17514261 Case Digests Volume II

7/28/2019 17514261 Case Digests Volume II

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Villanueva v City of Iloilo (privilege tax) Relying on the passage of RA 2264 or the

Local Autonomy Act, Iloilo enacted Ordinance 11 Series of 1960, imposing a

municipal license tax on tenement houses in accordance with the schedule of

payment provided by therein. Villanueva and the other appellees are apartment

owners from whom, the city collected license taxes by virtue of Ordinance 11.

Appellees aver that the said ordinance is unconstitutional for RA 2264 does not

empower cities to impose apartment taxes; that the same is oppressive and

unreasonable for it penalizes those who fail to pay the apartment taxes; that it

constitutes not only double taxation but treble taxation; and, that it violates

uniformity of taxation. Issues: 1. Does the ordinance impose double taxation? 2.

Is Iloilo city empowered by RA 2264 to impose tenement

taxes? Held: 1. While it is true that appellees are taxable under the NIRC

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as real estate dealers, and taxable under Ordinance 11, double taxation may not

be invoked. This is because the same tax may be imposed by the national

government as well as by the local government. The contention that appellees are

doubly taxed because they are paying real estate taxes and the tenement tax is

also devoid of merit. A license tax may be levied upon a business or occupation

although the land or property used in connection therewith is subject to propertytax. In order to constitute double taxation, both taxes must be the same kind or

character. Real estate taxes and tenement taxes are not of the same character. 2.

RA 2264 confers local governments broad taxing powers.

The imposition of the tenement taxes does not fall within the exceptions

mentioned by the same law. It is argued however that the said taxes are real

estate taxes and thus, the imposition of more the 1 per centum real estate tax

which is the limit provided by CA 158, makes the said ordinance ultra vires. The

court ruled that the tax in question is not a real estate tax. It does not have the

attributes of a real estate tax.1

By the title and the terms of the ordinance, the tax is a

municipal tax which means an imposition or exaction on the right to use or

dispose of property, to pursue a business, occupation or calling, or to exercise a

privilege. Tenement houses being offered for rent or lease constitute a distinct

form of business or calling and as such, the imposition of municipal tax finds

support in Section 2 of RA 2264.

1

It is not a tax on the land on which the tenement houses are erected, althoughboth land and tenement houses may belong to the same owner. Te tax is not a

fixed proportion of the assessed value of the tenement houses, and does not

require the intervention of the assessors or appraisers. It is not payable at a

designated time or date, and is not enforceable against the tenement houses

either by sale or distraint.

Assoc. of Custom Brokers v Municipal Board (privilege tax) Facts: The disputed

ordinance (Ordinance 3379) was passed by the Municipal Board of the City of

Manila under the authority conferred by section 18(p) of RA 409 which confers

upon the municipal board the power to tax motor and other vehicles operating

within the City of Manila the provisions of any existing law to the contrary

notwithstanding. The plaintiff, an association composed of all brokers and

public service operators of Motor Vehicles in the City of Manila filed this petition

for declaratory relief challenging the validity of the ordinance on the following

grounds; that it while it levies a so- called property tax, it is in reality a license fee

which is beyond the power of the board to impose; that the said ordinance goes

against the rule on uniformity of taxation; and, that the said imposition

constitutes double taxation.

Issues: Can the city validly enact such ordinance?

Held: No. The Motor Vehicle Law (Section 70[b]) provides that no fees may beexacted or demanded for the operation of any motor vehicle other than those

therein provided , the only exception being that which refers to property tax

which may be imposed by municipal corporations. While the ordinance refers to

property tax and it is fixed ad valorem, it is merely levied on motor vehicles

operating within the city of Manila with the main purpose of raising funds to be

expanded exclusively for the repair, maintenance and improvement of streets and

bridges in said city. Because of this, the ordinance in question merely imposes a

license fee although under the cloak of being an ad valorem Vehicle Law.

tax to 2

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circumvent the prohibition provided by the Motor

2

If a tax is in its nature an excise, it does not become a property tax because it is

proportioned in the amount to the value of the property used in connection with

the occupation, privilege or act which is taxed. Every excise by necessarily mustfinally fall upon and be paid by property and so may be indirectly a tax upon

property; but if it is really imposed upon the performance of an act, enjoyment of

a privilege, or the engaging in an occupation, it will be considered excise.

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Philippine Acetylene Co., Inc. v CIR (Indirect Tax; also in Nature of Tax

Exemption) Facts: Petitioner is a corporation engaged in the manufacture and

sale of oxygen and acetylene gases. It made various sales of its product to the

National Power Corporation (NPC) an agency of the government and to Voice of

America (VOA) an agency of the US government. The respondent assessed

against and demanded from the petitioner the payment of deficiency sales taxand surcharge as provided by Sections 186 and 183 of the NIRC. Petitioner

denied liability on the payment of the tax based on the sales made to these

agencies stating that the same are exempt from taxation because the NPC is

exempt from taxation by virtue of RA 947 Sec2 and because VOA is exempt as

well because of the Bases Agreement.

Issue: Is petitioner exempt from paying the percentage taxes on the sales made

to NPC and VOA?

Held: No. The percentage tax provided by Section 286 of the NIRC is a tax on the

producer or manufacturer and not a tax on the purchaser. Section 183 of the NIRCprovide that sales tax shall be paid by the manufacturer or producer who must

make a true and complete return of the amount of his or her or its gross monthly

sales, receipts or earnings or gross value of output actually removed from the

factory or mill warehouse and within twenty days after the end of each month,

pay the tax due thereon. Since the tax imposed by section 186 is a tax on the

manufacturer or producer and not a tax on the purchaser, petitioner could not be

considered exempt.

As regards VOA, petitioner is also not exempt from percentage tax because the

Bases Agreement only exempts from tax sales made for exclusive use in the

construction, maintenance and operation or defense of the bases, or sales to the

quartermaster. Sales of goods to any other party even if it be an agency of the

US, or even the quartermaster but for a different purpose are not exempt from tax.

It is a familiar learning in the American law of taxation that tax exemption must be strictly

construed and that the exemption will not be held to be conferred unless the terms under

which it is granted clearly and distinctly show that such was the intention of the parties.

CIR v. Gotamco (Indirect Tax ; Nature of Tax Exemption) FACTS: The World

Health Organization entered into a Host Agreement between the Philippine

government. Section 11 of that Agreement provides, that "the Organization, its

assets, income and other properties shall be: (a) exempt from all direct andindirect taxes. It is understood, however, that the Organization will not claim

exemption from taxes which are, in fact, no more than charges for public utility

services; . . . * When the WHO decided to construct a building for its office, it

informed the bidders that building to be constructed belonged to an organization

with diplomatic status and thus exempt from the payment of all fees, licenses,

and taxes, and that therefore their bids "must take this into account and should

not include items for such taxes, licenses and other payments to Government

agencies." * John Gotamco and Sons, Inc. won the bid. * CIR gave an Opinion that

the 3% contractors tax was exempt but CIR reversed his opinion and stated that

"as the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but atax that is primarily due from the contractor, the same is not covered by . . . the

Host Agreement." * CIR demanded from Gotamco the 3% tax plus surcharge * CIR

alleges that Host Agreement void. Even if valid, contractors tax is not indirect tax

in view of the Agreeement. * Gotamco appealed to the CTA. CTA for Gotamco.

ISSUE: WON Gotamco should pay the 3% contractor's tax under Section 191 of

NIRC on the gross receipts it realized from the construction of the WHO office?

HELD: NO, contractors tax is indirect tax coming within purview of the Host

Agreement. As to the Agreement, it is valid since less formal types of

international agreements may be entered into by the Chief Executive and become

binding without the concurrence of the legislative body. The Agreement comes

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within this category; it is a valid and binding international agreement even

without the concurrence of the Philippine Senate. As to the tax, as correctly held

by CTA: In context, direct taxes are those that are demanded from the very

person who, it is intended or desired, should pay them; while indirect taxes are

those that are demanded in the first instance from one person in the expectation

and intention that he can shift the burden to someone else. (Pollock vs. Farmers,L & T Co.) The contractor's tax is of course payable by the contractor but in the

last analysis it is the owner of the building that shoulders the burden of the tax

because the same is shifted by the contractor to the owner as a matter of self-

preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO

because, although it is payable by the petitioner, the latter can shift its burden on

the WHO. In the last analysis it is the WHO that will pay the tax indirectly through

the contractor and it certainly cannot be said that 'this tax has no bearing upon

the World Health Organization. Phil. Acetylene not applicable since the Host

Agreement, in specifically exempting the WHO from "indirect taxes,"

contemplates taxes which, although not imposed upon or paid by theOrganization directly, form part of the price paid or to be paid by it. It is the clear

intention of the Agreement to exempt the WHO from "indirect" taxation.

