G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE,petitioner,vs.ALGUE, INC., and
THE COURT OF TAX APPEALS,respondents.
Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. On the other hand, such
collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It
is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may
be achieved.
The main issue in this case is whether or not the Collector of
Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by private respondent Algue as legitimate business expenses
in its income tax returns. The corollary issue is whether or not
the appeal of the private respondent from the decision of the
Collector of Internal Revenue was made on time and in accordance
with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private
respondent, a domestic corporation engaged in engineering,
construction and other allied activities, received a letter from
the petitioner assessing it in the total amount of P83,183.85 as
delinquency income taxes for the years 1958 and 1959.1On January
18, 1965, Algue flied a letter of protest or request for
reconsideration, which letter was stamp received on the same day in
the office of the petitioner.2On March 12, 1965, a warrant of
distraint and levy was presented to the private respondent, through
its counsel, Atty. Alberto Guevara, Jr., who refused to receive it
on the ground of the pending protest.3A search of the protest in
the dockets of the case proved fruitless. Atty. Guevara produced
his file copy and gave a photostat to BIR agent Ramon Reyes, who
deferred service of the warrant.4On April 7, 1965, Atty. Guevara
was finally informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of
distraint and levy earlier sought to be served.5Sixteen days later,
on April 23, 1965, Algue filed a petition for review of the
decision of the Commissioner of Internal Revenue with the Court of
Tax Appeals.6The above chronology shows that the petition was filed
seasonably. According to Rep. Act No. 1125, the appeal may be made
within thirty days after receipt of the decision or ruling
challenged.7It is true that as a rule the warrant of distraint and
levy is "proof of the finality of the assessment"8and renders
hopeless a request for reconsideration,"9being "tantamount to an
outright denial thereof and makes the said request deemed
rejected."10But there is a special circumstance in the case at bar
that prevents application of this accepted doctrine.The proven fact
is that four days after the private respondent received the
petitioner's notice of assessment, it filed its letter of protest.
This was apparently not taken into account before the warrant of
distraint and levy was issued; indeed, such protest could not be
located in the office of the petitioner. It was only after Atty.
Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period,
the warrant was premature and could therefore not be served.
As the Court of Tax Appeals correctly noted,"11the protest filed
by private respondent was notpro formaand was based on strong legal
considerations. It thus had the effect of suspending on January 18,
1965, when it was filed, the reglementary period which started on
the date the assessment was received, viz., January 14, 1965. The
period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection
of the said protest and the warrant was finally served on it.
Hence, when the appeal was filed on April 23, 1965, only 20 days of
the reglementary period had been consumed.Now for the substantive
question.
The petitioner contends that the claimed deduction of P75,000.00
was properly disallowed because it was not an ordinary reasonable
or necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that the said amount had
been legitimately paid by the private respondent for actual
services rendered. The payment was in the form of promotional fees.
These were collected by the Payees for their work in the creation
of the Vegetable Oil Investment Corporation of the Philippines and
its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.Parenthetically, it may be observed that
the petitioner had Originally claimed these promotional fees to be
personal holding company income12but later conformed to the
decision of the respondent court rejecting this assertion.13In
fact, as the said court found, the amount was earned through the
joint efforts of the persons among whom it was distributed It has
been established that the Philippine Sugar Estate Development
Company had earlier appointed Algue as its agent, authorizing it to
sell its land, factories and oil manufacturing process. Pursuant to
such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel
Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the
formation of the Vegetable Oil Investment Corporation, inducing
other persons to invest in it.14Ultimately, after its incorporation
largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties.15For this sale, Algue
received as agent a commission of P126,000.00, and it was from this
commission that the P75,000.00 promotional fees were paid to the
aforenamed individuals.16There is no dispute that the payees duly
reported their respective shares of the fees in their income tax
returns and paid the corresponding taxes thereon.17The Court of Tax
Appeals also found, after examining the evidence, that no
distribution of dividends was involved.18The petitioner claims that
these payments are fictitious because most of the payees are
members of the same family in control of Algue. It is argued that
no indication was made as to how such payments were made, whether
by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt
to evade a legitimate assessment by involving an imaginary
deduction.We find that these suspicions were adequately met by the
private respondent when its President, Alberto Guevara, and the
accountant, Cecilia V. de Jesus, testified that the payments were
not made in one lump sum but periodically and in different amounts
as each payee's need arose.19It should be remembered that this was
a family corporation where strict business procedures were not
applied and immediate issuance of receipts was not required. Even
so, at the end of the year, when the books were to be closed, each
payee made an accounting of all of the fees received by him or her,
to make up the total of P75,000.00.20Admittedly, everything seemed
to be informal. This arrangement was understandable, however, in
view of the close relationship among the persons in the family
corporation.We agree with the respondent court that the amount of
the promotional fees was not excessive. The total commission paid
by the Philippine Sugar Estate Development Co. to the private
respondent was P125,000.00.21After deducting the said fees, Algue
still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it
was the payees who did practically everything, from the formation
of the Vegetable Oil Investment Corporation to the actual purchase
by it of the Sugar Estate properties. This finding of the
respondent court is in accord with the following provision of the
Tax Code:SEC. 30.Deductions from gross income.--In computing net
income there shall be allowed as deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or
business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; ...22and
Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70.Compensation for personal services.--Among the ordinary
and necessary expenses paid or incurred in carrying on any trade or
business may be included a reasonable allowance for salaries or
other compensation for personal services actually rendered. The
test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for
service. This test and deductibility in the case of compensation
payments is whether they are reasonable and are, in fact, payments
purely for service. This test and its practical application may be
further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as
the purchase price of services, is not deductible. (a) An
ostensible salary paid by a corporation may be a distribution of a
dividend on stock. This is likely to occur in the case of a
corporation having few stockholders, Practically all of whom draw
salaries. If in such a case the salaries are in excess of those
ordinarily paid for similar services, and the excessive payment
correspond or bear a close relationship to the stockholdings of the
officers of employees, it would seem likely that the salaries are
not paid wholly for services rendered, but the excessive payments
are a distribution of earnings upon the stock. . . . (Promulgated
Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were
not in the regular employ of Algue nor were they its controlling
stockholders.23The Solicitor General is correct when he says that
the burden is on the taxpayer to prove the validity of the claimed
deduction. In the present case, however, we find that the onus has
been discharged satisfactorily. The private respondent has proved
that the payment of the fees was necessary and reasonable in the
light of the efforts exerted by the payees in inducing investors
and prominent businessmen to venture in an experimental enterprise
and involve themselves in a new business requiring millions of
pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.It is said that taxes are what we pay for civilization
society. Without taxes, the government would be paralyzed for lack
of the motive power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one's hard earned income to
the taxing authorities, every person who is able to must contribute
his share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance
their moral and material values. This symbiotic relationship is the
rationale of taxation and should dispel the erroneous notion that
it is an arbitrary method of exaction by those in the seat of
power.But even as we concede the inevitability and indispensability
of taxation, it is a requirement in all democratic regimes that it
be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks
if the taxpayer can demonstrate, as it has here, that the law has
not been observed.We hold that the appeal of the private respondent
from the decision of the petitioner was filed on time with the
respondent court in accordance with Rep. Act No. 1125. And we also
find that the claimed deduction by the private respondent was
permitted under the Internal Revenue Code and should therefore not
have been disallowed by the petitioner.ACCORDINGLY, the appealed
decision of the Court of Tax Appeals is AFFIRMEDin toto,without
costs.
SO ORDERED.
G.R. No. 99886 March 31, 1993
JOHN H. OSMEA,petitioner,vs.OSCAR ORBOS, in his capacity as
Executive Secretary; JESUS ESTANISLAO, in his capacity as Secretary
of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the
Office of Energy Affairs; REX V. TANTIONGCO, and the ENERGY
REGULATORY BOARD,respondents.
The petitioner seeks the corrective,1prohibitive and coercive
remedies provided by Rule 65 of the Rules of Court,2upon the
following posited grounds,viz.:31) the invalidity of the "TRUST
ACCOUNT" in the books of account of the Ministry of Energy (now,
the Office of Energy Affairs), created pursuant to 8, paragraph 1,
of P.D. No. 1956, as amended, "said creation of a trust fund being
contrary to Section 29 (3), Article VI of the . . Constitution;42)
the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as
amended by Executive Order No. 137, for "being an undue and invalid
delegation of legislative power . .to the Energy Regulatory
Board;"53) the illegality of the reimbursements to oil companies,
paid out of the Oil Price Stabilization Fund,6because it
contravenes 8, paragraph 2 (2) ofP. D. 1956, as amended; and4) the
consequent nullity of the Order dated December 10, 1990 and the
necessity of a rollback of the pump prices and petroleum products
to the levels prevailing prior to the said Order.
