioner! under! the! jurisdiction! of! respondent!NTC,! can! it!be! inferred! that! respondent!NTC! is! guided! by! any! standard! in! the!exercise!of!its!rate[fixing!and!adjudicatory!powers.!While!petitioner!in! its! petition[in[chief! raised! the! issue! of! undue! delegation! of!legislative! power,! it! subsequently! clarified! its! said! submission! to!

mean!that!the!order!mandating!a!reduction!of!certain!rates!is!undue!delegation! not! of! legislative! but! of! quasi[judicial! power! to!respondent!NTC,!the!exercise!of!which!allegedly!requires!an!express!conferment!by!the!legislative!body.!!ISSUE:!WON!Executive!Orders!Nos.!546!and!196!on!the!ground!that!the!same!do!not!fix!a!standard!for!the!exercise!of!the!power!therein!conferred!is!constitutional.!!HELD:!No.!Fundamental!is!the!rule!that!delegation!of!legislative!power!may!be!sustained!only!upon!the!ground!that!some!standard!for!its!exercise!is! provided! and! that! the! legislature! in! making! the! delegation! has!prescribed! the! manner! of! the! exercise! of! the! delegated! power.!Therefore,!when! the!administrative!agency!concerned,! respondent!NTC! in! this! case,! establishes! a! rate,! its! act! must! both! be! non[!confiscatory! and! must! have! been! established! in! the! manner!prescribed! by! the! legislature;! otherwise,! in! the! absence! of! a! fixed!standard,! the! delegation! of! power! becomes! unconstitutional.! In!case!of! a! delegation!of! rate[fixing!power,! the!only! standard!which!the! legislature! is! required! to! prescribe! for! the! guidance! of! the!administrative! authority! is! that! the! rate! be! reasonable! and! just.!However,! it! has!been!held! that! even! in! the! absence!of! an!express!requirement!as!to!reasonableness,!this!standard!may!be!implied.!It! is! thus! clear! that! with! regard! to! rate[fixing,! respondent! has! no!authority! to! make! such! order! without! first! giving! petitioner! a!hearing,! whether! the! order! be! temporary! or! permanent,! and! it! is!immaterial!whether!the!same!is!made!upon!a!complaint,!a!summary!investigation,! or! upon! the! commission's! own! motion! as! in! the!present! case.! That! such! a! hearing! is! required! is! evident! in!respondents'! order! of! September! 16,! 1987! in!NTC! Case!No.! 87[94!which! granted! PHILCOMSAT! a! provisional! authority! "to! continue!

operating! its! existing! facilities,! to! render! the! services! it! presently!offers,! and! to! charge! the! rates! as! reduced! by! them! "under! the!condition! that! "(s)ubject! to! hearing! and! the! final! consideration! of!the!merit!of!this!application,!the!Commission!may!modify,!revise!or!amend!the!rates!..."!While! it!may! be! true! that! for! purposes! of! rate[fixing! respondents!may!have!other!sources!of!information!or!data,!still,!since!a!hearing!is! essential,! respondent! NTC! should! act! solely! on! the! basis! of! the!evidence!before!it!and!not!on!knowledge!or! information!otherwise!acquired! by! it! but! which! is! not! offered! in! evidence! or,! even! if! so!adduced,!petitioner!was!given!no!opportunity!to!controvert.!The! challenged! order,! particularly! on! the! issue! of! rates! provided!therein,!being!violative!of!the!due!process!clause!is!void!and!should!be! nullified.! Respondents! should! now! proceed,! as! they! should!heretofore! have! done,! with! the! hearing! and! determination! of!petitioner's! pending! application! for! a! certificate! of! public!convenience!and!necessity! and! in!which!proceeding! the! subject!of!rates! involved! in! the! present! controversy,! as!well! as! other!matter!involved! in! said! application,! be! duly! adjudicated! with! reasonable!dispatch!and!with!due!observance!of!our!pronouncements!herein.!)

Administrative)Rate)Fixing))Smith)Bell)&)Co.)vs)CIR)!Facts:)) )) Petitioner!imported!119!cases!of!"Chatteau!Gay"!wine!which! it! declared! as! "still! wine"! under! section! 134(b)! of! the!Tax!Code!and!paid!thereon!the!specific!tax!of!P1.00!per!liter!of!volume!capacity.!To!determine!the!correct!amount!of!specific!

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tax! due! on! petitioner’s! importation,! the! Commissioner!ordered! it! tested! and! analyzed! in! the! Bureau! of! Internal!Revenue! Laboratory! Center.! The! analyst! concluded! that! the!wine! should! be! classified! as! "sparkling! wine"! subject! to! a!higher! specific! tax! of! P12.00! per! liter! of! volume! capacity.!Accordingly,! the! Commissioner! ordered! the! issuance! of! the!corresponding! deficiency! assessment! against! petitioner.! The!Court! of! Tax! Appeals! affirmed! the! assessment! made! by! the!Commissioner.!!Petitioner! claimed! that! the! assessment! is! unconstitutional!since!Section!134(a)!of!the!Tax!Code!on!which!the!assessment!was! based! lays! down! an! insufficient! and! hazy! standard! by!which! the!policy!and!purpose!of! the! law!may!be!ascertained!and! gives! the! Commissioner! a! blanket! authority! to! decide!what! is! or! is! not! a! sparkling! wine;! so! that! there! was! an!unconstitutional! abdication!of! legislative!power! and! a! failure!of!due!process.!On!the!other!hand,!the!Commissioner!argued!that!Section!134!of!the!Tax!Code!is!clear!as!to!the!categories!of!the! articles! subject! to! specific! taxes! and! the! corresponding!amounts!of!tax!to!be!paid..!!Issue:)) ) Whether!there!is!an!unconstitutional!surrender!of! legislative! powers! and! a! failure! of! due! process! under!Section!134(a)!of!the!Tax!Code?))Held:)! The! Supreme! Court! held! that! Section! 134! of! the! Tax!Code! clearly! and! indubitably! discloses! the! legislative! will,!

leaving! to! the! officers! charged! with! its! implementation! and!execution!thereof!no!more!than!an!administrative!function!to!determine! what! kind! of! wine! or! imitation! wine! falls! in! one!class! or! another,! and! that! the! internal! revenue! officers! are!guided!by! sound!established!practices! and! technology!of! the!wine! industry.! Appealed! decision! affirmed! at! petitioner’s!costs.!!!Manila)Gas)vs)Collector))Facts:!!This! is! an! action! brought! by! the! Manila! Gas! Corporation!against! the!Collector!of! Internal!Revenue! for! the! recovery!of!P56,757.37,!which!the!plaintiff!was!required!by!the!defendant!to! deduct! and! withhold! from! the! various! sums! paid! it! to!foreign! corporations! as! dividends! and! interest! on! bonds! and!other!indebtedness!and!which!the!plaintiff!paid!under!protest.!!Issue:))Whether!or!not!the!Collector!of!Internal!Revenue!was!justified!in!withholding!income! taxes! on! interest! on! bonds! and! other! indebtedness!paid!to!nonresident!corporations.!)Held:) YES.) The! approved! doctrine! is! that! no! state! may! tax!anything! not!within! its! jurisdiction!without! violating! the! due!process!clause!of!the!constitution.!The!taxing!power!of!a!state!

does!not!extend!beyond!its!territorial!limits,!but!within!such!it!may!tax!persons,!property,!income,!or!business.!If!an!interest!in!property!is!taxed,!the!situs!of!either!the!property!or!interest!must!be!found! within! the! state.! If! an! income! is! taxed,! the! recipient!thereof!must!have!a!domicile!within!the!state!or!the!property!or!business!out!of!which! the! income! issues!must!be!situated!within!the!state!so!that!the!income!may!be!said!to!have!a!situs!therein.!Personal!property!may!be!separated! from! its!owner,!and! he!may! be! taxed! on! its! account! at! the! place!where! the!property!is!although!it!is!not!the!place!of!his!own!domicile!and!even!though!he!is!not!a!citizen!or!resident!of!the!state!which!imposes! the! tax.! But! debts! owing! by! corporations! are!obligations!of!the!debtors,!and!only!possess!value!in!the!hands!of! the! ! creditors.! The! Manila! Gas! Corporation! operates! its!business!entirely!within!the!Philippines.!Its!earnings,!therefore!come!from!local!sources.!The!place!of!material!delivery!of!the!interest!to!the!foreign!corporations!paid!out!of!the!revenue!of!the! domestic! corporation! is! of! no! particular! moment.! The!place! of! payment! even! if! conceded! to! be! outside! of! the!country! cannot! alter! the! fact! that! the! income! was! derived!from! the! Philippines.! The! word! "source"! conveys! only! one!idea,! that! of! origin,! and! the! origin! of! the! income! was! the!Philippines.!The!Collector!of! Internal!Revenue!was! justified! in!withholding! income! taxes! on! interest! on! bonds! and! other!indebtedness! paid! to! non[resident! corporations! because! this!income!was!received!from!sources!with.!)

Income:)Services)!CIR)VS.)BAIERRNICKEL)FACTS:)

• Respondent!Juliane!Baier[Nickel!o a!non[resident!German!citizen!o President!of!JUBANITEX,!Inc.!

• Through!Marina!Guzman! (Jubanitex’s!GM)! the! corporation!appointed! and! engaged! the! services! of! respondent! as!commission! agent.! It! was! agreed! that! respondent! will!receive! 10%! sales! commission! on! all! sales! actually!concluded!and!collected!through!her!efforts.!

• 1995:! respondent! received! the! her! sales! commission!income! (P1,707,772.64)! from! which! JUBANITEX! withheld!the! corresponding!10%!withholding! tax! (P170,777.26),! and!remitted!the!same!to!the!BIR.!!

• In! 1997,! respondent! filed! her! 1995! income! tax! return!reporting!a!taxable! income!of!P1,707,772.64!and!a!tax!due!of!P170,777.26.!

• In! 1998,! respondent! filed!a! claim! to! refund! the!amount!of!P170,777.26!alleged!to!have!been!mistakenly!withheld!and!remitted!by!JUBANITEX!to!the!BIR.!She!contended!that!her!sales! commission! income! is! not! taxable! in! the! Philippines!because! the! same! was! a! compensation! for! her! services!rendered! in! Germany! and! therefore! considered! as! income!from!sources!outside!the!Philippines.!

• Next!day,!R!filed!a!petition!for!review!with!CTA![!NO!action!by!BIR.!

!CTA:!HELD![!the!commissions!received!by!respondent!were!actually! her! remuneration! in! the! performance! of! her!

[CHAPTER)II:)LIMITATION)UPON)THE)POWER)OF)TAXATION! 9!!

Taxation!1*!SY!2015*2016!(Zarate)!

duties!as!President!of!JUBANITEX!and!not!as!a!mere!sales!agent! thereof.! The! income! derived! by! respondent! is!therefore! an! income! taxable! in! the! Philippines! because!JUBANITEX!is!a!domestic!corporation.!!CA:!Reversed!CTA![!respondent!received!the!commissions!as!sales!agent!of!JUBANITEX!and!not!as!President!thereof.!And! since! the! "source"! of! income! means! the! activity! or!service! that! produce! the! income,! the! sales! commission!received! by! respondent! is! not! taxable! in! the! Philippines!because! it! arose! from! the!marketing!activities!performed!by!respondent!in!Germany.!!ISSUE:! WON! respondent’s! sales! commission! income! is!taxable!in!the!Philippines.!!HELD:!!!The! important! factor! which! determines! the! source! of!income! of! personal! services! is! not) the) residence! of! the!payor,! or! the! place! where! the! contract! for! service! is!entered! into,! or! the! place! of! payment,! but) the) place)where)the)services)were)actually)rendered.!The!rule!is!that!“source!of!income”!relates!to!the!property,!activity!or!service!that!produced!the!income.!!With!respect!to!rendition!of! labor!or!personal!service,!as! in!the! instant!case,! it! is! the! place! where! the! labor! or! service! was!performed! that! determines! the! source! of! the!income.!! There! is! no! merit! in! the! interpretation! which!

equates!source!of!income!in!labor!or!personal!service!with!the!residence!of!the!payor!or!the!place!of!payment!of!the!income.!!The!decisive!factual!consideration!here!is!not!the!capacity!in!which!Juliane!Baier[Nickel!received!the!income,!but!the!sufficiency! of! evidence! to! prove! that! the! services! she!rendered!were!performed!in!Germany!to!entitle!her!to!tax!exemption!since!she!is!a!non[resident!German!citizen.!