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Wells Fargo Bank v CIR (Situs of Taxation) Facts: Birdie Lillian Eye, died on

September 16, 1932 at Los Angeles California, the place of her alleged last

residence and domicile. Among the properties she left was her one half conjugal

shares in 70,000 shares of stock in Benguet Consolidated Mining Company, an

anonymous partnership organized and existing under the laws of the Philippines,

with its principal office in Manila. She left a will which was duly admitted toprobate in California where her estate was administered and settled. Petitioner is

the trustee of the trust created by the will. The Federal and State of Californias

inheritance taxes due on said shares have been duly paid. The respondent now

claims that the same shares of stocks are also subject to inheritance tax here in

the Philippines. Hence, this petition for declaratory judgment was instituted by

plaintiff to ascertain whether the shares are still subject to inheritance tax.

Issue: May inheritance taxes be imposed on the said shares?

Held: Yes. Originally the settled law in the US is that intangibles have only one

situs for the purpose of inheritance tax, and that such situs is in the domicile ofthe decedent at the time of his death. But this rule has been relaxed due to (1) 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.

It is the identity or association of intangibles with the person of their owner at his

domicile which gives jurisdiction to tax. But when the taxpayer extends his

activities with respect to his intangibles, so as to avail himself of the protection

and benefit of the laws of another state, in such a way as to bring his person or

property within the reach of the tax gatherer there, the reason for a single place of

taxation no longer obtains. In this case, the actual situs of the shares of stock is

in the Philippines, the corporation being domiciled therein. The owner residing in

California has extended her activities with respect to her intangibles so as to avail

herself of the protection and benefit of the Philippine laws. The jurisdiction of the

Philippine government to impose tax must be upheld.

CIR v Japan Airlines (JAL) (Situs of Taxation) Facts: JAL is a foreign corporation

engaged in the business of International air carriage. Since mid-July of 1957, JAL

had maintained an office at the Filipinas Hotel, Roxas Boulevard Manila. The saidoffice did not sell tickets but was merely for the promotion of the company. On

July 17 1957, JAL constituted PAL as its agent in the Philippines. PAL sold tickets

for and in behalf of JAL. On June 1972, JAL then received deficiency income tax

assessments notices and a demand letter from petitioner for years 1959 through

1963. JAL protested against said assessments alleging that as a non-resident

foreign corporation, it as taxable only on income from Philippines sources as

determined by section 37 of the Tax Code, there being no income on said years,

JAL is not liable for taxes.

Issue: WON proceeds from sales of JAL tickets sold in the Philippines are taxable as

income from sources within the Philippines.

Held: The ticket sales are taxable. Citing the case of CIR v BOAC, the court

reiterated that the source of an income is the property, activity or service that

produced the income. For the source of income to be considered as coming from

the Philippines, it is sufficient that the income is derived from activity within the

Philippines. The absence of flight operations to and from the Philippines is not

determinative of the source of income or the situs of income taxation. The test of

taxability is the source, and the source of the income is that activity which

produced the income. In this case, as JAL constitutes PAL as its agent, the sales

of JAL tickets made by PAL is taxable.

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COLLECTOR V. LARA (multiplicity of situs) FACTS:Hugo H. Miller, an American

citizen, was born in Santa Cruz, California, U.S.A., in 1883. In 1905, he came to the

Philippines. From 1906 to 1917, he was connected with the public school system,

first as a teacher and later as a division superintendent of schools. After his

retirement, Miller accepted an executive position in the local branch of Ginn &

Co., book publishers with principal offices in New York and Boston, U.S.A., up tothe outbreak of the Pacific War. Miller lived at the Manila Hotel. He never lived in

any residential house in the Philippines. After the death of his wife in 1931, he

transferred from the Manila Hotel to the Army and Navy Club, where he was

staying at the outbreak of the Pacific War. On January 17, 1941, Miller executed

his last will and testament in Santa Cruz, California, in which he declared that he

was "of Santa Cruz, California". On December 7, 1941, because of the Pacific War,

the office of Ginn & Co. was closed, and Miller joined the Board of Censors of the

United States Navy. During the war, he was taken prisoner by the Japanese

forces in Leyte, and in January, 1944, he was transferred to Catbalogan, Samar,

where he was reported to have been executed by said forces on March 11, 1944.

Testate proceedings were instituted before the Court of California in Santa

Cruz County, which subsequently issued an order and decree of settlement of

final account and final distribution. The Bank of America, National Trust and

Savings Association of San Francisco California, co-executor named in Miller's

will, filed an estate and inheritance tax return with the Collector, covering only the

shares of stock issued by Philippine corporations. After due investigation, the

Collector assessed estate and inheritance taxes, which was received by the said

executor. The estate of Miller protested said assessment. This assessment was

appealed by De Lara as Ancilliary Administrator before the Board of Tax Appeals,which appeal was later heard and decided by the Court of Tax Appeals.

In determining the "gross estate" of a decedent, under Section 122 in

relation to section 88 of our Tax Code, it is first necessary to decide whether the

decedent was a resident or a non-resident of the Philippines at the time of his

death. The Collector maintains that under the tax laws, residence and domicile

have different meanings; that tax laws on estate and inheritance taxes only

mention resident and non-resident, and no reference whatsoever is made to

domicile except in Section 93 (d) of the Tax Code; that Miller during his long stay

in the Philippines had required a "residence" in this country, and was a resident

thereof at the time of his death, and consequently, his intangible personalproperties situated here as well as in the United States were subject to said taxes.

The Ancilliary Administrator, however, equally maintains that for estate and

inheritance tax purposes, the term "residence" is synonymous with the term

domicile.

ISSUE: W/N the estate is liable to file an estate and inheritance tax return besides

those covering shares of stocks issued by Philippine corporations.

HELD: No. The Court agrees with the Court of Tax Appeals that at the time that

The National Internal Revenue Code was promulgated in 1939, the prevailing

construction given by the courts to the "residence" was synonymous withdomicile. and that the two were used intercnangeabiy. Moreover, there is reason

to believe that the Legislature adopted the American (Federal and State) estate

and inheritance tax system (see e.g. Report to the Tax Commision of the

Philippines, Vol. II, pages 122-124, cited in I Dalupan, National Internal Revenue

Code

Annotated, p. 469-470). In the United States, for estate tax purposes, a resident is

considered one who at the time of his death had his domicile in the United States,

and in American jurisprudence, for purposes of estate and taxation, "residence"

is interpreted as synonymous with domicile, and that

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The incidence of estate and succession has historically been determined by

domicile and situs and not by the fact of actual residence. (Bowring vs. Bowers)

At the time of his death, Miller had his residence or domicile in Santa Cruz,

California. During his stay in the country, Miller never acquired a house for

residential purposes for he stayed at the Manila Hotel and later on at the Army

and Navy Club. The bulk of his savings and properties were in the United States.To his home in California, he had been sending souvenirs. In November, 1940,

Miller took out a property insurance policy and indicated therein his address as

Santa Cruz, California, this aside from the fact that Miller, as already stated,

executed his will in Santa Cruz, California, wherein he stated that he was "of

Santa Cruz, California".

*** As to the shares of stocks issued by Philippine corporations, an exemption

was granted to the estate by virtue of Section 122 of the Tax Code, which

provides as follows:

. . ."And Provided, however, That no tax shall be collected under this Title inrespect of intangible personal property (a) if the decedent at the time of his death

was a resident of a foreign country which at the time of his death did not impose

a transfer tax or death tax of any character in respect of intangible personal

property of citizens of the Philippines not residing in that country, or (b) if the

laws of the foreign country of which the decedent was resident at the tune of his

death allow a similar exemption from transfer taxes or death taxes of every

character in respect of intangible personal property owned by citizen, of the

Philippine not residing in that foreign country.

Affirmed, with modification.