It will be recalled that on October 10, 1984, President
Ferdinand Marcos issued P.D. 1956 creating a Special Account in the
General Fund, designated as the Oil Price Stabilization Fund
(OPSF). The OPSF was designed to reimburse oil companies for cost
increases in crude oil and imported petroleum products resulting
from exchange rate adjustments and from increases in the world
market prices of crude oil.Subsequently, the OPSF was reclassified
into a "trust liability account," in virtue of E.O. 1024,7and
ordered released from the National Treasury to the Ministry of
Energy. The same Executive Order also authorized the investment of
the fund in government securities, with the earnings from such
placements accruing to the fund.President Corazon C. Aquino,
amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, expanding the grounds for reimbursement to oil
companies for possiblecost underrecoveryincurred as a result of the
reduction of domestic prices of petroleum products, the amount of
the underrecovery being left for determination by the Ministry of
Finance.
Now, the petition alleges that the status of the OPSF as of
March 31, 1991 showed a "Terminal Fund Balance deficit" of some
P12.877 billion;8that to abate the worsening deficit, "the Energy
Regulatory Board . .issued an Order on December 10, 1990, approving
the increase in pump prices of petroleum products," and at the rate
of recoupment, the OPSF deficit should have been fully covered in a
span of six (6) months, but this notwithstanding, the respondents
Oscar Orbos, in his capacity as Executive Secretary; Jesus
Estanislao, in his capacity as Secretary of Finance; Wenceslao de
la Paz, in his capacity as Head of the Office of Energy Affairs;
Chairman Rex V. Tantiongco and the Energy Regulatory Board "are
poised to accept, process and pay claims not authorized under P.D.
1956."9The petition further avers that the creation of the trust
fund violates 29(3), Article VI of the Constitution, reading as
follows:
(3) All money collected on any tax levied for a special purpose
shall be treated as a special fund and paid out for such purposes
only. If the purpose for which a special fund was created has been
fulfilled or abandoned, the balance, if any, shall be transferred
to the general funds of the Government.
The petitioner argues that "the monies collected pursuant to . .
P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,' not as
a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom
shall 'be treated as a special fund' to be used only for the
purpose indicated, and not channeled to another government
objective."10Petitioner further points out that since "a 'special
fund' consists of monies collected through the taxing power of a
State,such amounts belong to the State, although the use thereof is
limited to the special purpose/objective for which it was
created."11He also contends that the "delegation of legislative
authority" to the ERB violates 28 (2). Article VI of the
Constitution,viz.:
(2) The Congress may, by law, authorize the President to fix,
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts
within the framework of the national development program of the
Government;
and, inasmuch as the delegation relates to the exercise of the
power of taxation, "the limits, limitations and restrictions must
be quantitative, that is, the law must not only specify how to tax,
who (shall) be taxed (and) what the tax is for, but also impose a
specific limit on how much to tax."12The petitioner does not
suggest that a "trust account" is illegalper se, but maintains that
the monies collected, which form part of the OPSF, should be
maintained in aspecial accountof the general fund for the reason
that the Constitution so provides, and because they are,
supposedly,taxes levied for a special purpose. He assumes that the
Fund is formed from a tax undoubtedly because a portion thereof is
taken from collections ofad valoremtaxes and the increases
thereon.
It thus appears that the challenge posed by the petitioner is
premised primarily on the view that the powers granted to the ERB
under P.D. 1956, as amended, partake of the nature of the taxation
power of the State. The Solicitor General observes that the
"argument rests on the assumption that the OPSF is a form of
revenue measure drawing from a special tax to be expended for a
special purpose."13The petitioner's perceptions are, in the Court's
view, not quite correct.To address this critical misgiving in the
position of the petitioner on these issues, the Court recalls its
holding inValmonte v. Energy Regulatory Board, et al.14The
foregoing arguments suggest the presence of misconceptions about
the nature and functions of the OPSF. The OPSF is a "Trust Account"
which was established "for the purpose of minimizing the frequent
price changes brought about by exchange rate adjustment and/or
changes in world market prices of crude oil and imported petroleum
products."15Under P.D. No. 1956, as amended by Executive Order No.
137 dated 27 February 1987, this Trust Account may be funded from
any of the following sources:a) Any increase in the tax collection
from ad valorem tax or customs duty imposed on petroleum
productssubject to tax under this Decreearising from exchange rate
adjustment, as may be determined by the Minister of Finance in
consultation with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting
of tax exemptions of government corporations, as may be determined
by the Minister of Finance in consultation with the Board of
Energy:
c) Any additional amount to be imposed on petroleum productsto
augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons
or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;
d) Any resulting peso cost differentialsin case the actual peso
costs paid by oil companies in the importation of crude oil and
petroleum products is less than the peso costs computed using the
reference foreign exchange rate as fixed by the Board of
Energy.
xxx xxx xxx
The fact that the world market prices of oil, measured by the
spot market in Rotterdam, vary from day to day is of judicial
notice. Freight rates for hauling crude oil and petroleum products
from sources of supply to the Philippines may also vary from time
to time. The exchange rate of the pesovis-a-visthe U.S. dollar and
other convertible foreign currencies also changes from day to day.
These fluctuations in world market prices and in tanker rates and
foreign exchange rates would in a completely free market translate
into corresponding adjustments in domestic prices of oil and
petroleum products with sympathetic frequency. But domestic prices
which vary from day to day or even only from week to week would
result in a chaotic market with unpredictable effects upon the
country's economy in general.The OPSF was established precisely to
protect local consumers from the adverse consequences that such
frequent oil price adjustments may have upon the economy.Thus, the
OPSF serves as a pocket, as it were, into which a portion of the
purchase price of oil and petroleum products paid by consumers as
well as some tax revenues are inputted and from which amounts are
drawn from time to time to reimburse oil companies, when
appropriate situations arise, for increases in, as well as
underrecovery of, costs of crude importation.The OPSF is thus a
buffer mechanism through which the domestic consumer prices of oil
and petroleum products are stabilized, instead of fluctuating every
so often, and oil companies are allowed to recover those portions
of their costs which they would not otherwise recover given the
level of domestic prices existing at any given time.To the extent
that some tax revenues are also put into it, the OPSF is in effect
a device through which the domestic prices of petroleum products
are subsidized in part.It appears to the Court that the
establishment and maintenance of the OPSF is well within that
pervasive and non-waivable power and responsibility of the
government to secure the physical and economic survival and
well-being of the community, that comprehensive sovereign authority
we designate as the police power of the State. The stabilization,
and subsidy of domestic prices of petroleum products and fuel oil
clearly critical in importance considering, among other things, the
continuing high level of dependence of the country on imported
crude oil are appropriately regarded as public purposes.Also of
relevance is this Court's ruling in relation to the sugar
stabilization fund the nature of which is not far different from
the OPSF. InGaston v. Republic Planters Bank,16this Court upheld
the legality of the sugar stabilization fees and explained their
nature and character,viz.:The stabilization fees collected are in
the nature of a tax, which is within the power of the State to
impose for the promotion of the sugar industry (Lutz v. Araneta, 98
Phil. 148). . . .The tax collected is not in a pure exercise of the
taxing power.It is levied with a regulatory purpose, to provide a
means for the stabilization of the sugar industry. The levy is
primarily in the exercise of the police power of the State (Lutz v.
Araneta,supra).
xxx xxx xxx
The stabilization fees in question are levied by the State upon
sugar millers, planters and producers for a special purpose that of
"financing the growth and development of the sugar industry and all
its components, stabilization of the domestic market including the
foreign market." The fact that the State has taken possession of
moneys pursuant to law is sufficient to constitute them state
funds, even though they are held for a special purpose (Lawrence v.
American Surety Co. 263 Mich. 586, 249 ALR 535, cited in 42 Am Jur
Sec. 2, p. 718). Having been levied for a special purpose, the
revenues collected are to be treated as a special fund, to be, in
the language of the statute, "administered in trust" for the
purpose intended. Once the purpose has been fulfilled or abandoned,
the balance if any, is to be transferred to the general funds of
the Government. That is the essence of the trust intended (SEE 1987
Constitution, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(1).17The character of the
Stabilization Fund as a special kind of fund is emphasized by the
fact that the funds are deposited in the Philippine National Bank
and not in the Philippine Treasury, moneys from which may be paid
out only in pursuance of an appropriation made by law (1987)
Constitution, Article VI, Sec. 29 (3), lifted from the 1935
Constitution, Article VI, Sec. 23(1). (Emphasis supplied).