!!!!!!!!!!!Juliane!did!not!prove!by!substantial!evidence,!or!that!relevant!evidence!that!a!reasonable!mind!might!accept!as!adequate!to!support!the!conclusion!that!it!was!in!Germany!where! she!performed! the! income!producing! service.!! She!thus! failed! to! discharge! the! burden! of! proving! that! her!income! was! from! sources! outside! the! Philippines! and!exempt!from!the!application!of!our!income!tax!law.!

)CIR)vs.)MARUBENI)CORPORATION)FACTS:!

• Marubeni,! a! Japanese! corporation,! engaged! in! general!import! and! export! trading,! financing! and! construction,! is!duly!registered!in!the!Philippines!with!Manila!branch!office.!!

• After! examination! of! CIR! of! the! Manila! branch’s! books! of!accounts!for!fiscal!year!ending!March!1985,!and!found!that!respondent! had! undeclared! income! from! contracts! with!NDC!and!Philphos!for!construction!of!a!wharf/port!complex!and!ammonia!storage!complex!respectively.!

• August! 27,! 1986:! Marubeni! received! a! letter! from! CIR!assessing! it! for!several!deficiency!taxes.!CIR!claims!that!the!

income! respondent! derived! were! income! from! Philippine!sources,!hence!subject!to!internal!revenue!taxes.!!

• Sept!1986:!R!filed!2!petitions!for!review!with!CTA:!the!first,!questioned!the!deficiency!income,!branch!profit!remittance!and! contractor’s! tax! assessments! and! second! questioned!the!deficiency!commercial!broker’s!assessment.!

• Aug! 2,! 1986:! EO) 41! declared! a! tax! amnesty! for! unpaid!income! taxes! for! 1981[85,! and! that! taxpayers!who!wished!to! avail! this! should! on! or! before! Oct! 31,! 1986.! Marubeni!filed!its!tax!amnesty!return!on!Oct!30,!1986.!

• Nov! 17,! 1986:! EO) 64! expanded! EO! 41’s! scope! to! include!estate! and! donor’s! taxes! under! Title! 3! and! business! tax!under! Chap! 2,! Title! 5! of! NIRC,! extended! the! period! of!availment! to! Dec! 15,! 1986! and! stated! those! who! already!availed!amnesty!under!EO!41!should!file!an!amended!return!to!avail!of!the!new!benefits.!!

• Dec! 15,! 1986:!Marubeni! filed! a! supplemental! tax! amnesty!return.!!

CTA:!found!that!Marubeni!properly!availed!of!the!tax!amnesty!and!deemed!cancelled!the!deficiency!taxes.!!CA:!affirmed!on!appeal.!)!Issue:!WON!Marubeni!is!exempted!from!paying!tax!)!Held:!Yes.!1.#On#date#of#effectivity#!EO!41!took!effect!on!Aug!22,!1986.!The!case!questioning!the!1985!deficiency!was!filed!with!CTA!on!Sept!26,!1986.!When!EO!41! became! effective,! the! case! had! not! yet! been! filed.!

Marubeni! does! not! fall! in! the! exception! and! is! thus,! not!disqualified! from! availing! of! the! amnesty! under! EO! 41! for!taxes!on!income!and!branch!profit!remittance.!!The! difficulty! herein! is! with! respect! to! the! contractor’s! tax!assessment! (business! tax)! and! respondent’s! availment!of! the!amnesty! under! EO! 64,! which! expanded! EO! 41’s! coverage.!When!EO!64!took!effect!on!Nov!17,!1986,!it!did!not!provide!for!exceptions!to!the!coverage!of!the!amnesty!for!business,!estate!and! donor’s! taxes.! Instead,! Section! 8! said!EO! provided! that:!“The(provisions(of(Executive(Orders(Nos.(41(and(54(which(are(not(contrary(to(or(inconsistent(with(this(amendatory(Executive(Order(shall(remain(in(full(force(and(effect.”(!Due!to!the!EO!64!amendment,!Sec!4b!cannot!be!construed!to!refer! to! EO!41! and! its! date!of! effectivity.! The! general! rule! is!that!an!amendatory!act!operates!prospectively.!It!may!not!be!given!a!retroactive!effect!unless! it! is!so!provided!expressly!or!by!necessary!implication!and!no!vested!right!or!obligations!of!contract!are!thereby!impaired.!!2.#On#situs#of#taxation#!Marubeni!was!able!to!sufficiently!prove!in!trial!that!not!all!its!work!was!performed!in!the!Philippines!because!some!of!them!were! completed! in! Japan! (and! in! fact! subcontracted)! in!accordance!with! the! provisions! of! the! contracts.! All! services!for! the! design,! fabrication,! engineering! and! manufacture! of!the! materials! and! equipment! under! Japanese! Yen! Portion! I!were! made! and! completed! in! Japan.! These) services) were)

[CHAPTER)II:)LIMITATION)UPON)THE)POWER)OF)TAXATION! 11!!

Taxation!1*!SY!2015*2016!(Zarate)!

rendered) outside) Philippines’) taxing) jurisdiction) and) are)therefore)not)subject)to)contractor’s)tax.!!))MERALCO) vs) YATCO)GR! No.! 45697,! November! 1,! 1939!!!FACTS:!• In!1935,!Meralco!enetered! into!an! insurance!contract!with!New!York!

Insurance!Company!and! the!United!States!Guaranty!Company.!These!insurance! companies! are! foreign! corporations! not! licensed! to! do!business!in!the!Philippines!and!having!no!agents!therein.!

• Plaintiff! through! its! broker! paid,! in! New! York,! to! said! insurance!company!premiums!in!the!sum!of!P91,696.!

• Yatco,! the! Commissioner! of!Internal! Revenue,! levied! taxes! on! the!premium!paid.!!

• Meralco! paid! under! protest! alleging! that! the! Philippines! had! no!jurisdiction.!!

• The! protest! having! been! overruled,! plaintiff! instituted! the! present!action!to!recover!the!tax.!!

• The! trial! court! dismissed! the! complaint;! hence,! plaintiff! took! the!instant!appeal.!

!ISSUE:!Whether! the! disputed! tax! is! one! imposed! by! the! Philippines! upon! a!contract!beyond!its!jurisdiction.)!HELD:)!No.!!!Where!the!risk!insured!against!and!certain!incidents!of!the!contract!are!to!be!attended!in!the!Philippines!such!as!payment!of!dividends!when!received!in!cash,!the!Philippines!may!impose!tax!regardless!whether!the!contract!is!

executed!abroad.!Under!such!circumstances,!substantial) elements)of) the)contract)may) be) said) to) be) so) situated) in) the) Philippines) as) to) give) its)government)the)power)to)tax.!Even!if!it!be!assumed!that!the!tax!imposed!upon! the! insured! will! ultimately! be! passed! on! to! the! insurer,! thus!constituting!an!indirect!tax!upon!the!foreign!corporation,!by!stipulations!of!its!contract,!has!subjected!itself!to!the!taxing!jurisdiction!of!the!Philippines.!!!After!all,! the!Government!of! the!Philippines,!by!protecting! the!properties!insured,! benefits! the! foreign! corporation.! It! is! thus!reasonable! that! the!latter!should!pay!a!just!contribution!therefor.!!!WELLS)FARGO)BANK)vs)Col)GR)46720,)June)8,)1940))FACTS:)• Birdie! Lillian! Eye! died! on! 16! September! 1932,! at! Los! Angeles,!

California,!the!place!of!her!alleged!last!residence!and!domicile.!Among!the! properties! she! left! was! her! 1/2! conjugal! shares! of! stock! in! the!Benguet! Consolidated! Mining! Co.,! an! anonymous! partnership!(sociedad!anonima),!organized!under!the!laws!of!the!Philippines.!!

• She!left!a!will!duly!admitted!to!probate!in!California!where!her!estate!was!administered!and!settled.!

• !Wells!Fargo!bank!and!Union!Trust!Co.!was!duly!appointed!trustee!of!the!trust!by!the!said!will.!!

• The!Federal!and!California!State’s!inheritance!taxes!due!thereon!have!been!duly! paid.! The! Collector! of! Internal! Revenue! in! the! Philippines,!however,! sought! to! subject! the! shares!of! stock! to! inheritance! tax,! to!which!Wells!Fargo!objected.! !

!ISSUE:)Whether! the! shares! of! stock! are! subject! to! Philippine! inheritance! tax!considering!that!the!decedent!was!domiciled!in!California.!!!!

HELD:!!Yes.!The!shares!of!stock!are!subject!to!Philippine!inheritance!tax.!!Originally,!the!settled!law!in!the!United!States!is!that!intangibles!have!only!one! situs! for! the! purpose! of! inheritance! tax,! and! such! situs! is! in! the!domicile!of!the!decedent!at!the!time!of!his!or!her!death.!But!the!rule!has!been! relaxed.!The!maxim!“mobila! sequuntur!personam,”!upon!which! the!rule! rests,! has! been!decried! as! a!mere! “fiction!of! law!having! its! origin! in!considerations! of! general! convenience! and! public! policy,! and! cannot! be!applied!to! limit!or!control! the!right!of!the!State!to!tax!property!within! its!jurisdiction”!and!must!“yield!to!established!fact!of!legal!ownership,!actual!presence!and!control!elsewhere,!and!cannot!be!applied! if! to!do!so!would!result! in! inescapable! and! patent! injustice.”! The! relaxation! of! the! original!rule! rests! on! either! of! two! fundamental! considerations:! (1)! upon! the!recognition! of! the! inherent! power! of! each! government! to! tax! persons,!properties,! and! rights! within! its! jurisdiction! and! enjoying,! thus,! the!protection!of! its! laws;!and! (2)!upon! the!principle! that!as! to! intangibles,!a!single!location!in!space!is!hardly!possible,!considering!the!multiple,!distinct!relationships!which!may!be!entered!into!with!respect!thereto.!!!Herein,! the) actual) situs) of) the) shares) of) stock) is) in) the) Philippines,) the)corporation)being)domiciled)therein.!The!certificates!of!stock!remained!in!the!Philippines!up! to! the! time!when! the!deceased!died! in!California,! and!they! were! in! possession! of! one! Syrena! McKee,! secretary! of! the!corporation,! to! whom! they! have! been! delivered! and! indorsed! in! blank.!McKee!had! the! legal! title! to! the! certificates!of! stock!held! in! trust! for! the!true!owner!thereof.!The!owner!residing!in!California!has!extended!here!her!activities! with! respect! to! her! intangibles! so! as! to! avail! hereself! of! the!protection!and!benefit!of!Philippine! laws.!Accordingly,) the) jurisdiction)of)the)Philippine)Government)to)tax)must)be)upheld.!)

)

COM.)OF)CUSTOMS)v)CTA)&)RUEDA)CO.)!

[DUE(PROCESS(CLAUSE](!

Campos! Rueda! Corporation! imported! 46! cartons! of! Tungsol!flashers.!Before!the!goods!arrived!at!the!port!of!Manila,!Rueda!filed! with! the! Collector! of! Customs! of! Manila! a! request! for!value!information!for!the!declaration!of!the!imported!flashers!at! 30%! ad! valorem! duty,! for! classification! purpose.! The!Customs!appraiser!however,!reclassified!the!goods!at!50%!ad!valorem.!!!

When! the! goods! arrived! at! the! port! of! Manila! on! board! SS!"Luna!Maersk"!Rueda!immediately!filed!Customs!Import!Entry!and! Internal! Revenue! Declaration! at! 50%! ad! valorem! but!under!protest.!It!then!paid!duties!and!taxes!on!the!goods,!also!under!protest.!!!

Campos!Rueda!prayed!for!the!refund!of!the!said!difference!of!28k.! The! Collector! of! Customs! and! the! Commissioner! of!Customs! both! dismissed! the! protest.! However,! the! CTA!ordered! the! refund! of! 26k,! excluding! the! refund! on! advance!sales!tax!from!the!28k!refund!Rueda!asked!for.!

!!ISSUE:!W/N!THE!CLASSIFICATION!OF!THE!TUNGSOL!FLASHERS!WAS!PROPER?!!

!HELD:! Tariff! Heading! No.! 85.09! of! the! Tariff! and! Customs!Code!provides!that!Electrical!lighting!and!signalling!equipment!and! electrical! windscreen! wipers,! defrosters! and! demisters,!

[CHAPTER)II:)LIMITATION)UPON)THE)POWER)OF)TAXATION! 13!!