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CIR v. Juliane Baier-Nickel (Multiplicity of Situs) Facts:

Respondent Juliane Baier-Nickel, a non-resident German citizen, is the

President of JUBANITEX, Inc., a domestic corporation engaged in

[m]anufacturing, marketing on wholesale only, buying or otherwise acquiring,

holding, importing and exporting, selling and disposing embroidered textile

products. Through JUBANITEXs General Manager, Marina Q. Guzman, 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.

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

sales commission income from which JUBANITEX withheld the corresponding

10% withholding tax amounting to P170,777.26, and remitted the same to the

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

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

P170,777.26.Respondent filed a claim to refund the amount of P170,777.26 alleged to

have been mistakenly withheld and remitted by JUBANITEX to the BIR.

Respondent contended that her sales commission income is not taxable in the

Philippines because the same was a compensation for her services rendered in

Germany and therefore considered as income from sources outside the

Philippines.

The CTA rendered a decision denying her claim. It held that the

commissions received by respondent were actually her remuneration in the

performance of her duties as President of JUBANITEX and not as a mere salesagent thereof. The income derived by respondent is therefore an income taxable

in the Philippines because JUBANITEX is a domestic corporation.

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

the CTA, holding that respondent received the commissions as sales agent of

JUBANITEX and not as President thereof. And since the source of income

means the activity or service that produce the income, the sales commission

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

marketing activities performed by respondent in Germany.

Petitioner maintains that the income earned by respondent is taxable in the

Philippines because the source thereof is JUBANITEX, a domestic corporation

located in the City of Makati. It further argued that since respondent is the

President of JUBANITEX, any remuneration she received from said corporation

should be construed as payment of her overall managerial services to the

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

separate service as a sales commission agent.

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

payment for her marketing services. She contended that income of nonresident

aliens like her is subject to tax only if the source of the income is within the

Philippines. Source, according to respondent is the situs of the activity whichproduced the income. And since the source of her income were her marketing

activities in Germany, the

income she derived from said activities is not subject to Philippine income

taxation.

Issue/s: W/N respondents sales commission income is taxable in the Philippines.

Held/Ratio: Yes.

Section 25 of the NIRC provides that non-resident aliens, whether or not

engaged in trade or business, are subject to Philippine income taxation on their

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income received from all sources within the Philippines. Thus, the keyword in

determining the taxability of non-resident aliens is the incomes source.

Source of income relates to the property, activity or service that

produced the income. With respect to rendition of labor or personal service, as in

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

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

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 respondent

received the income, but the sufficiency of evidence to prove that the services she rendered

were performed in Germany.

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

are to be construed strictissimi juris against the taxpayer. The faxed documents

presented by respondent did not constitute substantial evidence, or that relevant

evidence that a reasonable mind might accept as adequate to support theconclusion that it was in Germany where she performed the income producing

service which gave rise to the reported monthly sales in the months of March and

May to September of 1995. She thus failed to discharge the burden of proving that

her income was from sources outside the Philippines and exempt from the

application of our income tax law.

Petition GRANTED. The June 28, 2000 Decision of the Court of Tax Appeals in C.T.A. Case

No. 5633, which denied respondents claim for refund of income tax paid for the year 1995 is

REINSTATED.

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Alcan v. Treasurer of Manila (Double Taxation: Strict Sense)

CIR v. Solidbank (Double Taxation: Strict Sense) Facts: For the calendar year

1995, [respondent] seasonably filed its Quarterly Percentage Tax Returns

reflecting gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total

amount of P1,474,691,693.44 with corresponding gross receipts tax payments in

the sum of P73,734,584.60.

On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA

Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal

Revenue[,] wherein it was held that the 20% final withholding tax on [a] banks

interest income should not form part of its taxable gross receipts for purposes of

computing the gross receipts tax.

On June 19, 1997, on the strength of the aforementioned decision,

[respondent] filed with the Bureau of Internal Revenue [BIR] a letter-request for

the refund or issuance of [a] tax credit certificate in the aggregate amount of

P3,508,078.75, representing allegedly overpaid gross receipts tax for the year1995.

The CTA rendered its decision ordering petitioner to refund in favor of

respondent the reduced amount of P1,555,749.65 as overpaid [gross receipts tax]

for the year 1995.

The CA held that the 20% FWT on a banks interest income did not form

part of the taxable gross receipts in computing the 5% GRT, because the FWT

was not actually received by the bank but was directly remitted to the

government. The appellate court curtly said that while the Tax Code does not

specifically state any exemption, x x x the statute must receive a sensibleconstruction such as will give effect to the legislative intention, and so as to

avoid an unjust or absurd conclusion.

Issue/s:W/N the 20% final withholding tax on [a] banks interest income forms

part of the taxable gross receipts in computing the 5% gross receipts tax.

Held/Ratio: Yes, the amount of interest income withheld in payment of the 20%

FWT forms part of gross receipts in computing for the GRT on banks.

Two types of taxes are involved in the present controversy: (1) the GRT,

which is a percentage tax; and (2) the FWT, which is an income tax. As a bank,

petitioner is covered by both taxes.

Gross receipts refer to the total, as opposed to the net, income. These

are therefore the total receipts before any deduction for the expenses of

management. Websters New International Dictionary, in fact, defines gross as

whole or entire. No Double Taxation

The two taxes, subject of this litigation, are different from each other. The

basis of their imposition may be the same, but their natures are different, thus

leading us to a final point.

Double taxation means taxing the same property twice when it should be taxed only

once; that is, x x x taxing the same person twice by the same jurisdiction for the same thing.It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise

described as direct duplicate

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taxation, the two taxes must be imposed on the same subject matter, for the same purpose, by

the same taxing authority, within the same jurisdiction, during the same taxing period; and

they must be of the same kind or character.

First, the taxes herein are imposed on two different subject matters. The

subject matter of the FWT is the passive income generated in the form of interest

on deposits and yield on deposit substitutes, while the subject matter of the GRT

is the privilege of engaging in the business of banking.

A tax based on receipts is a tax on business rather than on the property;

hence, it is an excise rather than a property tax. It is not an income tax, unlike the

FWT. These two taxes are entirely distinct and are assessed under different

provisions.

Second, although both taxes are national in scope because they are imposed by the

same taxing authority -- the national government under the Tax Code -- and operate within

the same Philippine jurisdiction for the same purpose of raising revenues, the taxing

periods they affect are different. The FWT is deducted and withheld as soon as the income

is earned, and is paid after every calendar quarter in which it is earned. On the other hand,

the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in

which it is earned.

Third, these two taxes are of different kinds or characters. The FWT is an

income tax subject to withholding, while the GRT is a percentage tax not subject

to withholding.

In short, there is no double taxation, because there is no taxing twice, by the same

taxing authority, within the same jurisdiction, for the same purpose, in different taxing

periods, some of the property in the territory. Subjecting interest income to a 20% FWTand including it in the computation of the 5% GRT is clearly not double taxation.

Petition granted.

China Bank v. CA (Constitutionality of Double Taxation) Facts: The Court of

Appeals affirmed the Decision of the Court of Tax Appeals, which granted China

Banking Corporation (CBC) a tax refund or credit of P123,278.73 but denied due

to insufficiency of evidence the remainder of CBCs claim for P1,140,623.82.

On 20 July 1994, CBC paid P12,354,933.00 as gross receipts tax on its

income from interests on loan investments, commissions, services, collection

charges, foreign exchange profits and other operating earnings during thesecond quarter of 1994.

On 30 January 1996, the Court of Tax Appeals in Asian Bank Corporation v.

Commissioner of Internal Revenue ruled that the 20% final withholding tax on a

banks passive interest income does not form part of its taxable gross receipts.

On 19 July 1996, CBC filed with the Commissioner of Internal Revenue

(Commissioner) a formal claim for tax refund or credit of P1,140,623.82 from the

P12,354,933.00 gross receipts tax that CBC paid for the second quarter of 1994.

Citing Asian Bank, CBC argued that it was not liable for the gross receipts tax -

amounting to P1,140,623.82 - on the sums withheld by the Bangko Sentral ngPilipinas as final withholding tax on CBCs passive interest income in 1994.