Hence, it seems clear that while the funds collected may be
referred to as taxes, they are exacted in the exercise of the
police power of the State. Moreover, that the OPSF is a special
fund is plain from the special treatment given it by E.O. 137. It
is segregated from the general fund; and while it is placed in what
the law refers to as a "trust liability account," the fund
nonetheless remains subject to the scrutiny and review of the COA.
The Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed, the
practice is not without precedent.With regard to the allegedundue
delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts
on petroleum products provides a sufficient standard by which the
authority must be exercised. In addition to the general policy of
the law to protect the local consumer by stabilizing and
subsidizing domestic pump rates, 8(c) of P.D. 195618expressly
authorizes the ERB to impose additional amountsto augment the
resources of the Fund.What petitioner would wish is the fixing of
some definite, quantitative restriction, or "a specific limit on
how much to tax."19The Court is cited to this requirement by the
petitioner on the premise that what is involved here is the power
of taxation; but as already discussed, this is not the case. What
is here involved is not so much the power of taxation as police
power. Although the provision authorizing the ERB to impose
additional amounts could be construed to refer to the power of
taxation, it cannot be overlooked that the overriding consideration
is to enable the delegate to act with expediency in carrying out
the objectives of the law which are embraced by the police power of
the State.The interplay and constant fluctuation of the various
factors involved in the determination of the price of oil and
petroleum products, and the frequently shifting need to either
augment or exhaust the Fund, do not conveniently permit the setting
of fixed or rigid parameters in the law as proposed by the
petitioner. To do so would render the ERB unable to respond
effectively so as to mitigate or avoid the undesirable consequences
of such fluidity. As such, the standard as it is expressed,
suffices to guide the delegate in the exercise of the delegated
power, taking account of the circumstances under which it is to be
exercised.For a valid delegation of power, it is essential that the
law delegating the power must be (1) complete in itself, that is it
must set forth the policy to be executed by the delegate and (2) it
must fix a standard limits of whichare sufficiently determinate or
determinable to which the delegate must conform.20. . . As pointed
out in Edu v. Ericta: "To avoid the taint of unlawful delegation,
there must be a standard, which implies at the very least that the
legislature itself determines matters of principle and lays down
fundamental policy. Otherwise, the charge of complete abdication
may be hard to repel. A standard thus defines legislative policy,
marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the
legislative command is to be effected. It is the criterion by which
the legislative purpose may be carried out. Thereafter, the
executive or administrative office designated may in pursuance of
the above guidelines promulgate supplemental rules and regulations.
The standard may either be express or implied. If the former, the
non-delegation objection is easily met. The standard though does
not have to be spelled out specifically. It could be implied from
the policy and purpose of the act considered as a whole.21It would
seem that from the above-quoted ruling, the petition for
prohibition should fail.
The standard, as the Court has already stated, may even be
implied. In that light, there can be no ground upon which to
sustain the petition, inasmuch as the challenged law sets forth a
determinable standard which guides the exercise of the power
granted to the ERB. By the same token, the proper exercise of the
delegated power may be tested with ease. It seems obvious that what
the law intended was to permit the additional imposts for as long
as there exists a need to protect the general public and the
petroleum industry from the adverse consequences of pump rate
fluctuations. "Where the standards set up for the guidance of an
administrative officer and the action taken are in fact recorded in
the orders of such officer, so that Congress, the courts and the
public are assured that the orders in the judgment of such officer
conform to the legislative standard, there is no failure in the
performance of the legislative functions."22This Court thus finds
no serious impediment to sustaining the validity of the
legislation; the express purpose for which the imposts are
permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon
which the delegation of power may be justified.
In relation to the third question respecting the illegality of
the reimbursements to oil companies, paid out of the Oil Price
Stabilization Fund, because allegedly in contravention of 8,
paragraph 2 (2) of P.D. 1956, amended23 the Court finds for the
petitioner.The petition assails the payment of certain items or
accounts in favor of the petroleum companies (i.e., inventory
losses, financing charges, fuel oil sales to the National Power
Corporation, etc.) because not authorized by law. Petitioner
contends that "these claims are not embraced in the enumeration in
8 of P.D. 1956 . . since none of them was incurred'as a result of
the reduction of domestic prices of petroleum products,'"24and
since these items are reimbursements for which the OPSF should not
have responded, the amount of the P12.877 billion deficit "should
be reduced by P5,277.2 million."25It is argued "that under the
principle ofejusdem generis. . . the term 'other factors' (as used
in 8 of P.D. 1956) . . can only include such 'other factors' which
necessarily result in the reduction of domestic prices of petroleum
products."26The Solicitor General, for his part, contends that
"(t)o place said (term) within the restrictive confines of the rule
ofejusdem generiswould reduce (E.O. 137) to a meaningless
provision."
This Court, inCaltex Philippines, Inc. v. The Honorable
Commissioner on Audit, et al.,27passed upon the application
ofejusdem generisto paragraph 2 of 8 of P.D. 1956,viz.:The rule
ofejusdem generisstates that "[w]here words follow an enumeration
of persons or things, by words of a particular and specific
meaning, such general words are not to be construed in their widest
extent, but are held to be as applying only to persons or things of
the same kind or class as those specifically mentioned."28A reading
of subparagraphs (i) and (ii) easily discloses that they do not
have a common characteristic. The first relates to price reduction
as directed by the Board of Energy while the second refers to
reduction in internalad valoremtaxes. Therefore, subparagraph (iii)
cannot be limited by the enumeration in these subparagraphs. What
should be considered for purposes of determining the "other
factors" in subparagraph (iii) is the first sentence of paragraph
(2) of the Section which explicitly allows the cost underrecovery
only if such were incurred as aresult of the reduction of domestic
prices of petroleum products.The Court thus holds, that the
reimbursement of financing charges is not authorized by paragraph 2
of 8 of P.D. 1956, for the reason that they were not incurred as a
result of the reduction of domestic prices of petroleum products.
Under the same provision, however, the payment of inventory losses
is upheld as valid, being clearly a result of domestic price
reduction, when oil companies incur a cost underrecovery for yet
unsold stocks of oil in inventory acquired at a higher price.
Reimbursement for cost underrecovery from the sales of oil to
the National Power Corporation is equally permissible, not as
coming within the provisions of P.D. 1956, but in virtue of other
laws and regulations as held inCaltex29and which have been pointed
to by the Solicitor General. At any rate, doubts about the
propriety of such reimbursements have been dispelled by the
enactment of R.A. 6952, establishing the Petroleum Price Standby
Fund, 2 of which specifically authorizes the reimbursement of "cost
underrecovery incurred as a result of fuel oil sales to the
National Power Corporation."Anent the overpayment refunds mentioned
by the petitioner, no substantive discussion has been presented to
show how this is prohibited by P.D. 1956. Nor has the Solicitor
General taken any effort to defend the propriety of this refund. In
fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments
for or against the legality of the so-called overpayment refunds.
To be sure, the absence of any argument for or against the validity
of the refund cannot result in its disallowance by the Court.
Unless the impropriety or illegality of the overpayment refund has
been clearly and specifically shown, there can be no basis upon
which to nullify the same.
Finally, the Court finds no necessity to rule on the remaining
issue, the same having been rendered moot and academic. As of date
hereof, the pump rates of gasoline have been reduced to levels
below even those prayed for in the petition.
WHEREFORE, the petition is GRANTED insofar as it prays for the
nullification of the reimbursement of financing charges, paid
pursuant to E.O. 137, and DISMISSED in all other respects.SO
ORDERED.
G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966REPUBLIC OF THE
PHILIPPINES,plaintiff-appellee,vs.BACOLOD-MURCIA MILLING CO., INC.,
MA-AO SUGAR CENTRAL CO., INC., and TALISAY-SILAY MILLING
COMPANY,defendants-appellants.
This is a joint appeal by three sugar centrals, Bacolod Murcia
Milling Co., Inc., Ma-ao Sugar Central Co., Inc., and Talisay-Silay
Milling Co., sister companies under one controlling ownership and
management, from a decision of the Court of First Instance of
Manila finding them liable for special assessments under Section 15
of Republic Act No. 632.