Taxation!1*!SY!2015*2016!(Zarate)!

for! cycles!or!motor! vehicles!were! taxed!ad!valorem!30%.!On!the!other!hand,!the!same!Code!provides!under!Tariff!Heading!No.! 85.19! for! Electrical! apparatus! for! making! and! breaking!electrical!circuits,!for!the!protection!of!electrical!circuits,!or!for!making! connections! to! or! in! electric! circuits! for! example,!switches,! relays,! fuses,! lighting! arresters,! surge! suppressors,!plugs,! lamp[holders! and! junction! boxes);! resistors,! fixed! or!variable! (including! potentiometers),! other! than! heating!resistors,!printed!circuits,!switch!boards!(other!than!telephone!switchboards)! and! control! panels:! !Petitioner! contends! that!the!imported!flashers!should!be!classified!under!Tariff!Heading!No.! 85.19.! The! documents! covering! the! importation! of! the!goods! show! that! they! are! "electrical! lighting! and! signalling!parts."! Hence,! being! parts! only! of! a! whole! signalling!equipment,! the! flashers! by! themselves! cannot! function! as! a!signalling!equipment.!The! imported!article!can!be!considered!merely! as! electrical! apparatus! for! making! and! breaking!electrical!circuits!falling!under!Tariff!Heading!No.!85.19!of!the!Tariff! and! Customs! Code.! !Rueda! Corporation,! on! the! other!hand,!contends!that!the!imported!flashers!should!be!classified!under! Tariff! Heading! No.! 85.09.! They! claim! that! the! subject!importations!are!electrical! apparatus!used!on!motor!vehicles!for!signalling!purposes,!that!is,!to!signal!right!or!left!hand!turn!by! means! of! electrical! flashers! in! front! and! at! the! rear! of!motor!vehicles.!!In!finding!for!private!respondent,!respondent!Court! of! Tax! Appeals! found! that! the! evidence! definitely!establish! the! fact! that! the!general!purpose!or!predominating!use! to! which! Tungsol! Products! (flashers)! are! applied! or!employed,! and! for! which! petitioner! imported! them,! is!

precisely! as! !! electrical! equipment! for! signalling!purposes! for!motor!vehicles;!that!is,!to!signal!or!indicate!a!right!or!left!hand!turn!by!means!of!electrical! flashes! in!front!and!at!the!rear!of!motor!vehicles.!!

It! is! also! noted! that! petitioner! had,! on! two! occasions! in! the!past,! classified! and! assessed! customs! duties! on! similar!imported!Tungsol!Flashers!under!Tariff!Heading!No.!85.09.!On!January!25,!1974,!then!Acting!Collector!of!Customs!Rolando!G.!Geotina! issued! the! circular! classifying! 12V! Flasher! for!Motor!Vehicles! under! Tariff! Heading! No.! 85.19! of! the! Tariff! and!Customs! Code! reasoning! that:!"For! being! imported! alone,!subject! article! cannot! be! properly! deemed! as! electrical!signalling!equipment!for!motor!vehicle!but!should!be!treated!more!as!a!device!for!closing!or!opening!an!electrical!circuit.”!!

The! respondent!Court!of!Tax!Appeals!opined,!and!We!agree,!that:!"The!Tariff!Law!employs!the!words!'electrical!lighting!and!signalling! equipment! x! x! x! for!motor! vehicles'!without!more,!and! respondent! admits! that! the! Tungsol! flashers! in! question!are! electrical! lighting! and! signalling! equipment! for! motor!vehicles.!Nothing! there! speaks!of! 'for! being! imported! alone,'!an! article! falling! under! Tariff! Heading!No.! 85.09! as! electrical!apparatus!for!use!on!motor!vehicles!for!lighting!and!signalling!purposes!shall!be!treated!as!a!device!for!making!and!breaking!electrical! circuits! under! Tariff! Heading! No.! 85.19.!Where( the(law( does( not( provide( that( an( article( imported( for( electrical(lighting( and( signalling( equipment( for( motor( vehicles( falling(under( Tariff( Heading( No.( 85.09,( if( imported( alone,( shall( be(

classified( under( Tariff( Heading( No.( 85.19( as( 'electrical(apparatus( for( making( and( breaking( electrical( circuits,( 'that(provision(should(not(be(read(into(the(law."(!

)

ORMOC)SUGAR)CO.)v)TREASURER)OF)ORMOC)CITY))

[EQUAL(PROTECTION(CLAUSE](!

The!Municipal! Board! of! Ormoc! City! passed! Ordinance! No.! 4!imposing! "on! any! and! all! productions! of! centrifugal! sugar!milled! at! the! Ormoc! Sugar! Company,! Inc.,! in! Ormoc! City! a!municipal!tax!equivalent!to!1%!per!export!sale!to!the!US!and!other!foreign!countries."!!!

Payments! for! said! tax! were!made,! under! protest,! by! Ormoc!Sugar!Company,!Inc.!for!a!total!of!P12k!!!

Ormoc! Sugar! Company,! Inc.! filed! before! the! CFI! of! Leyte! a!complaint! against! the!City!of!Ormoc!as!well! as! its! Treasurer,!Municipal! Board! and! Mayor,! alleging! that! the! aforestated!ordinance! is! unconstitutional! for! being! violative! of! the! equal!protection!clause!and!the!rule!of!!!uniformity!of!taxation,!aside!from! being! an! export! tax! forbidden! under! Sec2287! of! the!Revised!Administrative!Code.!!

ISSUE:! W/N! THE! ORDINANCE! VIOLATES! EQUAL! PROTECTION!CLAUSE?!!

HELD:!YES!and!is!therefore!unconstitutional.!The!Constitution!in!the!bill!of!rights!provides:!“nor!shall!any!person!be!denied!the!equal!protection!of!the!laws."!The!equal!protection!clause!applies!only!to!persons!or!things!identically!situated!and!does!not!bar!a!reasonable!classification!of!the!subject!of!legislation,!and! a! classification! is! reasonable! where! (1)! it! is! based! on!substantial!distinctions!which!make!real!differences;!(2)!these!are! germane! to! the!purpose!of! the! law;! (3)! the! classification!applies! not! only! to! present! conditions! but! also! to! future!conditions! which! are! substantially! identical! to! those! of! the!present;!(4)!the!classification!applies!only!to!those!who!belong!to!the!same!class.!!

A(perusal(of(the(requisites(instantly(shows(that(the(questioned(ordinance( does( not( meet( them,( for( it( taxes( only( centrifugal(sugar( produced( and( exported( by( the(Ormoc( Sugar( Company,(Inc.( and( none( other.( At! the! time! of! the! taxing! ordinance's!enactment,! Ormoc! Sugar! Company,! Inc.,! it! is! true,! was! the!only!sugar!central!in!the!city!of!Ormoc.!Still,!the!classification,!to! be! reasonable,! should! be! in! terms! applicable! to! future!conditions!as!well.!The!taxing!ordinance!should!not!be!singular!and! exclusive! as! to! exclude! any! subsequently! established!sugar!central,!of!the!same!class!as!plaintiff,!from!the!coverage!of! the!tax.!As! it! is!now,!even! if! later!a!similar!company! is!set!up,! it! cannot! be! subject! to! the! tax! because! the! ordinance!expressly! points! only! to! Ormoc! Sugar! Company,! Inc.! as! the!entity!to!be!levied!upon.!!

Appellant,! however,! is! not! entitled! to! interest! on! the! refund!

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Taxation!1*!SY!2015*2016!(Zarate)!

because! the! taxes!were!not! arbitrarily! collected! (Collector!of!Internal! Revenue! v.! Binalbagan).! 6! At! the! time! of! collection,!the! ordinance! provided! a! sufficient! basis! to! preclude!arbitrariness,! the! same! being! then! presumed! constitutional!until!declared!otherwise.!!

!

BRITISH)AMERICAN)TOBACCO)vs.) JOSE) ISIDRO)CAMACHO) in)his)capacity)as)Secretary)of)Finance)!FACTS:!!! To! implement! RA! 8240,! BIR! issued! Revenue!Regulations!No.!1[97,!2!which!classified!the!existing!brands!of!cigarettes! as! those! duly! registered! or! active! brands! prior! to!January!1,!1997.!New!brands,!or!those!registered!after!January!1,! 1997,! shall! be! initially! assessed! at! their! suggested! retail!price!until!such!time!that!the!appropriate!survey!to!determine!their!current!net!retail!price!is!conducted.!!!In!2001!British!American!Tobacco! introduced! into! the!market!Lucky! Strike! Filter,! Lucky! Strike! Lights! and! Lucky! Strike!Menthol!Lights!cigarettes,!with!a!SRP!price!of!P9.90!per!pack.!Pursuant! to! Sec.! 145,! the! Lucky! Strike! brands! were!initially!assessed!the!excise!tax!at!P8.96!per!pack.!!!On! February! 17,! 2003,! Revenue! Regulations! No.! 9[2003,!amended! Revenue! Regulations! No.! 1[97! by! providing,!among!others,!a!periodic!review!every!two!years!or!earlier!of!the!current!net!retail!price!of!new!brands!and!variants!thereof!

for! the! purpose! of! establishing! and! updating! their! tax!classification.!Pursuant!thereto,!Revenue!Memorandum!Order!No.! 6[2003! 5! was! issued! prescribing! the! guidelines! and!procedures! in! establishing! current! net! retail! prices! of! new!brands!of!cigarettes!and!alcohol!products.!!!Subsequently,!Revenue!Regulations!No.!22[2003!6!was!issued!to! implement!the! revised!tax! classification! of!certain!new!brands! introduced!in! the!market! after!January!1,! 1997,!based! on! the! survey! of! their! current! net! retail! price.! The!survey! revealed! that! Lucky! Strike! Filter,! Lucky! Strike! Lights,!and! Lucky! Strike!Menthol! Lights,! are! sold! at! the! current! net!retail! price! of! P22.54,! P22.61! and! P21.23,! per! pack,!respectively.! Respondent! Commissioner! of! the! Bureau! of!Internal! Revenue! thus! recommended! the! applicable! tax! rate!of!P13.44! per! pack!inasmuch!as! Lucky!Strike's! average!net!retail!price!is!above!P10.00!per!pack.!!!Thus! pet! filed! before! the! RTC! a! petition! for! injunction! with!prayer!for!the!issuance!of!a!temporary!TRO!on!the!ground!that!they! discriminate! against! new! brands! of!cigarettes,in!violation!of!the!equal!protection!and!uniformity!provisions!of!the!Constitution.!The!trial!court!rendered!a!decision! upholding! the! constitutionality! of! Section! 145! of! the! NIRC!and!the!Revenue!Regulations!in!question.!(

ISSUE:((( W/N!the!classification!freeze!provision!violates!the!equal!protection!and!uniformity!of!taxation!clauses!of!the!Constitution.!!HELD:((NO.!(!In!the!!case!of!Sison!Jr.!v.!Ancheta,!the!Court!said:!!"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,(.( .( .( As( clarified( by( Justice( Tuason,( where( "the(differentiation"( complained( of( "conforms( to( the( practical(dictates(of( justice(and(equity"( it( "is( not(discriminatory(within(the(meaning(of(this(clause(and(is(therefore(uniform."(There(is(quite(a(similarity(then(to(the(standard(of(equal(protection(for(all( that( is( required( is( that( the( tax( "applies( equally( to( all(persons,(firms(and(corporations(placed(in(similar(situation.((!There! is! no! question! that! the! classification! freeze! provision!meets! the! geographical! uniformity!requirement! because! the!assailed! law!applies! to!all! cigarette!brands! in! the!Philippines.!The! rational! basis! test! was! properly! applied! to! gauge! the!constitutionality! of! the! assailed! law! in! the! face! of! an! equal!protection! challenge.! It! has! been! held! that! "in! the! areas! of!social! and! economic! policy,! a! statutory! classification! that!neither! proceeds! along! suspect! lines! nor! infringes!constitutional! rights!must!be!upheld!against!equal!protection!challenge!if!there!is!any!reasonably!conceivable!state!of!facts!

that! could! provide! a! rational! basis! for! the! classification."!Under!the!rational!basis!test,!it!is!sufficient!that!the!legislative!classification!is!rationally!related!to!achieving!some!legitimate!State!interest.!!!In! this! case,! the! classification! freeze! provision! uniformly!applies! to! all! cigarette! brands! whether! existing! or! to! be!introduced! in! the! market! at! some! future! time.! It! does! not!purport!to!exempt!any!brand!from!its!operation!nor!single!out!a!brand!for!the!purpose!of!imposition!of!excise!taxes.!!!IMUS)ELECTRIC)CO.)vs.)CTA)and)CIR))FACTS:!!! The!Municipal! Council! of! Imus,! Cavite! granted!Imus! Electric! Co.! a! franchise! to! operate! an! electric! plant,!imposing! tax! of! 1%! of! its! gross! receipts! in! the! first! 20! years!and!2%!thereof!in!the!next!15!years.!IN!1946,!the!Tax!Code!was!amended!by!RA!39.!Sec!259!thereof!provides!that!“There(shall(be(collected(in(respect(to(all(existing(and(future(franchises,(upon(the(gross(earnings(or(receipts(from(the(business(covered(by(the(law(granting(the(franchise(a(tax(of(five(per(centum(or(such(taxes,(charges,(and(percentages(as(are(specified(in(the(special(charters(of(the(corporations(upon(which(such( franchises(are(conferred,(whichever( is(higher,(unless( the(provisions(thereof(preclude(the(imposition(of(a(higher(tax.”(Imus!Electric!Co.,! Inc.,!paid! franchise!tax!at! the!rate!of!5%!of!its!gross!receipts,!until!sometime!in!1953!when!it!filed!a!claim!for!refund!of!payments!made!at!the!aforesaid!rate!of!5%.!!Said!claim!for!refund!was!granted!as!to!period!from!April!1,!1950!to!