Disputing CBCs claim, the Commissioner asserted that CBC paid the

gross receipts tax pursuant to Section 119 (now Section 121) of the National

Internal Revenue Code (Tax Code) and pertinent Bureau of Internal Revenue

(BIR) regulations. The Commissioner argued that the final withholding tax on a

banks interest income forms part of its gross receipts in computing the gross

receipts tax. The Commissioner contended that the term gross receipts means

the entire income or receipt, without any deduction.

Issue/s:W/N the 20% final withholding tax on interest income should form part of

CBCs gross receipts in computing the gross receipts tax on banks;

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Held/Ratio: Yes. As commonly understood, the term gross receipts means the

entire receipts without any deduction. Deducting any amount from the gross

receipts changes the result, and the meaning, to net receipts. Any deduction from

gross receipts is inconsistent with a law that mandates a tax on gross receipts,

unless the law itself makes an exception. The Court of Tax Appeals reversed its

ruling in Asian Bank. In Far East Bank & Trust Co. v. Commissioner and StandardChartered Bank v. Commissioner, both promulgated on 16 November 2001, the

tax court ruled that the final withholding tax forms part of the banks gross

receipts in computing the gross receipts tax. The tax court also held in Far East

Bank and Standard Chartered Bank that the exclusion of the final withholding tax

from gross receipts operates as a tax exemption which the law must expressly

grant. No law provides for such exemption.

On Double Taxation: There is no double taxation when Section 121 of the Tax

Code imposes a gross receipts tax on interest income that is already subjected to

the 20% final withholding tax under Section 27 of the Tax Code. The gross

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receipts tax is a business tax under Title V of the Tax Code, while the final withholding tax

is an income tax under Title II of the Code. There is no double taxation if the law imposes

two different taxes on the same income, business or property. Constitutionality: City of

Baguio v. De Leon: As to why double taxation is not violative of due process, Justice

Holmes made clear in this language: The objection to the taxation as double may be laid

down on one side . . . . The 14th Amendment [the due process clause] no more forbidsdouble taxation than it does doubling the amount of a tax, short of confiscation or

proceedings unconstitutional on other grounds. With that decision rendered at a time

when American sovereignty in the Philippines was recognized, it possesses more than just a

persuasive effect. To some, it delivered the coup de grace to the bogey of double taxation as

a constitutional bar to the exercise of the taxing power. It would seem though that in the

United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical

stage. In a 1947 decision, however, we quoted with approval this excerpt from a leading

American decision: Where, as here, Congress has clearly expressed its intention, the

statute must be sustained even though double taxation results.

Reversed.

City of Baguio v. De Leon (Constitutionality of Double Taxation) Facts:An

ordinance of the City of Baguio imposed a license fee on any person, firm, entity

or corporation doing business in the City of Baguio. Fortunato de Leon was held

liable as a real estate dealer with a property therein worth more than P10,000, but

not in excess of P50,000, and therefore obligated to pay under such ordinance the

P50 annual fee. In its decision of December 19, 1964, the lower court declared the

above ordinance as amended, valid and subsisting, and held defendant-appellant

liable for the fees therein prescribed as a real estate dealer. Its validity on

constitutional grounds is challenged because of the allegation that it imposeddouble taxation, which is repugnant to the due process clause, and that it

violated the requirement of uniformity.

Issue/s: W/N the ordinance is valid.

Held/Ratio: Yes. The source of authority for the challenged ordinance is supplied

by Republic Act No. 329, amending the city charter of Baguio2 empowering it to

fix the license fee and regulate "businesses, trades and occupations as may be

established or practiced in the City." On double taxation: As to why double

taxation is not violative of due process, Justice Holmes made clear in this

language: "The objection to the taxation as double may be laid down on one side.... The 14th Amendment [the due process clause] no more forbids double taxation

than it does doubling the amount of a tax, short of confiscation or proceedings

unconstitutional on other grounds." With that decision rendered at a time when

American sovereignty in the Philippines was recognized, it possesses more than

just a persuasive effect. To some, it delivered the coup de grace to the bogey of

double taxation as a constitutional bar to the exercise of the taxing power. It

would seem though that in the United States, as with us, its ghost as noted by an

eminent critic, still stalks the juridical state. In a 1947 decision, however, we

quoted with approval this excerpt from a leading American decision: "Where, as

here, Congress has clearly expressed its intention, the statute must be sustainedeven though double taxation results." At any rate, it has been expressly affirmed

by us that such an "argument against double taxation may not be invoked where

one tax is imposed by the state and the other is imposed by the city ..., it being

widely recognized that there is nothing inherently obnoxious in the requirement

that license fees or taxes be exacted with respect to the same occupation, calling

or activity by both the state and the political subdivisions thereof."

On uniformity: 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; Affirmed.

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CIR v. SC Johnson & Son (Tax Treaties) Facts:

S. C. Johnson and Son, Inc. entered into a license agreement with SC Johnson

and Son, United States of America (USA)

For the use of the trademark or technology, S. C. Johnson and Son, Inc. was

obliged to pay SC Johnson and Son, USA royalties based on a percentage of netsales and subjected the same to 25% withholding tax on royalty payments

S. C. Johnson and Son, Inc. filed with the International Tax Affairs Division

(ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties

arguing that the preferential tax rate of 10% should apply to them

Issue Whether or not SC Johnson and Son, USA is entitled to the "most favored

nation" tax rate of 10% on royalties as provided in the RP-US Tax Treaty in

relation to the RP-West Germany Tax Treaty.

Held/Ratio NO. Under Article 13 of the RP-US Tax Treaty, the Philippines may

impose one of three rates 25 percent of the gross amount of the royalties; 15percent when the royalties are paid by a corporation registered with the

Philippine Board of Investments and engaged in preferred areas of activities; or

the lowest rate of Philippine tax that may be imposed on royalties of the same

kind paid under similar circumstances to a resident of a third state. The RP-US

and the RP-West Germany Tax Treaties do not contain similar provisions on tax

crediting. Since the RP-US Tax Treaty does not give a matching tax credit of 20

percent for the taxes paid to the Philippines on royalties as allowed under the RP-

West Germany Tax Treaty, private respondent cannot be deemed entitled to the

10 percent rate granted under the latter treaty for the reason that there is no

payment of taxes on royalties under similar circumstances.Delpher v. IAC (Tax avoidance) Facts

The Pacheco siblings leased a piece of real estate to Construction

Components International Inc., providing that during the existence or after the

term of the lease that should the lessor decide to sell the property leased, it shall

first be offered to the lessee and the lessee has the priority to buy under similar

conditions.

Construction Components International, Inc. assigned its rights and

obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc.

with the signed conformity of the Pacheco siblings.

A deed of exchange was executed between the Pachecos and Delpher

Trades Corporation whereby the former conveyed to the latter the leased property

together with another parcel of land for 2,500 shares of stock of defendant

corporation with a total value of P1,500,000.00.

Issue Whether or not the "Deed of Exchange" of the properties executed by the

Pachecos and Delpher Trades Corporation was meant to be a contract of sale

which, in effect, prejudiced the private respondent's right of first refusal over the

leased property included in the "deed of exchange." Held/Ratio

NO. In effect, the Delpher Trades Corporation is a business conduit of thePachecos. What they really did was to invest their properties and change the

nature of their ownership from unincorporated to incorporated form by

organizing Delpher Trades Corporation to take control of their properties and at

the same time save on inheritance taxes.

The "Deed of Exchange" of property between the Pachecos and Delpher

Trades Corporation cannot be considered a contract of sale. There was no

transfer of actual ownership interests by the Pachecos to a third party. The

Pacheco family merely changed their ownership from one form to another. The

ownership remained in the same hands. Hence, the private respondent has no

basis for its claim of a light of first refusal under the lease contract.

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Yutivo v. CTA (Tax avoidance) Facts

Yutivo Sons Hardware Co. bought a number of cars and trucks from

General Motors Overseas Corporation. As importer, GM paid sales tax prescribed

by sections 184, 185 and 186 of the Tax Code on the basis of its selling price to

Yutivo. Said tax being collected only once on original sales, Yutivo paid no

further sales tax on its sales to the public.

Southern Motors, Inc. was organized to engage in the business of selling

cars, trucks and spare parts.

After the incorporation of SM and until the withdrawal of GM from the

Philippines in the middle of 1947, the cars and trucks purchased by Yutivo from

GM were sold by Yutivo to SM which, in turn, sold them to the public in the

Visayas and Mindanao.