Republic Act No. 632 is the charter of the Philippine Sugar
Institute, Philsugin for short, a semi-public corporation created
for the following purposes and objectives:
(a) To conduct research work for the sugar industry in all its
phases, either agricultural or industrial, for the purpose of
introducing into the sugar industry such practices or processes
that will reduce the cost of production, increase and improve the
industrialization of the by-products of sugar cane, and achieve
greater efficiency in the industry;
(b) To improve existing methods of raising sugar cane and of
sugar manufacturing;
(c) To insure a permanent, sufficient and balanced production of
sugar and its by-products for local consumption and
exportation;
(d) To establish and maintain such balanced relation between
production and consumption of sugar and its by-products, and such
marketing conditions therefor, as well insure stabilized prices at
a level sufficient to cover the cost of production plus a
reasonable profit;
(e) To promote the effective merchandising of sugar and its
by-products in the domestic and foreign markets so that those
engaged in the sugar industry will be placed on a basis of economic
security; and
(f) To improve the living and economic conditions of laborers
engaged in the sugar industry by the gradual and effective
correction of the inequalities existing in the industry. (Section
2, Rep. Act 632)
To realize and achieve these ends, Sections 15 and 16 of the
aforementioned law provide:
Sec. 15.Capitalization. To raise the necessary funds to carry
out the provisions of this Act and the purposes of the corporation,
there shall be levied on the annual sugar production a tax of TEN
CENTAVOS [P0.10] per picul of sugar to be collected for a period of
five (5) years beginning the crop year 1951-1952. The amount shall
be borne by the sugar cane planters and the sugar centrals in the
proportion of their corresponding milling share, and said levy
shall constitute a lien on their sugar quedans and/or warehouse
receipts.
Sec. 16.Special Fund. The proceeds of the foregoing levy shall
be set aside to constitute a special fund to be known as the "Sugar
Research and Stabilization Fund," which shall be available
exclusively for the use of the corporation. All the income and
receipts derived from the special fund herein created shall accrue
to, and form part of the said fund to be available solely for the
use of the corporation.
The specific and general powers of the Philsugin are set forth
in Section 8 of the same law, to wit:
Sec. 3.Specific and General Powers. For carrying out the
purposes mentioned in the preceding section, the PHILSUGIN shall
have the following powers:
(a) To establish, keep, maintain and operate, or help establish,
keep, maintain, and operate one central experiment station and such
number of regional experiment stations in any part of the
Philippines as may be necessary to undertake extensive research in
sugar cane culture and manufacture, including studies as to the
feasibility of merchandising sugar cane farms, the control and
eradication of pests, the selected and propagation of high-yielding
varieties of sugar cane suited to Philippine climatic conditions,
and such other pertinent studies as will be useful in adjusting the
sugar industry to a position independent of existing trade
preference in the American market;
(b) To purchase such machinery, materials, equipment and
supplies as may be necessary to prosecute successfully such
researches and experimental work;
(c) To explore and expand the domestic and foreign markets for
sugar and its by-products to assure mutual benefits to consumers
and producers, and to promote and maintain a sufficient general
production of sugar and its by-products by an efficient
coordination of the component elements of the sugar industry of the
country;
(d) To buy, sell, assign, own, operate, rent or lease, subject
to existing laws, machineries, equipment, materials, merchant
vessels, rails, railroad lines, and any other means of
transportation, warehouses, buildings, and any other equipment and
material to the production, manufacture, handling, transportation
and warehousing of sugar and its by-products;
(e) To grant loans, on reasonable terms, to planters when it
deems such loans advisable;
(f) To enter, make and execute contracts of any kind as may be
necessary or incidental to the attainment of its purposes with any
person, firm, or public or private corporation, with the Government
of the Philippines or of the United States, or any state,
territory, or persons therefor, or with any foreign government and,
in general, to do everything directly or indirectly necessary or
incidental to, or in furtherance of, the purposes of the
corporation;
(g) To do all such other things, transact all such business and
perform such functions directly or indirectly necessary, incidental
or conducive to the attainment of the purposes of the corporation;
and
(h) Generally, to exercise all the powers of a Corporation under
the Corporation Law insofar as they are not inconsistent with the
provisions of this Act.
The facts of this case bearing relevance to the issue under
consideration, as recited by the lower court and accepted by the
appellants, are the following:
x x x during the 5 crop years mentioned in the law, namely
1951-1952, 1952-1953, 1953-1954, 1954-1955 and 1955-1956, defendant
Bacolod-Murcia Milling Co., Inc., has paid P267,468.00 but left an
unpaid balance of P216,070.50; defendant Ma-ao Sugar Central Co.,
Inc., has paid P117,613.44 but left unpaid balance of P235,800.20;
defendant Talisay-Silay Milling Company has paid P251,812.43 but
left unpaid balance of P208,193.74; and defendant Central Azucarera
del Danao made a payment of P49,897.78 but left unpaid balance of
P48,059.77. There is no question regarding the correctness of the
amounts paid and the amounts that remain unpaid.
From the evidence presented, on which there is no controversy,
it was disclosed that on September 3, 1951, the Philippine Sugar
Institute, known as the PHILSUGIN for short, acquired the Insular
Sugar Refinery for a total consideration of P3,070,909.60 payable,
in accordance with the deed of sale Exhibit A, in 3 installments
from the process of the sugar tax to be collected, under Republic
Act 632. The evidence further discloses that the operation of the
Insular Sugar Refinery for the years, 1954, 1955, 1956 and 1957 was
disastrous in the sense that PHILSUGIN incurred tremendous losses
as shown by an examination of the statements of income and expenses
marked Exhibits 5, 6, 7 and 8. Through the testimony of Mr. Cenon
Flor Cruz, former acting general manager of PHILSUGIN and at
present technical consultant of said entity, presented by the
defendants as witnesses, it has been shown that the operation of
the Insular Sugar Refinery has consumed 70% of the thinking time
and effort of the PHILSUGIN management. x x x .
Contending that the purchase of the Insular Sugar Refinery with
money from the Philsugin Fund was not authorized by Republic Act
632 and that the continued operation of the said refinery was
inimical to their interests, the appellants refused to continue
with their contributions to the said fund. They maintained that
their obligation to contribute or pay to the said Fund subsists
only to the limit and extent that they are benefited by such
contributions since Republic Act 632 is not a revenue measure but
an Act which establishes a "Special assessments." Adverting to the
finding of the lower court that proceeds of the said Fund had been
used or applied to absorb the "tremendous losses" incurred by
Philsugin in its "disastrous operation" of the said refinery, the
appellants herein argue that they should not only be released from
their obligation to pay the said assessment but be refunded,
besides, of all that they might have previously paid thereunder.The
appellants' thesis is simply to the effect that the "10 centavos
per picul of sugar" authorized to be collected under Sec. 15 of
Republic 632 is a special assessment. As such, the proceeds thereof
may be devoted only to the specific purpose for which the
assessment was authorized, a special assessment being a levy upon
property predicated on the doctrine that the property against which
it is levied derives some special benefit from the improvement. It
is not a tax measure intended to raise revenues for the Government.
Consequently, once it has been determined that no benefit accrues
or inures to the property owners paying the assessment, or that the
proceeds from the said assessment are being misapplied to the
prejudice of those against whom it has been levied, then the
authority to insist on the payment of the said assessment ceases.On
the other hand, the lower court adjudged the appellants herein
liable under the aforementioned law, Republic Act 632, upon the
following considerations:
First, Subsection d) of Section 3 of Republic Act 632 authorizes
Philsugin to buy and operate machineries, equipment, merchant
vessels, etc., and any other equipment and material for the
production, manufacture, handling, transportation and warehousing
of sugar and its by-products. It was, therefore, authorized to
purchase and operate a sugar refinery.
Secondly, the corporate powers of the Philsugin are vested in
and exercised by a board of directors composed of 5 members, 3 of
whom shall be appointed upon recommendation of the National
Federation of Sugar Cane Planters and 2 upon recommendation of the
Philippine Sugar Association. (Sec. 4, Rep. Act 632). It has not
been shown that this particular provision was not observed in this
case. Therefore, the appellants herein may not rightly claim that
there had been a misapplication of the Philsugin funds when the
same was used to procure the Insular Sugar Refinery because the
decision to purchase the said refinery was made by a board in which
the applicants were fully and duly represented, the appellants
being members of the Philippine Sugar Association.