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Taxation!1*!SY!2015*2016!(Zarate)!

December! 31,! 1951.! Nonetheless,! the! Commissioner! of!Internal! Revenue! assessed! Imus! Electric! Co.,! Inc.,! at! the! 5%!rate! pursuant! to! Sec.! 259! of! the! Tax! Code! as! amended!demanding!payment!of!deficiency!tax!and!surcharge.!Upon! refusal! of! the! Commissioner! to! reconsider! the!assessment,!Imus!Electric!Co.,!Inc.,!petitioned!the!Court!of!Tax!Appeals! for! the! review!of! the!Commissioner's! ruling,!alleging!that:! The! franchise! in! its! favor! is! a! private! contract! which!would!be!impaired!by!the!application!of!Section!259!of!the!Tax!Code! and! this! would! be! in! violation! of! the! non[impairment!clause!of!the!Constitution.!!The! CTA! upheld! the! constitutionality! of! the! said! law! citing!Lealda( case! which! declared! that! the! franchise! "contains! an!express!reservation!that!it! is!subject!to!amendment!or!repeal!and! that! the!same!contains!no!provision! that! the! tax! therein!prescribed! shall! be! in! lieu! of! all! other! taxes,! municipal,!provincial!or!national."!Thus!this!appeal.!ISSUE:(!! W/N! the! law! is! a! violation! of! the! non[impairment!clause!of!the!Constitution.!HELD:( ! NO.! SC! confirmed!CTA’s! ruling!by! citing!a! case!with! similar! facts! to! this! case.! Balanga( Power( Plant( Co.( vs.(Commissioner(of(Internal(Revenue!held!that!franchises!shall!be!`subject! to! the! power! of! Congress! to! alter,!modify! or! repeal!the! same'.! To! the! extent! that! Section! 259! of! our! National!Internal! Revenue! Code! is! inconsistent!with! the! rate! of! taxes!fixed!in!said!municipal!franchises![!and!the!theory!that!Section!259! as! applied! to! petitioner! herein! is! unconstitutional,!necessarily! implies! such! inconsistency! [! it! is!obvious! that,! for!

all! intents! and! purposes,! said! legal! provision! alters! the!pertinent! provisions! of! said! franchises.! In! effecting! such!alteration,! our! legislative! department! has! merely! exercised,!however,! a! power! expressly! reserved! thereto! by! said!franchises,!and!has!acted,!therefore,!in!conformity!therewith,!not! in!violation!of! the!provisions! thereof!or! to! the!detriment!of!the!rights!thereby!vested!in!petitioner!herein.!..."!!!

PHILIPPINE) RURAL) ELECTRIC) COOPERATIVES)ASSOCIATION)V)DILG)&)DOF)G.R)NO.)143076)June)10,)2003)!Facts:!Under!Presidential!Decree!(PD)!269,!as!amended,!or!the!National! Electrification! Administration! Decree,! it! is! the!declared!policy!of!the!State!to!provide!“the!total!electrification!of!the!Philippines!on!an!area!coverage!basis”!the!same!“being!vital!to!the!people!and!the!sound!development!of!the!nation.”!Pursuant! to! this!policy,!PD!269!aims! to!“promote,!encourage!and! assist! all! public! service! entities! engaged! in! supplying!electric! service,! particularly! electric! cooperatives”! by! “giving!every! tenable! support! and! assistance”! to! the! electric!cooperatives!coming!within!the!purview!of!the!law.!From! 1971! to! 1978,! in! order! to! finance! the! electrification!projects! envisioned! by! PD! 269,! as! amended,! the! Philippine!Government,! acting! through! the! National! Economic! Council!(now!National!Economic!Development!Authority)!and!the!NEA!(National! Electrification! Administration),! entered! into! 6! loan!

agreements! with! the! government! of! the! United! States! of!America! through! the! United! States! Agency! for! International!Development! (USAID)! with! electric! cooperatives,! including!Agusan! Del! Norte! Electric! Cooperative,! Inc.! (ANECO);! Iloilo! I!Electric! Cooperative,! Inc.! (ILECO! I);! and! Isabela! I! Electric!Cooperative,!Inc.!(ISELCO!I),!as!beneficiaries.!The! 6! loan! agreements! involved! a! total! amount! of!approximately!US$86,000,000.00.!These! loan!agreements!are!existing!until!today.!The! loan! agreements! contain! similarly!worded! provisions! on!the!tax!application!of!the!loan!and!any!property!or!commodity!acquired!through!the!proceeds!of!the!loan.!On!23!May!2000,!a!class!suit!was!filed!by!the!Philippine!Rural!Electric! Cooperatives! Association,! Inc.! (PHILRECA);! ANECO,!ILECO!I!and!ISELCO!I;!in!their!own!behalf!and!in!behalf!of!other!electric! cooperatives! organized! and! existing! under! PD! 269,!against!the!Secretary!of!the!Department!of!Interior!and!Local!Government! (DILG)! and! the! Secretary! of! the! Department! of!Finance,! through! a! petition! for! prohibition,! contending! that!pursuant! to! the! provisions! of! PD! 269,! as! amended,! and! the!provision! in! the! loan! agreements,! they! are! exempt! from!payment!of!local!taxes,!including!payment!of!real!property!tax.!With! the! passage! of! the! Local! Government! Code,! however,!they! allege! that! their! tax! exemptions! have! been! invalidly!withdrawn,! in! violation! of! the! equal! protection! clause! and!impairing! the! obligation! of! contracts! between! the! Philippine!Government!and!the!United!States!Government.!Issue:!Whether) or) not) the) Local) Government) Code) unduly)discriminated) against) electric) cooperatives) organized) and)

existing) under) PD) 269) on) the) ground) that) it) violated) the)equal)protection)clause.)Ruling:!The! equal! protection! clause! under! the! Constitution!means!that!“no!person!or!class!of!persons!shall!be!deprived!of!the!same!protection!of!laws!which!is!enjoyed!by!other!persons!or!other!classes!in!the!same!place!and!in!like!circumstances.”!Thus,! the!guaranty!of! the!equal!protection!of! the! laws! is!not!violated!by!a!law!based!on!reasonable!classification.!Classification,! to! be! reasonable,!must! (1)! rest! on! substantial!distinctions;!(2)!be!germane!to!the!purposes!of!the!law;!(3)!not!be!limited!to!existing!conditions!only;!and!(4)!apply!equally!to!all!members!of!the!same!class.!There!is!reasonable!classification!under!the!Local!Government!Code! to! justify! the! different! tax! treatment! between! electric!cooperatives! covered! by! PD! 269,! as! amended,! and! electric!cooperatives! under! RA! 6938! (Cooperative! Code! of! the!Philippines).!First,! nowhere! in! PD! 269,! as! amended,! does! it! require!cooperatives! to! make! equitable! contributions! to! capital.!Under! the!Cooperative!Code,! the!articles!of!cooperation!of!a!cooperative! applying! for! registration! must! be! accompanied!with! the! bonds! of! the! accountable! officers! and! a! sworn!statement!of!the!treasurer!elected!by!the!subscribers!showing!that! at! least! 25%! of! the! authorized! share! capital! has! been!subscribed!and!at!least!25%!of!the!total!subscription!has!been!paid!and!in!no!case!shall!the!paid[up!share!capital!be!less!than!P2,!000.00.!Second,!another!principle!adhered!to!by!the!Cooperative!Code!is! the!principle!of! subsidiarity.! Pursuant! to! this!principle,! the!

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Taxation!1*!SY!2015*2016!(Zarate)!

government!may!only!engage!in!development!activities!where!cooperatives!do!not!possess! the! capability!nor! the! resources!to!do! so! and!only! upon! the! request! of! such! cooperatives.! In!contrast,! PD! 269,! as! amended! by! PD! 1645,! is! replete! with!provisions!which!grant!the!NEA,!upon!the!happening!of!certain!events,! the!power!to!control!and!take!over! the!management!and!operations!of!cooperatives!registered!under!it.!The!extent!of! government! control! over! electric! cooperatives! covered!by!PD! 269,! as! amended,! is! largely! a! function! of! the! role! of! the!NEA! as! a! primary! source! of! funds! of! these! electric!cooperatives.! It! is! crystal! clear! that!NEA! incurred! loans! from!various!sources!to!finance!the!development!and!operations!of!the!electric!cooperatives.!Consequently,!amendments! to!PD!269!were!primarily!geared!to! expand! the! powers! of! the! NEA! over! the! electric!cooperatives! to!ensure! that! loans!granted! to! them!would!be!repaid!to!the!government.!In!contrast,!cooperatives!under!RA!6938! are! envisioned! to! be! self[sufficient! and! independent!organizations! with! minimal! government! intervention! or!regulation.!Lastly,! the! transitory! provisions! of! RA! 6938! are! indicative! of!the! recognition! by! Congress! of! the! fundamental! distinctions!between! electric! cooperatives! organized! under! PD! 269,! as!amended,!and!cooperatives!under!the!new!Cooperative!Code.!Article! 128! of! the! Cooperative! Code! provides! that! all!cooperatives!registered!under!previous! laws!shall!be!deemed!registered! with! the! CDA! upon! submission! of! certain!requirements!within!one!year.!However,!cooperatives!created!under!PD!269,!as!amended,!are!given!three!years!within!which!

to!qualify!and!register!with!the!CDA,!after!which,!provisions!of!PD! 1645! which! expand! the! powers! of! the! NEA! over! electric!cooperatives,!would!no!longer!apply.!!!!Diaz)vs.)Secretary)of)Finance)G.R)NO.)193007)July)19,)2011))))Facts:)Petitioners! Renato! V.! Diaz! and! Aurora! Ma.! F.! Timbol!

(petitioners)! filed! this! petition! for! declaratory! relief! assailing!

the! validity! of! the! impending! imposition! of! value[added! tax!

(VAT)! by! the! Bureau! of! Internal! Revenue! (BIR)! on! the!

collections!of!tollway!operators.!Court!treated!the!case!as!one!

of!prohibition.!Petitioners!hold!the!view!that!Congress!did!not,!

when! it! enacted! the! NIRC,! intend! to! include! toll! fees!within!

the!meaning!of!"sale!of!services"!that!are!subject!to!VAT;!that!

a!toll!fee!is!a!"user's!tax,"!not!a!sale!of!services;!that!to!impose!

VAT!on!toll!fees!would!amount!to!a!tax!on!public!service;!and!

that,! since! VAT! was! never! factored! into! the! formula! for!

computing! toll! fees,! its! imposition! would! violate! the! non[

impairment!clause!of!the!constitution.!The!government!avers!

that!the!NIRC!imposes!VAT!on!all!kinds!of!services!of!franchise!

grantees,! including! tollway!operations;! that! the!Court! should!

seek!the!meaning!and!intent!of!the!law!from!the!words!used!

in! the! statute;! and! that! the! imposition! of! VAT! on! tollway!

operations!has!been!the!subject!as!early!as!2003!of!several!BIR!

rulings! and! circulars.! The! government! also! argues! that!

petitioners! have! no! right! to! invoke! the! non[impairment! of!

contracts!clause!since!they!clearly!have!no!!!personal!interest!

in! existing! toll! operating! agreements! (TOAs)! between! the!

government! and! tollway! tollway!operators.! ! At! any! rate,! the!

non[impairment! clause! cannot! limit! the! State's! sovereign!

taxing!power!which!is!generally!read!into!contracts.!

Issue:) )May)toll)fees)collected)by)operators)be)subjected)to)VAT)(Are)

tollway) operations) a) franchise) and) /or) a) service) that) is)

subject)to)VAT)?)