Issue Whether or not Southern Motors, Inc. was organized as a tax evasion

device. Held/RatioNO. SM was organized in June, 1946 when it could not have caused Yutivo

any tax savings. From that date up to June 30, 1947, or a period of more than one

year, GM was the importer of the cars and trucks sold to Yutivo, which, in turn

resold them to SM. During that period, it is not disputed that GM as importer, was

the one solely liable for sales taxes. Neither Yutivo or SM was subject to the sales

taxes on their sales of cars and trucks. The sales tax liability of Yutivo did not

arise until July 1, 1947 when it became the importer and simply continued its

practice of selling to SM. The decision, therefore, of the Tax Court that SM was

organized purposely as a tax evasion device runs counter to the fact that there

was no tax to evade.Republic v. Gonzales (Tax evasion) Facts Since 1946, Blas Gonzales, has been a

private concessionaire in the U.S. Military Base at Clark Field, Angeles City: He

was engaged in the manufacture of furniture and, per agreement with base

authorities, supplied them with his manufactured articles. The appellant filed his

income tax returns for the years 1946 and 1947, respectively, with the then

Municipal Treasurer of Angeles, Pampanga. Upon investigation, however, the BIR

discovered that for the years 1946 and 1947, the appellant had been paid a total of

P2,199,920.50 for furniture delivered by him to the base authorities. Compared

against the sales figure provided by the base authorities, therefore, the amount of

P1,787,848.32 declared by the appellant as his total sales for the two tax years in

question was short or underdeclared by some P412,072.18. Accordingly, the

appellee considered this last mentioned amount as unreported item of income of

the appellant for 1946. Further investigation into the appellant's 1946 profit and

loss statement disclosed "local sales," that is, sales to persons other than the

United States Army, in the amount of P124,510.43. As a result, the appellee

likewise considered the said amount as unreported income for the said year. The

full amount of P124,510.43 was considered as taxable income because the

appellant could not produce the books of account on the same upon which any

deduction could be based.

Issues 1. Whether or not Gonzales is subject to Philippine tax laws

pursuant to the United States-Philippine Military Bases Agreement 2. Whether or

not Gonzales is guilty of fraud.

Held/Ratio 1. YES. None of the mentioned covenants shields a concessionaire,

like the appellant, from the payment of the income tax. For one thing, even the

exemption in favor of members of the United States Armed Forces and nationals

of the United States does not include income derived from Philippine sources.

The appellant cannot seek refuge in the use of "excise" or "other taxes or

imposts" in paragraph 1 of Article XVIII of the Military Bases Agreement, because,

as already stated, said terms are employed with specific application to the right to

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establish agencies and concessions within the bases and to the merchandise or

services sold or dispensed by such agencies or concessions. 2. YES. As rightly

argued by the Solicitor General's office, since

fraud is a state of mind, it need not be proved by direct evidence but may be

inferred from the circumstances of the case. The failure of the appellant to

declare for taxation purposes his true and actual income derived from his

furniture business at the Clark Field Air Base for two consecutive years is an

indication of his fraudulent intent to cheat the Government of its due taxes.

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CIR v. Estate of Benigno Toda (Tax evasion) Facts:CIC authorized Benigno P.

Toda, Jr., President and owner of 99.991% of its issued and outstanding capital

stock, to sell the Cibeles Building and the two parcels of land on which the

building stands for an amount of not less than P90 million.

30 August 1989, Toda purportedly sold the property for P100 million to Altonaga,

who, in turn, sold the same property on the same day to Royal Match Inc. (RMI)

for P200 million. These two transactions were evidenced by Deeds of Absolute

Sale notarized on the same day by the same notary public. For the sale of the

property to RMI, Altonaga paid capital gains tax in the amount of P10 million. On

16 April 1990, CIC filed its corporate annual income tax return for the year 1989,

declaring, among other things, its gain from the sale of real property in the

amount of P75,728.021. After crediting withholding taxes of P254,497.00, it paid

P26,341,207 for its net taxable income of P75,987,725. On 12 July 1990, Toda sold

his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as

evidenced by a Deed of Sale of Shares of Stocks. Issue: WON this is a case of taxevasion or tax avoidance. Held/Ratio: Tax avoidance and tax evasion are the two

most common ways used by taxpayers in escaping from taxation. Tax avoidance

is the tax saving device within the means sanctioned by law. It should be used by

the taxpayer in good faith and at arms length. Tax evasion is a scheme used

outside of those lawful means and when availed of, it usually subjects the

taxpayer to further or additional civil or criminal liabilities. Tax evasion connotes

the integration of three factors: (1) the end to be achieved, i.e., the payment of

less than that known by the taxpayer to be legally due, or the non-payment of tax

when it is shown that a tax is due; (2) an accompanying state of mind which is

described as being "evil," in "bad faith," "willfull," or "deliberate and notaccidental"; (3) a course of action or failure of action which is unlawful. All these

factors are present in the instant case.

That Altonaga was a mere conduit finds support in the admission of

respondent .Estate that the sale to him was part of the tax planning scheme of

CIC.

The scheme resorted to by CIC in making it appear that there were two

sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga

to RMI cannot be considered a legitimate tax planning. It is tainted with fraud.

Here, it is obvious that the objective of the sale to Altonaga was to reducethe amount of tax to be paid. The transfer from him to RMI would result to 5%

individual capital gains tax, instead of 35% corporate income tax. Altonagas sole

purpose of acquiring and transferring title of the properties on the same day was

to create a tax shelter. Altonaga never controlled the property and did not enjoy

the normal benefits and burdens of ownership. The sale to him was merely a tax

ploy, a sham, and without business purpose and economic substance. Doubtless,

the execution of the two sales was calculated to mislead the BIR with the end in

view of reducing the consequent income tax liability.

In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which

was prompted more on the mitigation of tax liabilities than for legitimate businesspurposes constitutes tax evasion.

Greenfield v. Meer (Exemption from Taxation) Facts

Since the year 1933, the plaintiff has been continuously engaged in the

embroidery business. In 1935, the plaintiff began engaging in buying and selling

mining stocks and securities for his own exclusive account and not for the

account of others.

The plaintiff has not been a dealer in securities as defined in section 84 (t)

of Commonwealth Act No. 466; he has no established place of business for the

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purchase and sale of mining stocks and securities; and he was never a member

of any stock exchange.

The plaintiff filed an income tax return where he claims a deduction of

P67,307.80 representing the net loss sustained by him in mining stocks securities

during the year 1939. The defendant disallowed said item of deduction on the

ground that said losses were sustained by the plaintiff from the sale of mining

stocks and securities which are capital assets, and that the loss arising from the

sale of the same should be allowed only to the extent of the gains from such

sales, which gains were already taken into consideration in the computation of

the alleged net loss of P67,307.80.

Issue Whether the personal and additional exemptions granted by section 23 of

Commonwealth Act No. 466 should be considered as a credit against or be

deducted from the net income, or whether it is the tax on such exemptions that

should be deducted from the tax on the total net income.

Held/Ratio Personal and additional exemptions claimed by appellant should becredited against or deducted from the net income. "Exception is an immunity or

privilege; it is freedom from a charge or burden to which others are subjected." (If

the amounts of personal and additional exemptions fixed in section 23 are

exempt from taxation, they should not be included as part of the net income,

which is taxable. There is nothing in said section 23 to justify the contention that

the tax on personal exemptions (which are exempt from taxation) should first be

fixed, and then deducted from the tax on the net income.

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CIR v. PLDT (Nature of Taxation Exemption) FACTS: * PLDT paid to the BIR taxes

for the for equipment, machineries and spare parts it imported for its business. *

After such payment, it wrote to the BIR to seek a confirmatory ruling on its

exemption privileges. The BIR issued a ruling stating that PLDT is exempt from all

taxes including the 10% value-added tax (VAT) on its importations of equipment,

machineries and spare parts necessary in the conduct of its business covered bythe franchise. * Based on the BIR ruling, PLDT filed a claim for tax credit/refund of

the VAT, compensating taxes, advance sales taxes and other taxes it had been

paying in its importation of various equipment, machineries and spare parts

needed for its operations. * PLDT filed with the CTA a petition for review. CTA

granted the credit/refund. BIRs MfR denied. * BIR appealed to CA which affirmed

CTA judgment. Hence this appeal.