Thirdly, all financial transactions of the Philsugin are audited
by the General Auditing Office, which must be presumed to have
passed upon the legality and prudence of the disbursements of the
Fund. Additionally, other offices of the Government review such
transactions as reflected in the annual report obliged of the
Philsugin to prepare. Among those offices are the Office of the
President of the Philippines, the Administrator of Economic
Coordination and the Presiding Officers of the two chambers of
Congress. With all these safeguards against any imprudent or
unauthorized expenditure of Philsugin Funds, the acquisition of the
Insular Sugar Refinery must be upheld in its legality and
propriety.
Fourthly, it would be dangerous to sanction the unilateral
refusal of the appellants herein to continue with their
contribution to the Fund for that conduct is no different "from the
case of an ordinary taxpayer who refuses to pay his taxes on the
ground that the money is being misappropriated by Government
officials." This is taking the law into their own hands.Against the
above ruling of the trial court, the appellants contend:
First. It is fallacious to argue that no mismanagement or abuse
of corporate power could have been committed by Philsugin solely
because its charter incorporates so many devices or safeguards to
preclude such abuse. This reasoning of the lower court does not
reconcile with that actually happened in this case.
Besides, the appellants contend that the issue on hand is not
whether Philsugin abused or not its powers when it purchased the
Insular Sugar Refinery. The issue, rather, is whether Philsugin had
any power or authority at all to acquire the said refinery. The
appellants deny that Philsugin is possessed of any such authority
because what it is empowered to purchase is not a "sugar refinery
but a central experiment station or perhaps at the most a sugar
central to be used for that purpose." (Sec. 3[a], Rep. Act 632) For
this distinction, the appellants cite the case ofCollector vs.
Ledesma, G.R. No. L-12158, May 27, 1959, in which this Court ruled
that We are of the opinion that a "sugar central," as that term is
used in Section 189, applies to "a large mill that makes sugar out
of the cane brought from a wide surrounding territory," or a sugar
mill which manufactures sugar for a number of plantations. The term
"sugar central" could not have been intended by Congress to refer
to all sugar mills or sugar factories as contended by respondent.
If respondent's interpretation is to be followed, even sugar mills
run by animal power (trapiche) would be considered sugar central.
We do not think Congress ever intended to place owners of
(trapiches) in the same category as operators of sugar
centrals.
That sugar mills are not the same as sugar centrals may also be
gleaned from Commonwealth Act No. 470 (Assessment Law). In
prescribing the principle governing valuation and assessment of
real property. Section 4 of said Act provides
"Machinery permanently used or in stalled in sugar centrals,
mills, or refineries shall be assessed."
This clearly indicates that "Sugar centrals" are not the same as
"sugar mills" or "sugar refineries."
Second. The appellants' refusal to continue paying the
assessment under Republic Act 632 may not rightly be equated with a
taxpayer's refusal to pay his ordinary taxes precisely because
there is a substantial distinction between a "special assessment"
and an ordinary tax. The purpose of the former is to finance the
improvement of particular properties, with the benefits of the
improvement accruing or inuring to the owners thereof who, after
all, pay the assessment. The purpose of an ordinary tax, on the
other hand, is to provide the Government with revenues needed for
the financing of state affairs. Thus, while the refusal of a
citizen to pay his ordinary taxes may not indeed be sanctioned
because it would impair government functions, the same would not
hold true in the case of a refusal to comply with a special
assessment.
Third. Upon a host of decisions of the United States Supreme
Court, the imposition or collection of a special assessment upon
property owners who receive no benefit from such assessment amounts
to a denial of due process. Thus, in the case ofNorwood vs. Baer,
172 US 269, the ruling was laid down that
As already indicated, the principle underlying special
assessments to meet the cost of public improvements is that the
property upon which they are imposed is peculiarly benefited, and
therefore, the panels do not, in fact, pay anything in excess of
what they received by reason of such improvement.
unless a corresponding benefit is realized by the property
owner, the exaction of a special assessment would be "manifestly
unfair" (Seattle vs. Kelleher 195 U.S. 351) and "palpably arbitrary
or plain abuse" (Gast Realty Investment Co. vs. Schneider Granite
Co., 240 U.S. 57). In other words, the assessment is violative of
the due process guarantee of the constitution (Memphis vs.
Charleston Ry v. Pace, 282 U.S. 241).
We find for the appellee.
The nature of a "special assessment" similar to the case at bar
has already been discussed and explained by this Court in the case
ofLutz vs. Araneta, 98 Phil. 148. For in this Lutz case,
Commonwealth Act 567, otherwise known as the Sugar Adjustment Act,
levies on owners or persons in control of lands devoted to the
cultivation of sugar cane and ceded to others for a consideration,
on lease or otherwise
a tax equivalent to the difference between the money value of
the rental or consideration collected and the amount representing
12 per centum of the assessed value of such land. (Sec.
3).1wph1.tUnder Section 6 of the said law, Commonwealth Act 567,
all collections made thereunder "shall accrue to a special fund in
the Philippine Treasury, to be known as the 'Sugar Adjustment and
Stabilization Fund,' and shall be paid out only for any or all of
the following purposes or to attain any or all of the following
objectives, as may be provided by law." It then proceeds to
enumerate the said purposes, among which are "to place the sugar
industry in a position to maintain itself; ... to readjust the
benefits derived from the sugar industry ... so that all might
continue profitably to engage therein; to limit the production of
sugar to areas more economically suited to the production thereof;
and to afford laborers employed in the industry a living wage and
to improve their living and working conditions.
The plaintiff in the above case, Walter Lutz, contended that the
aforementioned tax or special assessment was unconstitutional
because it was being "levied for the aid and support of the sugar
industry exclusively," and therefore, not for a public purpose. In
rejecting the theory advanced by the said plaintiff, this Court
said:
The basic defect in the plaintiff's position in his assumption
that the tax provided for in Commonwealth Act No. 567 is a pure
exercise of the taxing power. Analysis of the Act, and particularly
Section 6, will show that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization
of the threatened sugar industry.In other words, the act is
primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar
production is one of the great industries of our nation, sugar
occupying a leading position among its export products; that it
gives employment to thousands of laborers in fields and factories;
that it is a great source of the state's wealth, is one, of the
important sources to foreign exchange needed by our government, and
is thus pivotal in the plans of a regime committed to a policy of
currency stability. Its promotion, protection and advancement,
therefore redounds greatly to the general welfare. Hence, it was
competent for the Legislature to find that the general welfare
demanded that the sugar industry should be stabilized in turn; and
in the wide field of its police power, the law-making body could
provide that the distribution of benefits therefrom be readjusted
among its components, to enable it to resist the added strain of
the increase in taxes that it had to sustain (Sligh vs. Kirkwood,
237 U.S. 52, 59 L. Ed. 835; Johnson vs. Stateex rel.Marey, 99 Fla.
1311, 128 So. 853; Marcy Inc. vs. Mayo, 103 Fla. 552, 139 So.
121)
As stated inJohnson vs. State ex rel.Marcy, with reference to
the citrus industry in Florida
"The protection of a large industry constituting one of the
great source of the state's wealth and therefore directly or
indirectly affecting the welfare of so great a portion of the
population of the State is affected to such an extent by public
interests as to be within the police power of the sovereign." (128
So. 857).
Once it is conceded, as it must that the protection and
promotion of the sugar industry is a matter of public concern, it
follows that the Legislature may determine within reasonable bounds
what is necessary for its protection and expedient for its
promotion. Here, the legislative discretion must be allowed full
play, subject only to the test of reasonableness; and it is not
contended that the means provided in Section 6 of the law (above
quoted) bear no relation to the objective pursued or are oppressive
in character. If objective and methods are alike constitutionally
valid, no reason is seen why the state may not levy taxes to raise
funds for their prosecution and attainment. Taxation may be made
the implement of the state's police power. (Great Atl. & Pac.
Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs.
Butler, 297 U.S. 1, 80 L. Ed. 477; M'cullock vs. Maryland, 4 Wheat.
316, 4 L. Ed. 579).