Ruling:)When!a!tollway!operator!takes!a!toll!fee!from!a!motorist,!the!

fee!is!in!effect!for!the!latter's!use!of!the!tollway!facilities!over!

which! the! operator! enjoys! private! proprietary! rights! that! its!

contract! and! the! law! recognize.! In! this! sense,! the! tollway!

operator! is! no! different! from! the! service! providers! under!

Section! 108! who! allow! others! to! use! their! properties! or!

facilities! for! a! fee.! Tollway! operators! are! franchise! grantees!

and!they!do!not!belong!to!exceptions!that!Section!119!spares!

from! the! payment! of! VAT.! ! The) word) "franchise") broadly)

covers) government) grants)of) a) special) right) to!do)an)act) or)

series)of)acts)of)public)concern.!Tollway!operators!are,!owing!

to! the! nature! and! object! of! their! business,! "franchise!

grantees."! The! construction,! operation,! and! maintenance! of!

toll! facilities! on! public! improvements! are! activities! of! public!

consequence! that! necessarily! require! a! special! grant! of!

authority!from!the!state.!!

!

A! tax! is! imposed!under! the! taxing!power!of! the! government!

principally! for! the!purpose!of! raising! revenues! to! fund!public!

expenditures.! Toll! fees,! on! the! other! hand,! are! collected! by!

private!tollway!operators!as!reimbursement!for!the!costs!and!

expenses! incurred! in! the! construction,! maintenance! and!

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Taxation!1*!SY!2015*2016!(Zarate)!

operation! of! the! tollways,! as! well! as! to! assure! them! a!

reasonable!margin!of! income.!Although! toll! fees!are! charged!

for! the! use! of! public! facilities,! therefore,! they! are! not!

government! exactions! that! can! be! properly! treated! as! a! tax.!!!

Taxes!! !may!! !be!imposed!only!by!! !the!government!under!its!

sovereign!authority,!toll!fees!may!be!demanded!by!either!the!

government!or! private! individuals! or! entities,! as! an! attribute!

of!ownership.!

!!ABRA) VALLEY) COLLEGE,) INC.,) represented) by) PEDRO) V.) BORGONIA,)petitioner,! vs.! HON.) JUAN) P.) AQUINO,) Judge,) CFI,) Abra;) ARMIN) M.)CARIAGA,) Provincial) Treasurer,) Abra;) GASPAR) V.) BOSQUE,) Municipal)Treasurer,)Bangued,)Abra;)HEIRS)OF)PATERNO)MILLARE,)respondents.!!Topic:) Prohibition! against! taxation! of! real! property! of! charitable!institutions,! churches,! parsonages! or! convents,! mosques! and! non[profit!cemeteries!

• Petition! for! review! on! certiorari! of! the! CFI’s! decision! decreeing! the!valid!the!seizure!and!sale!of!the!Municipal!Treasurer!of!Bangued,!Abra,!the! Provincial! Treasurer! of! the! lot! and! building! of! the! Abra! Valley!Junior!College,!Inc.!!

FACTS:)

• ABRA)VALLEY)COLLEGE,!an!educational!corporation!and!institution!of!higher!learning!incorporated!with!the!SEC!in!1948,!filed)a)complaint!to)

annul) and) declare) void) the) "Notice) of) Seizure”) and) the) "Notice) of)Sale"!of!its!lot!and!building!at!Banguet,!Abra,!for!non[payment!of!real!estate!taxes!(RET)!and!penalties!amounting!to!P5,140.31.!!

• The! "Notice) of) Seizure"! by! respondents! Municipal! Treasurer! and!Provincial! Treasurer!was! issued! for! the! satisfaction!of! the! said! taxes.!The!"Notice)of)Sale"!was!served!to!the!petitioner!on!7/8/1972!for!the!sale! at!public! auction!of! the! college! lot! and!building,!which! sale!was!held!on!the!same!date.!!

• Dr.)Paterno)Millare)(then!Municipal!Mayor)!offered)the)highest)bid)of)P6,000.00) which) was) accepted.! The! certificate! of! sale! was!correspondingly! issued! to! him.! [Subsequently,! filed! a! motion! to!dismiss!the!complaint]!

• [Treasurer’s!Answer!to!t! he! Complaint!!! Amender! Answer!!!Millare’s!Answer]!

• On!October!12,!1972,!with!the!aforesaid!sale!of!the!school!premises!at!public! auction,! the! respondent! Judge! ordered! the! respondents!provincial!and!municipal!treasurers!to!deliver!to!the!Clerk!of!Court!the!proceeds! of! the! auction! sale.! Hence,! on! December! 14,! 1972,!petitioner,! through! Director! Borgonia,! deposited! with! the! trial! court!the!sum!of!P6,000.00.!!

• On!April!12,!1973,! the!parties!entered! into!a!STIPULATION!OF!FACTS!adopted!and!embodied!by!the!trial!court!in!its!questioned!decision.!

• Aside!from!the!Stipulation!of!Facts,!the!trial!court!found!the!following:!!o (a)!that!the!school!is!recognized!by!the!government!and!is!offering!

Primary,! High! School! and! College! Courses,! and! has! a! school!population!of!more!than!one!thousand!students!all!in!all;!!

o (b)!that! it! is! located!right! in!the!heart!of!the!town!of!Bangued,!a!few!meters! from! the! plaza! and! about! 120!meters! from! the! CFI!building;!!

o (c)!that!the!elementary!pupils!are!housed!in!a!two[storey!building!across!the!street;!!

o (d)! that! the! high! school! and! college! students! are! housed! in! the!main!building;!!

o (e)! that! the!Director!with!his! family! is! in! the! second! floor!of! the!main!building;!and!!

o (f)!that!the!annual!gross!income!of!the!school!reaches!more!than!one!hundred!thousand!pesos.!!

• The! succeeding! Provincial! Fiscal! filed! a! Memorandum! for! the!Government!and!a!Supplemental!Memorandum,!wherein!they!opined!"that!based!on!the!evidence,!the!laws!applicable,!court!decisions!and!jurisprudence,!the!school!building!and!school!lot!used!for!educational!purposes! of! the! Abra! Valley! College,! Inc.,! are! exempted! from! the!payment!of!taxes."!!

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

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

• On!the!other!hand,!private!respondents!maintain!that! the!college! lot!and!building!which!were! subjected! to! seizure!and! sale! to!answer! for!the!unpaid!tax!are!used:!!o (1)!for!the!educational!purposes!of!the!college;!!o (2)! as! the! permanent! residence! of! the! President! and! Director!

thereof,! Mr.! Borgonia! and! his! family! including! the! in[laws! and!grandchildren;!and!!

o (3)! for! commercial! purposes! because! the! ground! floor! of! the!college! building! is! being! used! and! rented! by! a! commercial!establishment,!the!Northern!Marketing!Corporation.!!

)

)

)

ISSUES:))

(1) Was! there! a! valid! seizure! and! sale! of! the! college! lot! and!building?! –!YES!

(2) Was!petitioner!exempted!from!paying!property!taxes!and!realty!taxes?!–!NO!

HELD:))

• PERTINENT! LAWS!which! grants! exemption! for! "cemeteries,! churches!and! parsonages! or! convents! appurtenant! thereto,! and! all! lands,!buildings,!and! improvements!used(exclusively( for! religious,! charitable!or!educational!purposes:!

o The!Constitutional) provision! (Sec.! 22,! par.! 3,! Article! VI,!1935! Constitution)! which! expressly! grants! exemption!from!realty!taxes!!

o Assessment)Law!which!exempts!from!real!property!tax!!!• Petitioner!argues!that!the!primary!use!of!the!school!lot!and!building!is!

the!basic!and!controlling!guide,!norm!and!standard! to!determine! tax!exemption,!and!not!the!mere!incidental!use!thereof.!!

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

• In!Bishop#of#Nueva#Segovia#v.#Provincial#Board#of#Ilocos#Norte!(1972),!the!Court!included!in!the!exemption!a!vegetable!garden!in!an!adjacent!lot!and!another!lot!formerly!used!as!a!cemetery.!!

o Clarifying! that! the! term! "used) exclusively"! considers!incidental!use!also.!!

o Thus,!the!exemption)from)payment)of) land)tax) in)favor)of) the) convent) includes,) not) only) the) land) actually)

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Taxation!1*!SY!2015*2016!(Zarate)!

occupied) by) the) building) but) also) the) adjacent) garden)devoted) to) the) incidental) use) of) the) parish) priest.! The!lot!which!is!not!used!for!commercial!purposes!but!serves!solely! as! a! sort! of! lodging! place,! also! qualifies! for!exemption! because! this! constitutes! incidental! use! in!religious!functions.!

• The! phrase! "EXCLUSIVELY) USED) FOR) EDUCATIONAL) PURPOSES"! in!the! cases! of! Herrera( vs.( Quezon( City( Board( of( assessment( Appeals!(1961)! and! Commissioner( of( Internal( Revenue( vs.( Bishop( of( the(Missionary(District!(1965):!!

o The!exemption)in)favor)of)property)used)exclusively!for!charitable! or! educational! purposes! is! 'not) limited) to)property) actually) indispensable') therefor,! but! extends)to) facilities) which) are) incidental) to) and) reasonably)necessary) for) the) accomplishment) of) said) purposes,!such! as! in! the! case! of! hospitals,! "a! school! for! training!nurses,!a!nurses'!home,!property!use!to!provide!housing!facilities! for! interns,! resident! doctors,! superintendents,!and!other!members!of!the!hospital!staff,!and!recreational!facilities!for!student!nurses,! interns,!and!residents',!such!as!"Athletic!fields"!including!"a!firm!used!for!the!inmates!of!the!institution.!!!

• The!TEST)OF)EXEMPTION!from!taxation!is!the!use!of!the!property!for!purposes!mentioned!in!the!Constitution.!

• It!must! be! stressed! that! while! this! Court! allows) a) more) liberal) and)nonRrestrictive) interpretation! of! the! phrase! "exclusively) used) 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.!!

• Otherwise!stated,!the)use)of)the)school)building)or)lot)for)commercial)purposes)is)neither)contemplated)by)law,)nor)by)jurisprudence.!!

• Thus,!while!the!use!of!the!second!floor!of!the!main!building!in!the!case!at!bar!for!residential!purposes!of!the!Director!and!his!family,!may!find!justification! under! the! concept! of! incidental! use,! which! is!

complimentary! to! the! main! or! primary! purpose—educational,! the)lease)of)the)first)floor)thereof)to)the)Northern)Marketing)Corporation)CANNOT)by)any)stretch)of)the) imagination)be)considered) incidental)to)the)purpose)of)education.))

• However,! it! should! be! noted! that! the! lease! appears! to! have! been!raised!for!the!first!time!in!this!Court.!The!matter!was!not!taken!up!in!the!to!court! is!really!apparent! in!the!decision!of!respondent!Judge.! It!was!not!made!in!the!stipulation!of!facts,!not!even!in!the!description!of!the!school!building!by! the! trial! judge,!both!embodied! in! the!decision!nor!as!one!of! the! issues!to!resolve! in!order!to!determine!whether!or!not!said!properly!may!be!exempted!from!payment!of!real!estate!taxes.!On! the!other! hand,! it! is! noteworthy! that! such! fact!was!not! disputed!even!after!it!was!raised!in!this!Court.!!

• It!is!axiomatic!that!facts!not!raised!in!the!lower!court!cannot!be!taken!up! for! the! first! time! on! appeal.! Nonetheless,! as! an! exception! to! the!rule,! this! Court! has! held! that! in! the! interest! of! substantial! justice,!although!a!factual! issue!is!not!squarely!raised!below,!the!Court!is!not!prevented!from!considering!a!pivotal!factual!matter.!!!

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

PREMISES! CONSIDERED,! the! decision! is! hereby! AFFIRMED! subject! to! the!modification!that!half!of!the!assessed!tax!be!returned!to!the!petitioner.!

!!!!

Lung)Center)of)the)Phils)v)QC))Topic:) Prohibition! against! taxation! of! real! property! of! charitable!institutions,! churches,! parsonages! or! convents,! mosques! and! non[profit!cemeteries!FACTS:)

• The! Lung! Center! of! the! Philippines,! a! non[stock! and! non[profit!entity!established!by!virtue!of!PD!1823,!was!the!owner!of!a!parcel!of!land!in!QC.!)

• In!the!middle!of!the!lot!was!a!hospital!known!as!the!Lung!Center!of!the!Philippines.!)

• A! big! space! at! the! ground! floor! was! being! leased! to! private!parties,! for! canteen! and! small! store! spaces,! and! to! medical!practitioners! who! use! the! same! as! their! private! clinics! for! their!patients!whom!they!charge!for!their!professional!services.!)