ISSUE: WONPLDT is exempt from paying VAT, compensating taxes, advance

sales taxes and internal revenue taxes on its importations?

HELD: YES, PLDT exempt from paying direct taxes but not indirect taxes (ie VAT).Taxation is the rule, exemption is the exception. Statutes granting tax exemptions must be

construed in strictissimi juris against the taxpayer and liberally in favor of the taxing

authority. To him who claims a refund or exemption from tax payments rests the burden of

justifying the exemption by words too plain to be mistaken and too categorical to be

misinterpreted.

Tax exemption represents a loss of revenue to the government and must,

therefore, not rest on vague inference. When claimed, it must be strictly

construed against the taxpayer who must prove that he falls under the exception.

If an exemption is found to exist, it must not be enlarged by construction, since

the reasonable presumption is that the state has granted in express terms all itintended to grant at all, and that, unless the privilege is limited to the very terms

of the statute the favor would be extended beyond dispute in ordinary cases.

DISPOSITIVE: CA modified. PLDT to get refund on advance sales tax and

compensating tax it paid less the VAT due on the importations.

Basco v. Pagcor (Nature of Power to grant tax exemption) FACTS: * PAGCOR was

created and given a franchise under PD 1067. * Petitioner filed a petition on the

grounds that the PAGCOR Charter is contrary to morals, public policy and order,

and because it constitutes a waiver of the right of Manila City government's right

to impose taxes and license fees, which is recognized by law. They assail Section13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from

paying any "tax of any kind or form, income or otherwise, as well as fees, charges

or levies of whatever nature, whether National or Local."

ISSUE: WON PAGCOR Charter is violative of the autonomy of the local

government?

HELD: NO, it is not violative of the law. Manila's power to impose license fees on

gambling, has long been revoked. As early as 1975, the power of local

governments to regulate gambling thru the grant of "franchise, licenses or

permits" was withdrawn by P.D. No. 771 and was vested exclusively on theNational Government (Note: Since the case doesn't directly say anything about

the "nature of the power to grant tax exemption", use the doctrine mentioned in

the case [which speaks of the "nature of the power to tax"] and extend them to

tax exemption.) Manila has no inherent right to impose taxes. Thus, "the Charter

or statute must plainly show an intent to confer that power or the municipality

cannot assume it". Its "power to tax" therefore must always yield to a legislative

act which is superior having been passed upon by the state itself which has the

"inherent power to tax". Local governments have no power to tax

instrumentalities of the National Government. "The states have no power by

taxation or otherwise, to retard, impede, burden or in any manner control theoperation of constitutional laws enacted by Congress to carry into execution the

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powers vested in the federal government. (MC Culloch v. Marland, 4 Wheat 316, 4

L Ed. 579)" The power of local government to "impose taxes and fees" is always

subject to "limitations" which Congress may provide by law. DISPOSITIVE:

PAGCOR Charter valid since exemption was granted by Congress.

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MACEDA v. MACARAIG(Rationale/Ground for tax exemption & Construction of

Statutes Granting Tax Exemption Exemption) FACTS: (same as 1991 case) * CA

120 created NAPOCOR as a public corporation to undertake the development of

hydraulic power and the production of power from other sources. * RA 358 (1949)

granted NAPOCOR tax and duty exemption privileges. RA 6395 (1971) revised the

charter of the NAPOCOR, tasking it to carry out the policy of the nationalelectrification, and provided in detail NAPOCORs tax exceptions. PD 380 (1974)

specified that NAPOCORs exemption includes all taxes, etc. imposed directly or

indirectly. * PD 938 integrated the exemptions in favor of GOCCs including their

subsidiaries; however, empowering the President or the Minister of Finance,

upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore,

partially or completely, the exemptions withdrawn or revised. * The FIRB issued

Resolution 10-85 (7 February 1985) restoring the duty and tax exemptions

privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86

(1January 1986) restored such exemption indefinitely effective 1 July 1985. EO 93

(1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24 June1987) restoring NAPOCORs exemption, which was approved by the President on

5 October 1987. * Since 1976, oil firms never paid excise or specific and ad

valorem taxes for petroleum products sold and delivered to NAPOCOR. Oil

companies started to pay specific and ad valorem taxes on their sales of oil

products to NAPOCOR only in 1984. * NAPOCOR claimed for a refund (P468.58

million). Only portion thereof, corresponding to Caltex, was approved and

released by way of a tax credit memo. The claim for refund of taxes paid by

PetroPhil, Shell and Caltex amounting to P410.58 million was denied. * NAPOCOR

moved for reconsideration, starting that all deliveries of petroleum products to

NAPOCOR are tax exempt, regardless of the period of delivery. ISSUE: WON

NAPOCOR cease to enjoy exemption from indirect tax when exemption in PD 938

is in general terms. HELD: NO, NAPOCOR still exempt. Tax exemptions are

undoubtedly to be construed strictly but not so grudgingly as knowledge that

many impositions taxpayers have to pay are in the nature of indirect taxes. To

limit the exemption granted the National Power Corporation to direct taxes

notwithstanding the general and broad language of the statute will be to thwart

the legislative intention in giving exemption from all forms of taxes and

impositions without distinguishing between those that are direct and those that

are not.

1991 case held: NAPOCOR is a non-profit public corporation created for the

general good and welfare, and wholly owned by the government of the Republic

of the Philippines. From the very beginning of the corporations existence,

NAPOCOR enjoyed preferential tax treatment to enable the corporation to pay

the indebtness and obligation and effective implementation of the policy

enunciated in Section 1 of RA

6395. From the preamble of PD 938, it is evident that the provisions of PD 938

were not intended to be strictly construed against NAPOCOR. On the contrary,

the law mandates that it should be interpreted liberally so as to enhance the tax

exempt status of NAPOCOR. It is recognized principle that the rule on strictinterpretation does not apply in the case of exemptions in favor of government

political subdivision or instrumentality. The basis for applying the rule of strict

construction to statutory provisions granting tax exemptions or deductions, even

more obvious than with reference to the affirmative or levying provisions of tax

statutes, is to minimize differential treatment and foster impartiality, fairness, and

equality of treatment among tax payers. The reason for the rule does not apply in

the case of exemptions running to the benefit of the government itself or its

agencies. In such case the practical effect of an exemption is merely to reduce

the amount of money that has to be handled by government in the course of its

operations. For these reasons, provisions granting exemptions to government

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agencies may be construed liberally, in favor of non tax liability of such agencies.

In the case of property owned by the state or a city or other public corporations,

the express exemption should not be construed with the same degree of

strictness that applies to exemptions contrary to the policy of the state, since as

to such property exemption is the rule and taxation the exception.

DISPOSITIVE: NAPOCOR exempt from tax.

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CIR v. CA (Construction of Statutes granting tax exemption:general rule) Facts: *

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. * CIR issued an

assessment including surcharge and interest, for deficiency tax. * YMCA

protested but denied by the CIR, so it filed in the CTA. * CTA ruled in favor ofYMCA, so CIR appealed to CA * CA in favor of CIR but upon MfR by YMCA, it

ruled in favor of the latter. Hence, this petition. * CIR argues the income received

by YMCA enumerated in Section 27

3

(now Section 26) of the NIRC is, as a rule, exempted from the payment of

tax in respect to income received by them as such, the exemption does not

apply to income derived xxx from any if their properties, real or personal, or

from any of their activities conducted for profit, regardless, of the disposition

made of such income xxx. * YMCA argues that it is an exempt organization dueto its nature and because the income it derives from renting its space and the

fees it derives from parking is minimal (therefore not for profit). ISSUE: WON the

income derived from rentals of real property owned by YMCA exempt from tax?

HELD: NO, YMCA not exempt organization since it doesn't come within the

purview of the provision. Because taxes are the lifeblood of the nation, the Court

has always applied the doctrine of strict interpretation in construing tax

exemptions. A claim of statutory exemption from taxation should be manifest and

unmistakable from the language of the law on which it is based. Thus, the

claimed exemption must expressly be granted in a statute stated in a language

too clear to be mistaken." Where the language of the law is clear andunambiguous, its express terms must be applied. Laws allowing tax exemption

are construed strictissimi juris. DISPOSITIVE: YMCA to pay tax liability.