On the authority of the above case, then, We hold that the
special assessment at bar may be considered as similarly as the
above, that is, that the levy for the Philsugin Fund is not so much
an exercise of the power of taxation, nor the imposition of a
special assessment, but, the exercise of the police power for the
general welfare of the entire country. It is, therefore, an
exercise of a sovereign power which no private citizen may lawfully
resist.Besides, under Section 2(a) of the charter, the Philsugin is
authorized "to conduct research work for the sugar industryin all
its phases, either agricultural or industrial, for the purpose of
introducing into the sugar industry such practices or processes
that will reduce the cost of production, ..., and achieve greater
efficiency in the industry." This provision, first of all, more
than justifies the acquisition of the refinery in question. The
case dispute that the operation of a sugar refinery is a phase of
sugar production and that from such operation may be learned
methods of reducing the cost of sugar manufactured no less than it
may afford the opportunity to discover the more effective means of
achieving progress in the industry. Philsugin's experience alone of
running a refinery is a gain to the entire industry. That the
operation resulted in a financial loss is by no means an index that
the industry did not profit therefrom, as other farms of a
different nature may have been realized. Thus, from its financially
unsuccessful venture, the Philsugin could very well have advanced
in its appreciation of the problems of management faced by sugar
centrals. It could have understood more clearly the difficulties of
marketing sugar products. It could have known with better intimacy
the precise area of the industry in need of the more help from the
government. The view of the appellants herein, therefore, that they
were not benefited by the unsuccessful operation of the refinery in
question is not entirely accurate.
Furthermore, Section 2(a) specifies a field of research which,
indeed, would be difficult to carry out save through the actual
operation of a refinery. Quite obviously, the most practical or
realistic approach to the problem of what "practices or processes"
might most effectively cut the cost of production is to experiment
on production itself. And yet, how can such an experiment be
carried out without the tools, which is all that a refinery is?
In view of all the foregoing, the decision appealed from is
hereby affirmed, with costs.
G.R. No. L-75697 June 18, 1987
VALENTIN TIO doing business under the name and style of OMI
ENTERPRISES,petitioner,vs.VIDEOGRAM REGULATORY BOARD, MINISTER OF
FINANCE, METRO MANILA COMMISSION, CITY MAYOR and CITY TREASURER OF
MANILA,respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City
Treasurer.
MELENCIO-HERRERA,J.:This petition was filed on September 1, 1986
by petitioner on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the
constitutionality of Presidential Decree No. 1987 entitled "An Act
Creating the Videogram Regulatory Board" with broad powers to
regulate and supervise the videogram industry (hereinafter briefly
referred to as the BOARD). The Decree was promulgated on October 5,
1985 and took effect on April 10, 1986, fifteen (15) days after
completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the
abovementioned decree, Presidential Decree No. 1994 amended the
National Internal Revenue Code providing,inter alia:
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.
On October 23, 1986, the Greater Manila Theaters Association,
Integrated Movie Producers, Importers and Distributors Association
of the Philippines, and Philippine Motion Pictures Producers
Association, hereinafter collectively referred to as the
Intervenors, were permitted by the Court to intervene in the case,
over petitioner's opposition, upon the allegations that
intervention was necessary for the complete protection of their
rights and that their "survival and very existence is threatened by
the unregulated proliferation of film piracy." The Intervenors were
thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in
its preambular clauses as follows:
1. WHEREAS, 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 moviehouses and theaters, and 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;
2. WHEREAS, videogram(s) establishments collectively earn around
P600 Million per annum from rentals, sales and disposition of
videograms, and such earnings have not been subjected to tax,
thereby depriving the Government of approximately P180 Million in
taxes each year;
3. WHEREAS, the unregulated activities of videogram
establishments have also affected the viability of the movie
industry, particularly the more than 1,200 movie houses and
theaters throughout the country, and occasioned industry-wide
displacement and unemployment due to the shutdown of numerous
moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it
is imperative for the Government to create an environment conducive
to growth and development of all business industries, including the
movie industry which has an accumulated investment of about P3
Billion;
5. WHEREAS, proper taxation of the activities of videogram
establishments will not only alleviate the dire financial condition
of the movie industry upon which more than 75,000 families and
500,000 workers depend for their livelihood, but also provide an
additional source of revenue for the Government, and at the same
time rationalize the heretofore uncontrolled distribution of
videograms;
6. WHEREAS, the rampant and unregulated showing of obscene
videogram features constitutes a clear and present danger to the
moral and spiritual well-being of the youth, and impairs the
mandate of the Constitution for the State to support the rearing of
the youth for civic efficiency and the development of moral
character and promote their physical, intellectual, and social
well-being;
7. WHEREAS, civic-minded citizens and groups have called for
remedial measures to curb these blatant malpractices which have
flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the
moral values of the people and betraying the national economic
recovery program, bold emergency measures must be adopted with
dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests
on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross
receipts payable to the local government is a RIDER and the same is
not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in
unlawful restraint of trade in violation of the due process clause
of the Constitution;
3. There is no factual nor legal basis for the exercise by the
President of the vast powers conferred upon him by Amendment No.
6;
4. There is undue delegation of power and authority;
5. The Decree is anex-post factolaw; and
6. There is over regulation of the video industry as if it were
a nuisance, which it is not.
We shall consider the foregoing objections inseriatim.
1. The Constitutional requirement that "every bill shall embrace
only one subject which shall be expressed in the title thereof"1is
sufficiently complied with if the title be comprehensive enough to
include the general purpose which a statute seeks to achieve. It is
not necessary that the title express each and every end that the
statute wishes to accomplish. The requirement is satisfied if all
the parts of the statute are related, and are germane to the
subject matter expressed in the title, or as long as they are not
inconsistent with or foreign to the general subject and title.2An
act having a single general subject, indicated in the title, may
contain any number of provisions, no matter how diverse they may
be, so long as they are not inconsistent with or foreign to the
general subject, and may be considered in furtherance of such
subject by providing for the method and means of carrying out the
general object."3The rule also is that the constitutional
requirement as to the title of a bill should not be so narrowly
construed as to cripple or impede the power of legislation.4It
should be given practical rather than technical
construction.5Tested by the foregoing criteria, petitioner's
contention that the tax provision of the DECREE is a rider is
without merit. That section reads,inter alia:
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 acrrue 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.
xxx xxx xxx
The foregoing provision is allied and germane to, and is
reasonably necessary for the accomplishment of, the general object
of the DECREE, which is the regulation of the video industry
through the Videogram Regulatory Board as expressed in its title.
The tax provision is not inconsistent with, nor foreign to that
general subject and title. As a tool for regulation6it is simply
one of the regulatory and control mechanisms scattered throughout
the DECREE. The express purpose of the DECREE to include taxation
of the video industry in order to regulate and rationalize the
heretofore uncontrolled distribution of videograms is evident from
Preambles 2 and 5,supra. Those preambles explain the motives of the
lawmaker in presenting the measure. The title of the DECREE, which
is the creation of the Videogram Regulatory Board, is comprehensive
enough to include the purposes expressed in its Preamble and
reasonably covers all its provisions. It is unnecessary to express
all those objectives in the title or that the latter be an index to
the body of the DECREE.72. Petitioner also submits that the thirty
percent (30%) tax imposed is harsh and oppressive, confiscatory,
and in restraint of trade. However, it is beyond serious question
that a tax does not cease to be valid merely because it regulates,
discourages, or even definitely deters the activities taxed.8The
power to impose taxes is one so unlimited in force and so searching
in extent, that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it.9In imposing a tax,
the legislature acts upon its constituents. This is, in general, a
sufficient security against erroneous and oppressive taxation.10The
tax imposed by the DECREE is not only a regulatory but also a
revenue measure prompted by the realization that earnings of
videogram establishments of around P600 million per annum have not
been subjected to tax, thereby depriving the Government of an
additional source of revenue. It is an end-user tax, imposed on
retailers for every videogram they make available for public
viewing. It is similar to the 30% amusement tax imposed or borne by
the movie industry which the theater-owners pay to the government,
but which is passed on to the entire cost of the admission ticket,
thus shifting the tax burden on the buying or the viewing public.
It is a tax that is imposed uniformly on all videogram
operators.
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.