• Almost!½!of!the!entire!area!on!the!left!side!of!the!building!along!Q!Ave!was!vacant!and!idle,!while!a!big!portion!on!the!right!side,!at!the! corner! of! Q! Ave! and! Elliptical! Road,! was! being! leased! for!commercial! purposes! to! a! private! enterprise! known! as! the!Elliptical!Orchids!and!Garden!Center.!)

• The! Lung! Center! accepts! paying! and! non[paying! patients.! It! also!renders! medical! services! to! out[patients,! both! paying! and! non[paying.! Aside! from! its! income! from! paying! patients,! it! also!received!gov!subsidies.!!)

• The!City!Assessor!of!QC!assessed!both! the! land!and! the!hospital!building!for!real!property!taxes!amounting!to!about!P4M.!)

• Lung!Center!filed!a!Claim!for!exemption!from!real!property!taxes!saying!it!was!a!charitable!institution.!!)

• The! Lung! Center’s! request! was! denied,! and! a! petition! was,!thereafter,!filed!before!the!Local!Board!of!Assessment!Appeals!of!Quezon! City! (QC[LBAA)! for! the! reversal! of! the! resolution! of! the!City!Assessor.!)

• The!Lung!Center!alleged!that!under!Section!28,!paragraph!3!of!the!1987! Constitution,! the! property! is! exempt! from! real! property!taxes.! It! averred! that!a!minimum!of!60%!of! its!hospital!beds!are!

exclusively!used!for!charity!patients!and!that! the!major! thrust!of!its!hospital!operation!is!to!serve!charity!patients.!)

• However,!the!Local!Board!held!Lung!Center!liable!for!real!property!taxes.! Decision! was! affirmed! by! QC! Central! Board.! Petition! was!elevated!to!SC.)

!ISSUES:)!! 1)W/n!Lung!Center!is!a!charitable!institution!within!the!context!of!PD!1823!and!under!the!Consti![!YES!!!!!! 2)!W/n! the! real! properties! of! the! Lung! Center! are! exempt! from!real!property!taxes[!NO!

!!

RULINGS:))1)!YES,)Lung)Center)is)a)charitable)institution.))

To!determine!whether!an!enterprise!is!a!charitable!institution,!the!elements!which!should!be!considered!include!the!statute!creating!it,!its!purpose,!by[laws,!services!and!nature/!use!of!properties.!!

• Under! PD! 1823,! the! Lung! Center! is! a! non[profit! and! non[stock!corporation!which,!subject!to!the!provisions!of!the!decree,!is!to!be!administered!by!the!Office!of!the!President!of!the!Philippines!with!the!Ministry!of!Health!and!the!Ministry!of!Human!Settlements.!It!was!organized! for! the!welfare! and!benefit! of! the! Filipino!people!principally! to! help! combat! the! high! incidence! of! lung! and!pulmonary!diseases!in!the!Philippines.!!

• The! Articles! of! Incorporation! of! LC! provide! that! its! medical!services!are!to!be!rendered!to!the!public!in!general!in!any!and!all!walks!of!life!including!those!who!are!poor!and!the!needy!without!discrimination.!!

• A!charitable!institution!does!not!lose!its!character!as!such!and!its!exemption! from! taxes! simply! because! it! derives! income! from!paying!patients,!whether!out[patient,!or!confined!in!the!hospital,!or!receives!subsidies!from!the!government,!so!long!as!the!money!received! is!used! for! the!CHARITABLE!objective! it! is! intended! for,!

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and! no! money! inures! to! the! private! benefit! of! the! persons!managing!or!operating!the!institution.!

• In! this! case,! the!money! received! by! the! Lung! Center! becomes! a!part! of! the! trust! fund! and! must! be! devoted! to! public! trust!purposes!and!cannot!be!diverted!to!private!profit!or!benefit.!

• Under!PD!1823,!the!Lung!Center! is!entitled!to!receive!donations.!The! Lung! Center! does! not! lose! its! character! as! a! charitable!institution!simply!because!of!gov!subsidies!(donation).!!

!2)!NO,)not)all)are)exempt)from)real)property)tax.!!

!• The!portions!of!its!real!property!that!are!leased!to!private!entities!

are!not!exempt!from!real!property!taxes!as!these!are!not!actually,!directly!and!exclusively!used!for!charitable!purposes.!

• Since!taxation!is!the!rule!and!exemption!is!the!exception,!a!claim!for! exemption! from! tax! payments! must! be! clearly! shown! and!based!on!language!in!the!law!too!plain!to!be!mistaken.!

• Under!PD!1823,!the!Lung!Center!does!NOT!enjoy!any!property!tax!exemption! privileges! for! its! real! properties! and! buildings.! If! the!intentions!were!otherwise,!the!same!should!have!been!among!the!enumeration!of!tax!exempt!privileges!under!Section!2!thereof.!!

• Under! the!1973!and!1987!Constitutions!and!RA!7160! in!order! to!be! entitled! to! the! exemption! of! property! tax,! the! Lung! Center!should!prove! that! a)! it! is! a! charitable! institution;! and! (b)! its! real!properties! are! ACTUALLY,! DIRECTLY! and! EXCLUSIVELY! used! for!charitable!purposes.!!

o If! real! property! is! used! for! one! or! more! commercial!purposes,! it! is! not! exclusively! used! for! the! exempted!purposes! but! is! subject! to! taxation.! THUS,! “exclusively”!means!SOLELY.!

o What!is!meant!by!actual,!direct!and!exclusive!use!of!the!property! for! charitable! purposes! is! the! DIRECT,!IMMEDIATE,! ACTUAL! application! of! the! PROPERTY! itself!to! the! purposes! for! which! the! charitable! institution! is!

organized.! It! is!NOT! the!use!of! INCOME!of! the!property!w/c!is!the!controlling!factor!(to!exempt).!

• In! this! case,! while! portions! of! the! hospital! are! used! for! the!treatment! of! patients,! other! parts! are! being! leased! to! private!individuals!for!their!clinics!and!a!canteen.!Further,!a!portion!of!the!land! is! being! leased! to! a! private! individual! for! her! business!enterprise!under!the!business!name!"Elliptical!Orchids!and!Garden!Center."!

• Thus,! portions! of! the! land! leased! to! private! entities! and!individuals! are! NOT! tax! exempt,! while! those! used! for! patients,!paying!and!non[paying,!are!exempt.!!

!!

G.R.)No.)195960!

ST.) LUKE'S) MEDICAL) CENTER,) INC.,! PETITIONER,!!vs.!COMMISSIONER)OF)INTERNAL)REVENUE,!RESPONDENT.!

Topic:! Prohibition! against! taxation! on! real! property! of!charitable!institutions,!churches,!non[profit!hospitals!etc.!Facts:!

1. This!is!a!consolidated!case!regarding!the!interpretation!of! Section! 27(B)! vis[à[vis! Section! 30(E)! and! (G)! of! the!National! Internal! Revenue! Code! of! the! Philippines!(NIRC),! on! the! income! tax! treatment! of! proprietary!non[profit!hospitals.!

2. On!16!December!2002,!the!Bureau!of!Internal!Revenue!(BIR)!assessed!St.!Luke's!deficiency!taxes!amounting!to!

P76,063,116.06! for! 1998,! comprised! of! deficiency!income! tax,! value[added! tax,! withholding! tax! on!compensation!and!expanded!withholding! tax.!The!BIR!reduced! the!amount! to!P63,935,351.57!during! trial! in!the!First!Division!of!the!CTA!

3. The! BIR! argued! before! the! CTA! that! Section! 27(B)! of!the!NIRC,!which!imposes!a!10%!preferential!tax!rate!on!the! income!of!proprietary!non[profit!hospitals,! should!be! applicable! to! St.! Luke's.! According! to! the! BIR,!Section!27(B),! introduced! in!1997,!"is!a!new!provision!intended! to! amend! the! exemption! on! non[profit!hospitals! that! were! previously! categorized! as! non[stock,!non[profit!corporations!under!Section!26!of!the!1997!Tax!Code!x!x!x."!5!It! is!a!specific!provision!which!prevails! over! the! general! exemption! on! income! tax!granted! under! Section! 30(E)! and! (G)! for! non[stock,!non[profit! charitable! institutions! and! civic!organizations! promoting! social! welfare.! The! BIR!claimed!that!St.!Luke's!was!actually!operating!for!profit!in! 1998! because! only! 13%!of! its! revenues! came! from!charitable!purposes!

4. St.!Luke's!contended!that! the!BIR!should!not!consider!its!total!revenues,!because!its!free!services!to!patients!was! P218,187,498! or! 65.20%! of! its! 1998! operating!income!(i.e.,!total!revenues!less!operating!expenses)!of!

P334,642,615.! St.! Luke's! maintained! that! it! is! a! non[stock! and! non[profit! institution! for! charitable! and!social!welfare!purposes!under!Section!30(E)!and!(G)!of!the! NIRC.! It! argued! that! the! making! of! profit! per! se!does!not!destroy!its!income!tax!exemption.!

5. CTA! ruled! (partly)! in! favor! of! St.! Lukes,! but! still!assessed!the!latter!to!pay!deficiency!on!income!tax!and!expanded!withholding!tax.! It!was!based!on!the!failure!of! St.! Luke's! to! prove! that! part! of! its! income! in! 1998!(declared! as! "Other! Income[Net")! came! from!charitable!activities.!!

Issue:!Whether!St.!Luke's!is!liable!for!deficiency!income!tax!in!1998! under! Section! 27(B)! of! the! NIRC,! which! imposes! a!preferential!tax!rate!of!10%!on!the!income!of!proprietary!non[profit!hospitals!Decision:!

1. We) hold) that) Section) 27(B)) of) the) NIRC) does) not)remove)the)income)tax)exemption)of)proprietary)nonRprofit) hospitals) under) Section) 30(E)) and) (G).! Section!27(B)! on! one! hand,! and! Section! 30(E)! and! (G)! on! the!other! hand,! can! be! construed! together! without! the!removal! of! such! tax! exemption.! The! effect! of! the!introduction!of! Section!27(B)! is! to! subject! the! taxable!income!of!two!specific!institutions,!namely,!proprietary!non[profit! educational! institutions! and! proprietary!

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non[profit!hospitals,!among!the!institutions!covered!by!Section!30,!to!the!10%!preferential!rate!under!Section!27(B)!instead!of!the!ordinary!30%!corporate!rate!under!the! last!paragraph!of!Section!30! in!relation!to!Section!27(A)(1).!

2. Section!27(B)! of! the!NIRC! imposes! a! 10%!preferential!tax! rate! on! the! income! of! (1)! proprietary! non[profit!educational! institutions! and! (2)! proprietary!non[profit!hospitals.!The!only!qualifications!for!hospitals!are!that!they!must!be!proprietary!and!non[profit.!"Proprietary"!means! private,! following! the! definition! of! a!"proprietary! educational! institution"! as! "any! private!school! maintained! and! administered! by! private!individuals! or! groups"! with! a! government! permit.!"Non[profit"!means!no!net!income!or!asset!accrues!to!or!benefits!any!member!or!specific!person,!with!all!the!net! income! or! asset! devoted! to! the! institution's!purposes!and!all!its!activities!conducted!not!for!profit!

3. St.) Luke's) fails) to) meet) the) requirements) under)Section)30(E))and)(G))of)the)NIRC)to)be)completely)tax)exempt) from) all) its) income.! Since! part! of! its! P1.7B!revenue! not! an! institution! "operated! exclusively"! for!charitable! purposes.! Clearly,! revenues! from! paying!patients! are! income! received! from! "activities!conducted! for! profit! is! However,! it! remains! a!

proprietary!non[profit! hospital! under! Section!27(B)!of!the! NIRC! as! long! as! it! does! not! distribute! any! of! its!profits!to! its!members!and!such!profits!are!reinvested!pursuant! to! its! corporate! purposes.! St.! Luke's,! as! a!proprietary! non[profit! hospital,! is! entitled! to! the!preferential!tax!rate!of!10%!on!its!net!income!from!its!for[profit!activities!