3

SEC. 27. Exemptions from tax on corporations. -- The following organizations

shall not be taxed under this Title in respect to income received by them as such

--

x x x x x x x x x (g) Civic league or organization not organized for profit but

operated exclusively for the promotion of social welfare; (h) Club organized and

operated exclusively for pleasure, recreation, and other non-profitable purposes,no part of the net income of which inures to the benefit of any private stockholder

or member;

x x x x x x x x x Notwithstanding the provision in the preceding paragraphs, the

income of whatever kind and character of the foregoing organization from any of

their properties, real or personal, or from any of their activities conducted for

profit, regardless of the disposition made of such income, shall be subject to the

tax imposed under this Code. (as amended by Pres. Decree No. 1457)

Luzon Stevedoring v. CTA (Construction of Statutes granting tax

exemption:general rule) FACTS: * Luzon Stevedoring for the and maintenance ofits tugboats, imported various engine parts and other equipment for which it paid,

under protest, the assessed compensating tax. * Unable to secure a tax refund

from the CIR, it filed a petition in the CTA. * CTA denied its petition hence this

appeal. * Luzon Stevedoring argues contends that tugboats are embraced and

included in the term cargo vessel under the tax exemption provisions of Sec. 190

4

of the NIRC, as amended by RA 3176. * CTA argues that

"tugboats" are not "Cargo vessel" because they are neither designed nor used

for carrying and/or transporting persons or goods by themselves but are mainly

employed for towing and pulling purposes. Hence, Luzon Stevedoring should be

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taxed. ISSUE: WON Luzon Stevedoring should be exempt from tax? HELD: NO,

tugboats not embraced in the provision hence Luzon Stevedoring doesn't come

under the exemption. "As the power of taxation is a high prerogative of

sovereignty, the relinquishment is never presumed and any reduction or

dimunition thereof with respect to its mode or its rate, must be strictly construed,

and the same must be coached in clear and unmistakable terms in order that itmay be applied." (84 C.J.S. pp. 659-800), More specifically stated, the general rule

is that any claim for exemption from the tax statute should be strictly construed

against the taxpayer. DISPOSITIVE: Luzon Stevedoring doesn't come under the

purview of the exception. Pay tax liability.

4

Sec. 190. Compensating tax. ... And Provided further, That the tax imposed in

this section shall not apply to articles to be used by the importer himself in the

manufacture or preparation of articles subject to specific tax or those for

consignment abroad and are to form part thereof or to articles to be used by theimporter himself as passenger and/or cargo vessel, whether coastwise or

oceangoing, including engines and spare parts of said vessel. ....

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MACEDA v. MACARAIG (Construction of Statutes Granting Tax Exemption

Exemption) FACTS: * CA 120 created NAPOCOR as a public corporation to

undertake the development of hydraulic power and the production of power from

other sources. * RA 358 (1949) granted NAPOCOR tax and duty exemption

privileges. RA 6395 (1971) revised the charter of the NAPOCOR, tasking it to carry

out the policy of the national electrification, and provided in detail NAPOCORstax exceptions. PD 380 (1974) specified that NAPOCORs exemption includes all

taxes, etc. imposed directly or indirectly. * PD 938 integrated the exemptions in

favor of GOCCs including their subsidiaries; however, empowering the President

or the Minister of Finance, upon recommendation of the Fiscal Incentives Review

Board (FIRB) to restore, partially or completely, the exemptions withdrawn or

revised. * The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty

and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June

1985. Resolution 1-86 (1January 1986) restored such exemption indefinitely

effective 1 July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued

Resolution 17-87 (24 June 1987) restoring NAPOCORs exemption, which wasapproved by the President on 5 October 1987. * Since 1976, oil firms never paid

excise or specific and ad valorem taxes for petroleum products sold and

delivered to NAPOCOR. Oil companies started to pay specific and ad valorem

taxes on their sales of oil products to NAPOCOR only in 1984. * NAPOCOR

claimed for a refund (P468.58 million). Only portion thereof, corresponding to

Caltex, was approved and released by way of a tax credit memo. The claim for

refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58 million

was denied. * NAPOCOR moved for reconsideration, starting that all deliveries of

petroleum products to NAPOCOR are tax exempt, regardless of the period of

delivery.

ISSUE: WON NAPOCOR cease to enjoy exemption from indirect tax when PD 938

stated the exemption in general terms.

HELD: NO, NAPOCOR still exempt. NAPOCOR is a non-profit public corporation

created for the general good and welfare, and wholly owned by the government of

the Republic of the Philippines. From the very beginning of the corporations

existence, NAPOCOR enjoyed preferential tax treatment to enable the

corporation to pay the indebtness and obligation and effective implementation

of the policy enunciated in Section 1 of RA 6395. From the preamble of PD 938, it

is evident that the provisions of PD 938 were not intended to be strictly construedagainst NAPOCOR. On the contrary, the law mandates that it should be

interpreted liberally so as to enhance the tax exempt status of NAPOCOR. It is

recognized principle that the rule on strict interpretation does not apply in the

case of exemptions in favor of government political subdivision or

instrumentality.

The basis for applying the rule of strict construction to statutory provisions

granting tax exemptions or deductions, even more obvious than with reference to

the affirmative or levying provisions of tax statutes, is to minimize differential

treatment and foster impartiality, fairness, and equality of treatment among tax

payers. The reason for the rule does not apply in the case of exemptions running

to the benefit of the government itself or its agencies. In such case the practical

effect of an exemption is merely to reduce the amount of money that has to be

handled by government in the course of its operations. For these reasons,

provisions granting exemptions to government agencies may be construed

liberally, in favor of non tax liability of such agencies. In the case of property

owned by the state or a city or other public corporations, the express exemption

should not be construed with the same degree of strictness that applies to

exemptions contrary to the policy of the state, since as to such property

exemption is the rule and taxation the exception. DISPOSITIVE: NAPOCOR

exempt from tax.

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DISSENTING, Cruz: It is important to note that when P.D. Nos. 1931 and 1955 were

issued by President Marcos, the rule under the 1973 Constitution was that "no

law granting a tax exemption shall be passed without the concurrence of a

majority of all the members of the Batasang Pambansa." (Art. VIII, Sec. 17[4]).

Laws are usually passed by only a majority of those present in the chamber, there

being a quorum, but not where it grants a tax exemption. This requires anabsolute majority. Yet, despite this stringent limitation on the national legislature

itself, such stricture does not inhibit the President and the FIRB in the exercise of

their delegated power. It would seem that the delegate has more power than the

principal. Significantly, this limitation is maintained in the present Constitution

under Article VI, Section 28(4). The ponencia holds that the rule of strict

construction is not applicable where the grantee is an agency of the government

itself, like the MPC in the case before us. I notice, however, that the ultimate

beneficiaries of the expected tax credit will be the oil companies, which certainly

are not part of the Republic of the Philippines. As the tax refunds will not be

enjoyed by the MPC itself, I see no reason why we should be exceptionally lenientin applying the exception. Sarmiento: Acetylene's pronouncement is founded on

the very science of taxationthat indirect taxes are no taxes for purposes of

exemption, and that consequently, one who did not pay taxes can not claim an

exemption although the price he paid for the goods included taxes. To enable him

to claim an exemption, as the majority would now enable him (Acetylene having

been "abrogated"), is, I submit, to defeat the very laws of science. The theory of

"indirect taxes" and that no exemption is possible therefrom, so I reiterate, are

well-settled concepts of taxation, as the law of supply and demand is to the law of

economics. A President is said (unfairly) to have attempted it, but one can not

repeal the law on supply and demand.

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PHILEX. v. CIR, CA, CTA (Set- Off) FACTS: * BIR sent a letter to Philex asking it to

settle its tax liabilities. * Philex protested the demand stating that it has pending

claims for VAT input credit/refund. Therefore these claims for tax credit/refund

should be applied against the tax liabilities. * BIRfound no merit in Philex's

position since these pending claims have not yet been established or determined

with certainty. * Philex raised the issue to the CTA and CA which both favoredCIR. * A few days after the denial of its MfR on the CA decision, Philex was able to

obtain its VAT input credit/refund. Hence, this petition. * Philex argues that that

the refund/credit should off-set its tax liabilities since both had already become

"due and demandable, as well as fully liquidated;" hence, legal compensation can

properly take place. * Respondents argues that taxes cannot be subject to set-off

on compensation since claim for taxes is not a debt or contract.