The public purpose of a tax may legally exist even if the motive
which impelled the legislature to impose the tax was to favor one
industry over another.11It is inherent in the power to tax that a
state be free to select the subjects of taxation, and it has been
repeatedly held that "inequities which result from a singling out
of one particular class for taxation or exemption infringe no
constitutional limitation".12Taxation has been made the implement
of the state's police power.13At bottom, the rate of tax is a
matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis
for the promulgation of the DECREE by the former President under
Amendment No. 6 of the 1973 Constitution providing that "whenever
in the judgment of the President ... , there exists a grave
emergency or a threat or imminence thereof, or whenever the interim
Batasang Pambansa or the regular National Assembly fails or is
unable to act adequately on any matter for any reason that in his
judgment requires immediate action, he may, in order to meet the
exigency, issue the necessary decrees, orders, or letters of
instructions, which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's
Office aver that the 8th "whereas" clause sufficiently summarizes
the justification in that grave emergencies corroding the moral
values of the people and betraying the national economic recovery
program necessitated bold emergency measures to be adopted with
dispatch. Whatever the reasons "in the judgment" of the then
President, considering that the issue of the validity of the
exercise of legislative power under the said Amendment still pends
resolution in several other cases, we reserve resolution of the
question raised at the proper time.
4. Neither can it be successfully argued that the DECREE
contains an undue delegation of legislative power. The grant in
Section 11 of the DECREE of authority to the BOARD to "solicit the
direct assistance of other agencies and units of the government and
deputize, for a fixed and limited period, the heads or personnel of
such agencies and units to perform enforcement functions for the
Board" is not a delegation of the power to legislate but merely a
conferment of authority or discretion as to its execution,
enforcement, and implementation. "The true distinction is between
the delegation of power to make the law, which necessarily involves
a discretion as to what it shall be, and conferring authority or
discretion as to its execution to be exercised under and in
pursuance of the law. The first cannot be done; to the latter, no
valid objection can be made."14Besides, in the very language of the
decree, the authority of the BOARD to solicit such assistance is
for a "fixed and limited period" with the deputized agencies
concerned being "subject to the direction and control of the
BOARD." That the grant of such authority might be the source of
graft and corruption would not stigmatize the DECREE as
unconstitutional. Should the eventuality occur, the aggrieved
parties will not be without adequate remedy in law.5. The DECREE is
not violative of theex post factoprinciple. Anex post factolaw is,
among other categories, one which "alters the legal rules of
evidence, and authorizes conviction upon less or different
testimony than the law required at the time of the commission of
the offense." It is petitioner's position that Section 15 of the
DECREE in providing that:
All videogram establishments in the Philippines are hereby given
a period of forty-five (45) days after the effectivity of this
Decree within which to register with and secure a permit from the
BOARD to engage in the videogram business and to register with the
BOARD all their inventories of videograms, including videotapes,
discs, cassettes or other technical improvements or variations
thereof, before they could be sold, leased, or otherwise disposed
of. Thereafter any videogram found in the possession of any person
engaged in the videogram business without the required proof of
registration by the BOARD, shall be prima facie evidence of
violation of the Decree, whether the possession of such videogram
be for private showing and/or public exhibition.
raises immediately aprima facieevidence of violation of the
DECREE when the required proof of registration of any videogram
cannot be presented and thus partakes of the nature of anex post
factolaw.
The argument is untenable. As this Court held in the recent case
ofVallarta vs. Court of Appeals, et al.15... it is now well settled
that "there is no constitutional objection to the passage of a law
providing that the presumption of innocence may be overcome by a
contrary presumption founded upon the experience of human conduct,
and enacting what evidence shall be sufficient to overcome such
presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at
858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL
LIMITATIONS, 639-641). And the "legislature may enact that when
certain facts have been proved that they shall be prima facie
evidence of the existence of the guilt of the accused and shift the
burden of proof provided there be a rational connection between the
facts proved and the ultimate facts presumed so that the inference
of the one from proof of the others is not unreasonable and
arbitrary because of lack of connection between the two in common
experience".16Applied to the challenged provision, there is no
question that there is a rational connection between the fact
proved, which is non-registration, and the ultimate fact presumed
which is violation of the DECREE, besides the fact that theprima
faciepresumption of violation of the DECREE attaches only after a
forty-five-day period counted from its effectivity and is,
therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is
being over-regulated and being eased out of existence as if it were
a nuisance. Being a relatively new industry, the need for its
regulation was apparent. 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.17The enactment of the Decree since April 10, 1986 has not
brought about the "demise" of the video industry. On the contrary,
video establishments are seen to have proliferated in many places
notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the
necessity, wisdom and expediency of the DECREE. These
considerations, however, are primarily and exclusively a matter of
legislative concern.
Only congressional power or competence, not the wisdom of the
action taken, may be the basis for declaring a statute invalid.
This is as it ought to be. The principle of separation of powers
has in the main wisely allocated the respective authority of each
department and confined its jurisdiction to such a sphere. There
would then be intrusion not allowable under the Constitution if on
a matter left to the discretion of a coordinate branch, the
judiciary would substitute its own. If there be adherence to the
rule of law, as there ought to be, the last offender should be
courts of justice, to which rightly litigants submit their
controversy precisely to maintain unimpaired the supremacy of legal
norms and prescriptions. The attack on the validity of the
challenged provision likewise insofar as there may be objections,
even if valid and cogent on its wisdom cannot be sustained.18In
fine, petitioner has not overcome the presumption of validity which
attaches to a challenged statute. We find no clear violation of the
Constitution which would justify us in pronouncing Presidential
Decree No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.
G.R. No. L-22356 July 21, 1967REPUBLIC OF THE
PHILIPPINES,plaintiff-appellant,vs.PEDRO B.
PATANAO,defendant-appellee.
Office of the Solicitor General Arturo A. Alafriz, Solicitor A.
B. Afurong and L. O. Gal-lang for plaintiff-appellant.Tranquilino
O. Calo, Jr. for defendant-appellee.ANGELES,J.:This is an appeal
from an order of the Court of First Instance of Agusan in civil
case No. 925, dismissing plaintiff's complaint so far as concerns
the collection of deficiency income taxes for the years 1951, 1953
and 1954 and additional residence taxes for 1951 and 1952, and
requiring the defendant to file his answer with respect to
deficiency income tax for 1955 and residence taxes for
1953-1955.
In the complaint filed by the Republic of the Philippines,
through the Solicitor General, against Pedro B. Patanao, it is
alleged that defendant was the holder of an ordinary timber license
with concession at Esperanza, Agusan, and as such was engaged in
the business of producing logs and lumber for sale during the years
1951-1955; that defendant failed to file income tax returns for
1953 and 1954, and although he filed income tax returns for 1951,
1952 and 1955, the same were false and fraudulent because he did
not report substantial income earned by him from his business; that
in an examination conducted by the Bureau of Internal Revenue on
defendant's income and expenses for 1951-1955, it was ascertained
that the sum of P79,892.75, representing deficiency; income taxes
and additional residence taxes for the aforesaid years, is due from
defendant; that on February 14, 1958, plaintiff, through the Deputy
Commissioner of Internal Revenue, sent a letter of demand with
enclosed income tax assessment to the defendant requiring him to
pay the said amount; that notwithstanding repeated demands the
defendant refused, failed and neglected to pay said taxes; and that
the assessment for the payment of the taxes in question has become
final, executory and demandable, because it was not contested
before the Court of Tax Appeals in accordance with the provisions
of section 11 of Republic Act No. 1125.Defendant moved to dismiss
the complaint on two grounds, namely: (1) that the action is barred
by prior judgment, defendant having been acquitted in criminal
cases Nos. 2089 and 2090 of the same court, which were prosecutions
for failure to file income tax returns and for non-payment of
income taxes; and (2) that the action has prescribed.
After considering the motion to dismiss, the opposition thereto
and the rejoinder to the opposition, the lower court entered the
order appealed from, holding that the only cause of action left to
the plaintiff in its complaint is the collection of the income tax
due for the taxable year 1955 and the residence tax (Class B) for
1953, 1954 and 1955. A motion to reconsider said order was denied,
whereupon plaintiff interposed the instant appeal, which was
brought directly to this Court, the questions involved being purely
legal.The conclusion of the trial court, that the present action is
barred by prior judgment, is anchored on the following
rationale:
There is no question that the defendant herein has been accused
in Criminal Cases Nos. 2089 and 2090 of this Court for not filing
his income tax returns and for non-payment of income taxes for the
years 1953 and 1954. In both cases, he was acquitted. The rule in
this jurisdiction is that the accused once acquitted is exempt from
both criminal and civil responsibility because when a criminal
action is instituted, civil action arising from the same offense is
impliedly instituted unless the offended party expressly waives the
civil action or reserves the right to file it separately. In the
criminal cases abovementioned wherein the defendant was completely
exonerated, there was no waiver or reservation to file a separate
civil case so that the failure to obtain conviction on a charge of
non-payment of income taxes is fatal to any civil action to collect
the payment of said taxes.1wph1.tPlaintiff-appellant assails the
ruling as erroneous. Defendant-appellee on his part urges that it
should be maintained.