Prohibition)against)taxation)of)nonRstock)educational)institutions))G.R.)No.)124043)October)14,)1998)COMMISSIONER)OF)INTERNAL)REVENUE,)petitioner,!!vs.!COURT)OF)APPEALS,)COURT)OF)TAX)APPEALS)and)YOUNG)MEN'S)CHRISTIAN)ASSOCIATION)OF)THE)PHILIPPINES,)INC.,)respondents.!)Facts:) Private! respondent! YMCA! is! a! non[stock,! non[profit!institution,!which!conducts!various!programs!and!activities!that!are!beneficial!to!the!public,!especially!the!young!people,!pursuant!to!its!religious,! educational! and! charitable! objectives.! YMCA! earned! an!income! from! leasing! out! a! portion! of! its! premises! to! small! shop!owners! and! from! parking! fees! collected! from! non[members.! The!Commissioner! of! Internal! Revenue! (CIR)! issued! an! assessment! for!deficiency! income! tax,! deficiency! expanded! withholding! taxes! on!rentals! and! professional! fees! and! deficiency! withholding! tax! on!wages.!YMCA!protested!the!assessment.!!Issue:!Whether!or!not!the!income!of!private!respondent!YMCA!from!rentals!of!small!shops!and!parking!fees!is!exempt!from!taxation!!

Held:)NO.!!YMCA! argues! that! Art.! VI,! Sec.! 28(3)! of! the! Constitution! exempts!charitable!institutions!from!the!payment!not!only!of!property!taxes!but!also!of!income!tax!from!any!source.!The!Court!is!not!persuaded.!The! debates,! interpellations! and! expressions! of! opinion! of! the!framers!of!the!Constitution!reveal!their!intent.!Justice!Hilario!Davide!Jr.,! a! former! constitutional! commissioner,! stressed! during! the!Concom!debate! that!what! is! exempted! is!not! the! institution! itself;!those! exempted! from! real! estate! taxes! are! lands,! buildings! and!improvements! actually,! directly! and! exclusively! used! for! religious,!charitable!or!educational!purposes.!Fr.! Joaquin!Bernas,!an!eminent!authority! on! the! Constitution! and! also! a!member! of! the! Concom,!adhered! to! the! same! view! that! the! exemption! created! by! said!provision! pertained! only! to! property! taxes.! In! his! treatise! on!taxation,! Justice!Jose!Vitug!concurs,!stating!that!the!tax!exemption!covers! property! taxes! only.! Indeed,! the! income! tax! exemption!claimed! by! YMCA! finds! no! basis! in! Art.! VI,! Sec.! 28(3)! of! the!Constitution.!!YMCA! also! invokes! Art.! XIV,! Sec.! 4(3)! of! the! Constitution! claiming!that!YMCA! is!a!non[stock,!non[profit!educational! institution!whose!revenues! and! assets! are! used! actually,! directly! and! exclusively! for!educational! purposes! so! it! is! exempt! from! taxes! on! its! properties!and! income.! The! Court! reiterates! that! YMCA! is! exempt! from! the!payment!of!property!tax,!but!not!income!tax!on!the!rentals!from!its!property.!The!bare!allegation!alone!that!it!is!a!non[stock,!non[profit!educational! institution! is! insufficient! to! justify! its! exemption! from!the! payment! of! income! tax.! Laws! allowing! tax! exemption! are!construed!strictissimi! juris.!Hence,! for! the!YMCA!to!be!granted!the!exemption! it! claims! under! the! aforecited! provision,! it! must! prove!with! substantial! evidence! that:! 1.! it! falls! under! the! classification!non[stock,! non[profit! educational! institution;! and! 2.! the! income! it!

seeks! to! be! exempted! from! taxation! is! used! actually,! directly! and!exclusively!for!educational!purposes.!However,!the!Court!notes!that!not!a!scintilla!of!evidence!was!submitted!by!YMCA!to!prove!that! it!met!the!said!requisites.!YMCA! is! not! an! educational! institution! within! the! purview! of! Art.!XIV,! Sec.! 4(3)! of! the! Constitution.! The! term! “educational!institution,”!when!used!in!laws!granting!tax!exemptions,!refers!to!a!school,! seminary,! college! or! educational! establishment.! Therefore,!YMCA! cannot! be! deemed! one! of! the! educational! institutions!covered! by! the! said! constitutional! provision.!Moreover,! the! Court!notes!that!YMCA!did!not!submit!proof!of!the!proportionate!amount!of! the! subject! income! that! was! actually,! directly! and! exclusively!used!for!educational!purposes.!!

CIR)VS)CA,)CTA)and)ATENEO!!Facts:)ADMU! Institute! of! Philippine! Culture! is! engaged! in! social!science!studies!of!Philippine!society!and!culture.!Occasionally,!it! accepts! sponsorships! for! its! research! activities! from!international! organizations,! private! foundations! and!government!agencies.!!On! July!1983,!CIR! sent!a!demand! letter!assessing! the! sum!of!P174,043.97! for! alleged! deficiency! contractor’s! tax.! Accdg! to!CIR,!ADMU!falls!under!the!purview!of!independent!contractor!pursuant! to! Sec! 205! of! Tax! Code! and! is! also! subject! to! 3%!contractor’s! tax! under! Sec! 205! of! the! same! code.!(Independent! Contractor! means! any! person! whose! activity!

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consists!essentially!of!the!sale!of!all!kinds!of!services!for!a!fee!regardless!of!whether!or!not! the!performance!of! the! service!calls!for!the!exercise!or!use!of!the!physical!or!mental!faculties!of!such!contractors!or!their!employees.)!!!Issue:)!1)!WON!ADMU!is!an! independent!contractor!hence! liable! for!tax?!NO.!2)! WON! the! acceptance! of! research! projects! by! the! IPC! of!ADMU! a! contract! of! sale! or! a! contract! for! a! piece! of! work?!NEITHER.!!Held:)!1)! Hence,! to! impose! the! three! percent! contractor’s! tax! on!Ateneo’s! Institute! of! Philippine! Culture,! it! should! be!sufficiently! proven! that! the! private! respondent! is! indeed!selling! its! services! for! a! fee! in! pursuit! of! an! independent!business.! Petitioner! Commissioner! of! Internal! Revenue! erred!in! applying! the! principles! of! tax! exemption! without! first!applying! the! well[settled! doctrine! of! strict! interpretation! in!the! imposition! of! taxes.! It! is! obviously! both! illogical! and!impractical! to! determine! who! are! exempted! without! first!determining!who!are!covered!by!the!aforesaid!provision.!The!Commissioner! should! have! determined! first! if! private!respondent!was!covered!by!Section!205,!applying! the! rule!of!strict!interpretation!of!laws!imposing!taxes!and!other!burdens!

on!the!populace,!before!asking!Ateneo!to!prove!its!exemption!therefrom.! The! Court! takes! this! occasion! to! reiterate! the!hornbook! doctrine! in! the! interpretation! of! tax! laws! that! (a)!statute!will!not!be!construed!as!imposing!a!tax!unless!it!does!so!clearly,!expressly,!and!unambiguously.!x!x!x!(A)!tax!cannot!be!imposed!without!clear!and!express!words!for!that!purpose.!Accordingly,! the! general! rule! of! requiring! adherence! to! the!letter!in!construing!statutes!applies!with!peculiar!strictness!to!tax! laws! and! the! provisions! of! a! taxing! act! are! not! to! be!extended!by! implication.[8]! Parenthetically,! in! answering! the!question! of!who! is! subject! to! tax! statutes,! it! is! basic! that! in!case!of!doubt,!such!statutes!are!to!be!construed!most!strongly!against!the!government!and!in!favor!of!the!subjects!or!citizens!because!burdens!are!not! to!be! imposed!nor!presumed! to!be!imposed!beyond!what!statutes!expressly!and!clearly!import.!!2)!Records!do!not!show!that!Ateneo’s!IPC!in!fact!contracted!to!sell! its! research! services! for! a! fee.! In! the! first! place,! the!petitioner! has! presented! no! evidence! to! prove! its! bare!contention! that,! indeed,! contracts! for! sale! of! services! were!ever! entered! into!by! the!private! respondent.! Funds! received!by!the!Ateneo!de!Manila!University!are!technically!not!a! fee.!They! may! however! fall! as! gifts! or! donations! which! are! tax[exempt.!Another!fact!that!supports!this!contention!is!that!for!about!30!years,!IPC!had!continuously!operated!at!a!loss,!which!means!that!sponsored!funds!are!less!than!actual!expenses!for!its!research!projects.!!

In! fact,! private! respondent! is!mandated!by! law! to!undertake!research!activities!to!maintain!its!university!status.!In!fact,!the!research!activities!being!carried!out!by!the!IPC!is!focused!not!on! business! or! profit! but! on! social! sciences! studies! of!Philippine! society! and! culture.! Since! it! can! only! finance! a!limited!number!of!IPC’s!research!projects,!private!respondent!occasionally! accepts! sponsorship! for! unfunded! IPC! research!projects!from!international!organizations,!private!foundations!and! governmental! agencies.!However,! such! sponsorships! are!subject! to!private! respondent’s! terms!and!conditions,!among!which! are,! that! the! research! is! confined! to! topics! consistent!with! the! private! respondent’s! academic! agenda;! that! no!proprietary!or!commercial!purpose!research!is!done;!and!that!private! respondent! retains! not! only! the! absolute! right! to!publish!but!also! the!ownership!of! the! results!of! the! research!conducted!by!the!IPC.!!

TOLENTINO)VS.)SECRETARY)OF)FINANCE)FACTS:! Petitioners! (Tolentino,! Kilosbayan,! Inc.,! Philippine!Airlines,! Roco,! and! Chamber! of! Real! Estate! and! Builders!Association)! seek! reconsideration! of! the! Court’s! previous!ruling! dismissing! the! petitions! filed! for! the! declaration! of!unconstitutionality! of! R.A.! No.! 7716,! the! Expanded! Value[Added! Tax! Law.! Petitioners! contend! that! the! R.A.! did! not!“originate! exclusively”! in! the! HoR! as! required! by! Article! 6,!Section! 24! of! the! Constitution.! The! Senate! allegedly! did! not!pass! it!on!second!and!third! readings,! instead!passing! its!own!version.!Petitioners!contend!that!it!should!have!amended!the!

House!bill!by!striking!out!the!text!of!the!bill!and!substituting!it!with! the! text! of! its! own! bill,! so! as! to! conform! with! the!Constitution.!!ISSUE:! WON! the! R.A.! is! unconstitutional! for! having!“originated”!from!the!Senate,!and!not!the!HoR.!!HELD:!Petition!is!unmeritorious.!The!enactment!of!the!Senate!bill!has!not!been!the! first! instance!where! the!Senate,! in! the!exercise!of! its! power! to! propose! amendments! to! bills! (required! to!originate! in! the! House),! passed! its! own! version.! An!amendment! by! substitution! (striking! out! the! text! and!substituting! it),! as! urged! by! petitioners,! concerns! a! mere!matter!of!form,!and!considering!the!petitioner!has!not!shown!what! substantial! difference! it! would! make! if! Senate! applied!such!substitution!in!the!case,!it!cannot!be!applied!to!the!case!at! bar.! ! While! the! aforementioned! Constitutional! provision!states!that!bills!must!“originate!exclusively!in!the!HoR,”!it!also!adds,! “but! the! Senate! may! propose! or! concur! with!amendments.”!The!Senate!may!then!propose!an!entirely!new!bill!as!a!substitute!measure.!Petitioners!erred!in!assuming!the!Senate!version!to!be!an!independent!and!distinct!bill.!Without!the!House!bill,!Senate!could!not!have!enacted!the!Senate!bill,!as!the!latter!was!a!mere!amendment!of!the!former.!As!such,!it!did!not!have!to!pass!the!Senate!on!second!and!third!readings.!!!Petitioners!question!the!signing!of!the!President!on!both!bills,!to! support! their! contention! that! such! are! separate! and!