ISSUE: Whether tax liabilities could be subject to set-off?

HELD: NO, tax liabilities could not be set-off. Taxes cannot be subject to

compensation for the simple reason that the government and the taxpayer are notcreditors and debtors of each other. Taxes cannot be subject to set-off or

compensation, thus: ...there can be no off-setting of taxes against the claims that

the taxpayer may have against the government. A person cannot refuse to pay a

tax on the ground that the government owes him an amount equal to or greater

than the tax being collected. The collection of a tax cannot await the results of a

lawsuit against the government. (Francia v. Intermediate Appellate Court).

Aforementioned ruling has been applied in Caltex Philippines, Inc. v. Commission

on Audit, which reiterated that: ...a taxpayer may not offset taxes due from the

claims that he may have against the government. Taxes cannot be the subject of

compensation because the government and taxpayer are not mutually creditorsand debtors of each other and a claim for taxes is not such a debt, demand,

contract or judgment as is allowed to be set-off. A taxpayer cannot refuse to pay

his taxes when they fall due simply because he has a claim against the

government or that the collection of the tax is contingent on the result of the

lawsuit it filed against the government.

CIR v. ESSO(Set-off) Facts: ESSO overpaid its 1959 income tax by P221,033.00. It

was accordingly granted a tax credit. However, ESSOs payment of its income tax

for 1960 was found to be short by P367,994. So the Commissioner demanded

payment of the deficiency, with interest. ESSO paid under protest, including the

interest as reckoned by the Commissioner.

ESSOs contention: The interest was more than that properly due. It should not

have been required to pay interest on the total amount of the deficiency tax,

P367,994.00, but only on the amount of P146,961.00representing the difference

between said deficiency and ESSOs earlier overpayment. ESSO thus asked for a

refund.

CIRs contention: It denied the claim for refund. Income taxes are determined and

paid on an annual basis, such determination and payment are separate and

independent transactions; and a tax credit could not be considered until it has

been finally approved and the taxpayer notified. Since in this case, the tax creditwas approved only on August 5, 1964, it could not be availed of in reduction of

ESSOs earlier tax deficiency for 1960; as of that year there was no tax credit to

speak of. In support of this, the Commissioner invokes the Section 51 of the Tax

Code:

(d) Interest on deficiency. Interest upon the amount determined as deficiency

shall be assessed at the same time as the deficiency and shall be paid upon

notice and demand from the Commissioner of Internal Revenue; and shall be

collected as a part of the tax...

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ESSO appealed to the Court of Tax Appeals, which in turn ordered payment to

ESSO of its "refund-claim. Hence, this appeal by the Commissioner.

ISSUE: Was it proper to apply ESSOs tax credit in reducing the total deficiency

subject to interest? YES.

Ratio Decidendi: 1. Regardless of CIRs assertions, the fact is that as early asJuly 15, 1960, the Government already had in its hands the sum representing

excess payment. Having been paid and received by mistake, that sum

unquestionably belonged to ESSO, and the Government had the obligation to

return it to ESSO. 2. The obligation to return money mistakenly paid arises from

the moment that payment is made, and not from the time that the payee admits

the obligation to reimburse. The obligation of the payee to reimburse results from

the mistake, not from the payee's confession of the mistake or recognition of the

obligation to reimburse. In other words, since the amount of P221,033.00

belonging to ESSO was already in the hands of the Government as of July, 1960,

it was neither legally nor logically possible for ESSO thereafter to be considered adebtor of the Government; and whatever other obligation ESSO might

subsequently incur in favor of the Government would have to be reduced by that

sum, in respect of which no interest could be charged. 3. "Nothing is better

settled than that courts are not to give words a meaning which would lead to

absurd or unreasonable consequences. "Statutes should receive a sensible

construction, such as will give effect to the legislative intention and so as to

avoid an unjust or absurd conclusion." Holding: Petition denied, CTA affirmed.

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Dumlao v. Comelec (Taxpayers Suit) Facts: This is a Petition for Prohibition

seeking to enjoin COMELEC from implementing certain provisions of BP 51, 52,

and 53 for being unconstitutional.

The petitioners: Patricio Dumlao, is a former Governor of Nueva Vizcaya, who has

filed his certificate of candidacy for said position. Romeo B. Igot, is a taxpayer, a

qualified voter and a member of the Bar. Alfredo Salapantan, Jr., is also a

taxpayer, a qualified voter, and a resident of San Miguel, Iloilo.

(Dumlaos contention will be skipped as his situation was not dicussed in the

discussion on taxpayers suits)

Igots and Salapantanans contentions: Assail the ff:

Sec. 4. ... Any person who has committed any act of disloyalty to the State,

including acts amounting to subversion, insurrection, rebellion or other similar

crimes, shall not be qualified to be a candidate for any of the offices covered by

this Act, or to participate in any partisan political activity thereinISSUE: Do the petitioners have standing to sue? NO.

Ratio Decidendi: 1. "the person who impugns the validity of a statute must have a

personal and substantial interest in the case such that he has sustained, or will

sustain, direct injury .

In the case of petitioners Igot and Salapantan, it was only during the hearing, that

Igot is said to be a candidate for Councilor. Even then, it cannot be denied that

neither one has been convicted nor charged with acts of disloyalty, nor

disqualified from being candidates. Theirs is a generated grievance. They have no

personal nor substantial interest at stake. They can claim no locus standi. 2. It istrue that petitioners Igot and Salapantan have instituted this case as a taxpayer's

suit, and that the rule has been relaxed, thus:

... there are many decisions nullifying at the instance of taxpayers, laws providing

for the disbursement of public funds, upon the theory that "the expenditure of

public funds, by an officer of the State for the purpose of administering an

unconstitutional act constitutes a misapplication of such funds," which may be

enjoined at the request of a taxpayer. 3. However, the statutory provisions

questioned in this case, do not directly involve the disbursement of public funds.

While, concededly, the elections to be held involve the expenditure of public

moneys, nowhere in their Petition do said petitioners allege that their tax moneyis "being extracted and spent in violation of specific constitutional protections

against abuses of legislative power", or that there is a misapplication of such

funds by respondent COMELEC, or that public money is being deflected to any

improper purpose. Neither do petitioners seek to restrain respondent from

wasting public funds through the enforcement of an invalid or unconstitutional

law. 4. Besides, the institution of a taxpayer's suit, per se is no assurance of

judicial review. As held by this Court in Tan vs. Macapagal, this Court is vested

with discretion as to whether or not a taxpayer's suit should be entertained.

Holding: Petition denied.

Lozada & Igot v. Comelec (Taxpayers Suit) Facts: This is a petition for

mandamus filed as a representative suit for and in behalf of those who wish to

participate in the election irrespective, to compel the respondent COMELEC to

call a special election to fill up existing vacancies) in the Interim Batasan

Pambansa. The petition is based on Section 5(2), Article VIII of the 1973

Constitution which reads:

(2) In case a vacancy arises in the Batasang Pambansa eighteen months or more

before a regular election, the Commission on Election shall call a special election

to be held within sixty (60) days after the vacancy occurs to elect the Member to

serve the unexpired term.

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The petitioners: Petitioner Lozada claims that he is a taxpayer and a bonafide

elector of Cebu City and a transient voter of Quezon City, Metro Manila, who

desires to run for the position in the Batasan Pambansa; while petitioner Romeo

B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus the

calling of a special election as mandated by the 1973 Constitution.

COMELEC opposed the petition alleging, that 1) petitioners lack standing to file

the instant petition for they are not the proper parties to institute the action; 2)

this Court has no jurisdiction to entertain this petition; and 3) Section 5(2), Article

VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa.

ISSUE: Do the petitioners have standing to sue? NO.

Ratio Decidendi: I. No standing as taxpayers 1. As taxpayers, petitioners may not

file the instant petition, for nowhere therein is it alleged that tax money is being

illegally spent. The act complained of is the inaction of the COMELEC and

therefore, involves no expenditure of public funds. 2. It is only when an act

complained of involves the illegal expenditure of public money that the so-calledtaxpayer suit may be allowed. 3. What the case at bar seeks is one that entails

expenditure of public funds. (In other words, they are effectively asking for the

government to

17514261 Case Digests Volume II

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