In applying the principle underlying the civil liability of an
offender under the Penal Code to a case involving the collection of
taxes, the courta quofell into error. The two cases are
circumscribed by factual premises which are diametrically opposed
to each either, and are founded on entirely different philosophies.
Under the Penal Code the civil liability is incurred by reason of
the offender's criminal act. Stated differently, the criminal
liability gives birth to the civil obligation such that generally,
if one is not criminally liable under the Penal Code, he cannot
become civilly liable thereunder. The situation under the income
tax law is the exact opposite. Civil liability to pay taxes arises
from the fact, for instance, that one has engaged himself in
business, and not because of any criminal act committed by him. The
criminal liability arises upon failure of the debtor to satisfy his
civil obligation. The incongruity of the factual premises and
foundation principles of the two cases is one of the reasons for
not imposing civil indemnity on the criminal infractor of the
income tax law. Another reason, of course, is found in the fact
that while section 73 of the National Internal Revenue Code has
provided the imposition of the penalty of imprisonment or fine, or
both, for refusal or neglect to pay income tax or to make a return
thereof, it failed to provide the collection of said tax in
criminal proceedings. The only civil remedies provided, for the
collection of income tax, in Chapters I and II, Title IX of the
Code and section 316 thereof, are distraint of goods, chattels,
etc. or by judicial action, which remedies are generally exclusive
in the absence of a contrary intent from the legislator. (People
vs. Arnault, G.R. No. L-4288, November 20, 1952; People vs. Tierra,
G.R. Nos. L-17177-17180, December 28, 1964) Considering that the
Government cannot seek satisfaction of the taxpayer's civil
liability in a criminal proceeding under the tax law or, otherwise
stated, since the said civil liability is not deemed included in
the criminal action, acquittal of the taxpayer in the criminal
proceeding does not necessarily entail exoneration from his
liability to pay the taxes. It is error to hold, as the lower court
has held, that the judgment in the criminal cases Nos. 2089 and
2090 bars the action in the present case. The acquittal in the said
criminal cases cannot operate to discharge defendant appellee from
the duty of paying the taxes which the law requires to be paid,
since that duty is imposed by statute prior to and independently of
any attempts by the taxpayer to evade payment. Said obligation is
not a consequence of the felonious acts charged in the criminal
proceeding, nor is it a mere civil liability arising from crime
that could be wiped out by the judicial declaration of
non-existence of the criminal acts charged. (Castro vs. The
Collector of Internal Revenue, G.R. No. L-12174, April 20,
1962).
Regarding prescription of action, the lower court held that the
cause of action on the deficiency income tax and residence tax for
1951 is barred because appellee's income tax return for 1951 was
assessed by the Bureau of Internal Revenue only on February 14,
1958, or beyond the five year period of limitation for assessment
as provided in section 331 of the National Internal Revenue Code.
Appellant contends that the applicable law is section 332 (a) of
the same Code under which a proceeding in court for the collection
of the tax may be commenced without assessment at any time within
10 years from the discovery of the falsity, fraud or omission.
The complaint filed on December 7, 1962, alleges that the fraud
in the appellee's income tax return for 1951, was discovered on
February 14, 1958. By filing a motion to dismiss, appellee
hypothetically admitted this allegation as all the other averments
in the complaint were so admitted. Hence, section 332 (a) and not
section 331 of the National Internal Revenue Code should determine
whether or not the cause of action of deficiency income tax and
residence tax for 1951 has prescribed. Applying the provision of
section 332 (a), the appellant's action instituted in court on
December 7, 1962 has not prescribed.Wherefore, the order appealed
from is hereby set aside. Let the records of this case be remanded
to the court of origin for further proceedings. No pronouncement as
to costs.
G.R. No. L-22074 April 30, 1965THE PHILIPPINE GUARANTY CO.,
INC.,petitioner,vs.THE COMMISSIONER OF INTERNAL REVENUE and THE
COURT OF TAX APPEALS,respondents.
Josue H. Gustilo and Ramirez and Ortigas for petitioner.Office
of the Solicitor General and Attorney V.G. Saldajena for
respondents.BENGZON, J.P.,J.:The Philippine Guaranty Co., Inc., a
domestic insurance company, entered into reinsurance contracts, on
various dates, with foreign insurance companies not doing business
in the Philippines namely: Imperio Compaia de Seguros, La Union y
El Fenix Espaol, Overseas Assurance Corp., Ltd., Socieded Anonima
de Reaseguros Alianza, Tokio Marino & Fire Insurance Co., Ltd.,
Union Assurance Society Ltd., Swiss Reinsurance Company and Tariff
Reinsurance Limited. Philippine Guaranty Co., Inc., thereby agreed
to cede to the foreign reinsurers a portion of the premiums on
insurance it has originally underwritten in the Philippines, in
consideration for the assumption by the latter of liability on an
equivalent portion of the risks insured. Said reinsurrance
contracts were signed by Philippine Guaranty Co., Inc. in Manila
and by the foreign reinsurers outside the Philippines, except the
contract with Swiss Reinsurance Company, which was signed by both
parties in Switzerland.
The reinsurance contracts made the commencement of the
reinsurers' liability simultaneous with that of Philippine Guaranty
Co., Inc. under the original insurance. Philippine Guaranty Co.,
Inc. was required to keep a register in Manila where the risks
ceded to the foreign reinsurers where entered, and entry therein
was binding upon the reinsurers. A proportionate amount of taxes on
insurance premiums not recovered from the original assured were to
be paid for by the foreign reinsurers. The foreign reinsurers
further agreed, in consideration for managing or administering
their affairs in the Philippines, to compensate the Philippine
Guaranty Co., Inc., in an amount equal to 5% of the reinsurance
premiums. Conflicts and/or differences between the parties under
the reinsurance contracts were to be arbitrated in Manila.
Philippine Guaranty Co., Inc. and Swiss Reinsurance Company
stipulated that their contract shall be construed by the laws of
the Philippines.
Pursuant to the aforesaid reinsurance contracts, Philippine
Guaranty Co., Inc. ceded to the foreign reinsurers the following
premiums:
1953 . . . . . . . . . . . . . . . . . . . . .P842,466.71
1954 . . . . . . . . . . . . . . . . . . . . .721,471.85
Said premiums were excluded by Philippine Guaranty Co., Inc.
from its gross income when it file its income tax returns for 1953
and 1954. Furthermore, it did not withhold or pay tax on them.
Consequently, per letter dated April 13, 1959, the Commissioner of
Internal Revenue assessed against Philippine Guaranty Co., Inc.
withholding tax on the ceded reinsurance premiums, thus:
1953
Gross premium per investigation . . . . . . . . .
.P768,580.00
Withholding tax due thereon at 24% . . . . . . .
.P184,459.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . .
.46,114.00
Compromise for non-filing of withholdingincome tax return . . .
. . . . . . . . . . . . . . . . . . . . . .100.00
TOTAL AMOUNT DUE & COLLECTIBLE . . . .
P230,673.00==========
1954
Gross premium per investigation . . . . . . . . .
.P780.880.68
Withholding tax due thereon at 24% . . . . . . .
.P184,411.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . .
.P184,411.00
Compromise for non-filing of withholdingincome tax return . . .
. . . . . . . . . . . . . . . . . . . . . .100.00
TOTAL AMOUNT DUE & COLLECTIBLE . . . .
P234,364.00==========
Philippine Guaranty Co., Inc., protested the assessment on the
ground that reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines are not subject to withholding
tax. Its protest was denied and it appealed to the Court of Tax
Appeals.
On July 6, 1963, the Court of Tax Appeals rendered judgment with
this dispositive portion:
IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine
Guaranty Co., Inc. is hereby ordered to pay to the Commissioner of
Internal Revenue the respective sums of P202,192.00 and P173,153.00
or the total sum of P375,345.00 as withholding income taxes for the
years 1953 and 1954, plus the statutory delinquency penalties
thereon. With costs against petitioner.
Philippine Guaranty Co, Inc. has appealed, questioning the
legality of the Commissioner of Internal Revenue's assessment for
withholding tax on the reinsurance premiums ceded in 1953 and 1954
to the foreign reinsurers.
Petitioner maintain that the reinsurance prem