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distinct.! The! President! certified! the! bills! separately! only!because!the!certification!had!to!be!made!of!the!version!of!the!same! revenue! bill! which! AT! THE! MOMENT! was! being!considered.!!!!Petitioners!question!the!power!of!the!Conference!Committee!to! insert! new! provisions.! The! jurisdiction! of! the! conference!committee!is!not!limited!to!resolving!differences!between!the!Senate! and! the! House.! It! may! propose! an! entirely! new!provision,! given! that! such! are! germane! to! the! subject! of! the!conference,! and! that! the! respective! houses! of! Congress!subsequently!approve!its!report.!!!Petitioner!PAL!contends! that! the!amendment!of! its! franchise!by!the!withdrawal!of!its!exemption!from!VAT!is!not!expressed!in!the!title!of!the! law,!thereby!violating!the!Constitution.!The!Court! believes! that! the! title! of! the! R.A.! satisfies! the!Constitutional!Requirement.!!Petitioners! claim! that! the! R.A.! violates! their! press! freedom!and! religious! liberty,! having! removed! them! from! the!exemption! to! pay! VAT.! Suffice! it! to! say! that! since! the! law!granted! the! press! a! privilege,! the! law! could! take! back! the!privilege! anytime! without! offense! to! the! Constitution.! By!granting! exemptions,! the! State! does! not! forever! waive! the!exercise!of!its!sovereign!prerogative.!!!Lastly,!petitioners!contend!that!the!R.A.!violates!due!process,!equal! protection! and! contract! clauses! and! the! rule! on!

taxation.! Petitioners! fail! to! take! into! consideration! the! fact!that! the! VAT! was! already! provided! for! in! E.O.! No.! 273! long!before! the!R.A.!was!enacted.!The! latter!merely!EXPANDS!the!base!of!the!tax.!Equality!and!uniformity!in!taxation!means!that!all! taxable! articles! or! kinds! of! property! of! the! same! class! be!taxed!at! the!same!rate,! the!taxing!power!having!authority! to!make! reasonable! and! natural! classifications! for! purposes! of!taxation.! It! is! enough! that! the! statute! applies! equally! to! all!persons,!forms!and!corporations!placed!in!s!similar!situation.!!!!ABAKADA) Guro) Party) List) vs.) Ermita!!G.R.)No.)168056)September)1,)2005!!• RA!9337:!VAT!reform!act!enacted!on!!May!24,!2005!• Petitioners! ABAKADA! GURO! Party! List,! et! al.,! filed! a! petition! for!

prohibition! on! May! 27,! 2005! questioning! the! constitutionality! of!Sections!4,!5!and!6!of!R.A.!No.!9337,!amending!Sections!106,!107!and!108,! respectively,! of! the! National! Internal! Revenue! Code! (NIRC).!Section!4!imposes!a!10%!VAT!on!sale!of!goods!and!properties,!Section!5!imposes!a!10%!VAT!on!importation!of!goods,!and!Section!6!imposes!a!10%!VAT!on!sale!of!services!and!use!or!lease!of!properties.!!

• The! questioned! provisions! contain! a! uniform!proviso! authorizing! the!President,!upon!recommendation!of!the!Secretary!of!Finance,!to!raise!the! VAT! rate! to! 12%,! effective! January! 1,! 2006,! after! specified!conditions!have!been!satisfied.!!

• Petitioners! argue! that! the! law! is! unconstitutional! as! it! constitutes!abandonment!by!Congress!of! its!exclusive!authority! to! fix! the!rate!of!taxes!under!Article!VI!Section!24!of!the!1987!Constitution.!

!

ISSUE:!Whether!there!is!a!violation!of!Article!VI,!Section!24!of!the!Constituion.!!HELD:!!No.! Article! VI,! section! 24! of! the! Constitution! provides! that! all!appropriation,!revenue!or!tariff!bills,!bills!authorizing!increase!of!the!public!debt,!bills!of!local!application,!and!private!bills!shall!originate!exclusively!in!the!House!of!Representatives,!but!the!Senate!may!propose!or!concur!with!amendments.!!The!Court! reiterates! that! in!making!his! recommendation!to! the!President!on!the!existence!of!either!of!the!two!conditions,!the!Secretary!of!Finance!is!not!acting!as!the!alter!ego!of!the!President!or!even!her!subordinate.!He!is!acting!as!the!agent!of!the!legislative!department,!to!determine!and!declare!the!event!upon!which!its!expressed!will! is!to!take!effect.!The!Secretary!of!Finance! becomes! the! means! or! tool! by! which! legislative! policy! is!determined! and! implemented,! considering! that! he! possesses! all! the!facilities! to! gather! data! and! information! and! has! a! much! broader!perspective!to!properly!evaluate!them.!His!function!is!to!gather!and!collate!statistical!data!and!other!pertinent!information!and!verify!if!any!of!the!two!conditions!laid!out!by!Congress!is!present.!!In!the!same!breath,!the!Court!reiterates!its!finding!that!it!is!not!a!property!or! a! property! right,! and! a! VAT[registered! person’s! entitlement! to! the!creditable!input!tax!is!a!mere!statutory!privilege.!As!the!Court!stated!in!its!Decision,!the!right!to!credit!the! input!tax! is!a!mere!creation!of! law.!More!importantly,! the) assailed) provisions) of) R.A.) No.) 9337) already) involve)legislative) policy) and)wisdom.! So! long!as! there! is!a!public!end! for!which!R.A.! No.! 9337! was! passed,! the! means! through! which! such! end! shall! be!accomplished! is! for! the! legislature! to! choose! so! long! as! it! is! within!constitutional!bounds.!!!

JOHN#HAY#PEOPLE’S#ALTERNATIVE#COALITION#vs.#LIM#

[TAX(EXEMPTION](

FACTS:!!

1.!This!is!a!petition!for!prohibition,!mandamus!and!declaratory!relief! with! prayer! for! a! temporary! restraining! order! (TRO)!and/or! writ! of! preliminary! injunction.! Petitioners! assail! the!constitutionality! of! Presidential! Proclamation! No.! 420,!“CREATING! AND! DESIGNATING! A! PORTION! OF! THE! AREA!COVERED! BY! THE! FORMER! CAMP! JOHN! [HAY]! AS! THE! JOHN!HAY! SPECIAL! ECONOMIC! ZONE!PURSUANT!TO!REPUBLIC!ACT!NO.!7227.”!

(Background:(Republic(Act(No.(7227(or(the(“Bases(Conversion(and(Development(Act(of(1992,”(was(passed(to(meet(the(policy(of( the( government( to( accelerate( the( sound( and( balanced(conversion( into( alternative( productive( uses( of( the( former(military( bases( under( the( 1947( PhilippinescUnited( States( of(America( Military( Bases( Agreement,( namely,( the( Clark( and(Subic(military(reservations(as(well(as(their(extensions(including(the(John(Hay(Station((Camp(John(Hay(or(the(camp)(in(the(City(of(Baguio.)(

2.!R.A.!No.!7227!granted!the!Subic!SEZ!incentives!ranging!from!tax! and! duty[free! importations,! exemption! of! businesses!therein!from!local!and!national!taxes,!to!other!hallmarks!of!a!liberalized! financial! and! business! climate.! It! expressly! gave!authority! to! the! President! to! create! through( executive(

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proclamation,( subject( to( the( concurrence( of( the( local(government( units( directly( affected,! other! Special! Economic!Zones! (SEZ)! in! the! areas! covered! respectively! by! the! Clark!military!reservation,!the!Wallace!Air!Station! in!San!Fernando,!La!Union,!and!Camp!!John!Hay.!!

3.! BCDA! entered! into! a! Memorandum! of! Agreement! and!Escrow! Agreement! with! private! respondents! TUNTEX! and!ASIAWORLD.!The!parties!executed!a!Joint!Venture!Agreement!whereby! they! bound! themselves! to! put! up! a! joint! venture!company!Baguio!International!Development!and!Management!Corporation!which!would! lease! areas!within! Camp! John! Hay!and! Poro! Point! for! the! purpose! of! turning! such! places! into!principal!tourist!and!recreation!spots.!!

4.! After! several! resolutions,! the! Sangguniang( Panlungsod( of!Baguio!City!!passed!a!resolution!and!submitted!to!BCDA!a!15[point! concept! for! the!development!of!Camp! John!Hay!which!included! the! liability! for! local! taxes! of! businesses! to! be!established!within!the!camp.!!

5.! BCDA,! TUNTEX! and! ASIAWORLD! stressed! the! need! to!declare!Camp!John!Hay!a!SEZ!as!a!condition!precedent! to! its!full!development!in!accordance!with!the!mandate!of!R.A.!No.!7227.!

6.!May!1994:!A!resolution!requesting!the!Mayor!to!order!the!determination! of! realty! taxes! which! may! otherwise! be!collected! from! real! ! properties! of! Camp! John! Hay.! This!intended! to!guide! the!sanggunian( in!determining! its!position!

on! whether! Camp! John! Hay! be! declared! a! SEZ,! it! (the!sanggunian)! being! of! the! view! that! such! declaration! would!exempt! the! camp’s! property! and! the! economic! activity! from!local!or!national!taxation.!!

7.! Resolution! No.! 255! was! passed,! seeking! and! supporting,!subject! to! its! concurrence,! the! issuance! by! then! President!Ramos! of! a! presidential! proclamation! declaring! an! area! of!288.1! hectares! of! the! camp! as! a! SEZ! in! accordance!with! the!provisions!of!R.A.!No.!7227.!

8.! July! 1994:! President! Ramos! issued! Proclamation! No.! 420!which!established!a!SEZ!on!a!portion!of!Camp!John!Hay.!!

ISSUE:!WHETHER! PRESIDENTIAL! PROCLAMATION! NO.! 420! IN(SO( FAR( AS( IT( GRANTS( TAX( EXEMPTIONS( IS( INVALID( AND(ILLEGAL( AS( IT( IS( AN( UNCONSTITUTIONAL( EXERCISE( BY( THE(PRESIDENT( OF( A( POWER( GRANTED( ONLY( TO( THE(LEGISLATURE.!!

HELD:! The! grant! by! Proclamation! No.! 420! of! tax! exemption!and! other! privileges! to! the! John! Hay! SEZ! is! void! for! being!violative! of! the! Constitution.! This! renders! it! unnecessary! to!still! dwell! on! petitioners’! claim! that! the! same! grant! violates!the!equal!protection!guarantee.!

!

As! gathered! from! the! earlier[quoted! Section! 12! of! R.A.! No.!7227,! the! privileges! given! to! Subic! SEZ! consist! principally! of!

exemption! from! tariff! or! customs! duties,! national! and! local!taxes!of!business!entities!therein![paragraphs!(b)!and!(c)],!free!market!and!trade!of!specified!goods!or!properties!(paragraph!d),! liberalized!banking!and! finance! (paragraph! f),!and!relaxed!immigration! rules! for! foreign! investors! (paragraph! g).! Yet,!apart! from!these,!Proclamation!No.!420!also!makes!available!to!the!John!Hay!SEZ!benefits!existing!in!other!laws!such!as!the!privilege! of! export! processing! zone[based! businesses! of!importing! capital! equipment! and! raw! materials! free! from!taxes,!duties!and!other!restrictions;!tax!and!duty!exemptions,!tax! holiday,! tax! credit,! and! other! incentives! under! the!Omnibus! Investments! Code! of! 1987;! and! the! applicability! to!the!subject!zone!of!rules!governing!foreign!investments!in!the!Philippines.! While! the! grant! of! economic! incentives! may! be!essential!to!the!creation!and!success!of!SEZs,!free!trade!zones!and!the!like,!the!grant!thereof!to!the!John!Hay!SEZ!cannot!be!sustained.! The! incentives! under! R.A.! No.! 7227! are! exclusive(only!to!the!Subic!SEZ,!hence,!the!extension!of!the!same!to!the!John!Hay!SEZ!finds!no!support!therein.!Neither!does!the!same!grant! of! privileges! to! the! John! Hay! SEZ! find! support! in! the!other!laws!specified!under!Section!3!of!Proclamation!No.!420,!which! laws! were! already! extant! before! the! issuance! of! the!proclamation!or!the!enactment!of!R.A.!No.!7227.!!

The! nature! of! most! of! the! assailed! privileges! is! one! of! tax!exemption.!It!is!the!legislature,!unless!limited!by!a!provision!of!the! state! constitution,! that! has! full! power! to! exempt! any!person! or! corporation! or! class! of! property! from! taxation,! its!power! to! exempt! being! as! broad! as! its! power! to! tax.! Other!

than!Congress,!the!Constitution!may!itself!provide!for!specific!tax!exemptions,!or!local!governments!may!pass!ordinances!on!exemption!only! from! local! taxes.!The!challenged!grant!of! tax!exemption! would! circumvent! the! Constitution’s! imposition!that! a! law! granting! any! tax! exemption! must! have! the!concurrence!of!a!majority!of!all! the!members!of!Congress.! In!the! same! vein,! the! other! kinds! of! privileges! extended! to! the!John! Hay! SEZ! are! by! tradition! and! usage! for! Congress! to!legislate!upon.!!

Contrary! to! public! respondents’! suggestions,! the! claimed!statutory!exemption!of!the!John!Hay!SEZ!from!taxation!should!be!manifest! and! unmistakable! from! the! language! of! the! law!on!which!it!is!based;!it!must!be!expressly!granted!in!a!statute!stated!in!a!language!too!clear!to!be!mistaken.!Tax!exemption!cannot!be!implied!as!it!must!be!categorically!and!unmistakably!expressed.! If! it!were! the! intent!of! the! legislature! to! grant! to!the!John!Hay!SEZ!the!same!tax!exemption!and!incentives!given!to! the! Subic! SEZ,! it!would! have! so! expressly! provided! in! the!R.A.!No.!7227.!!

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