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LAW ON TAXATION: Batch 1 (case 1-66)
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(2015) 1
CASE 1: GUEVARA, Carlo MACTAN CEBU INTERNATIONAL AIRPORT V
MARCOS DOCTRINE: The power to tax is an incident of sovereignty and
is unlimited in its range, acknowledging in its very nature no
limits, so that security against its abuse is to be found only in
the responsibility of the legislature which imposes the tax on the
constituency who are to pay it. Taxation is the rule, exemption
therefrom is the exception. FACTS: Mactan Cebu International
Airport Authority (MCIAA) was created by virtue of RA 6958,
mandated to "principally undertake the economical, efficient and
effective control, management and supervision of the Mactan
International Airport in the Province of Cebu and the Lahug Airport
in Cebu City and such other Airports as may be established in the
Province of Cebu. MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Sec. 14 of its Charter.
Mr. Eustaquio B. Cesa, OIC of the Office of the Treasurer of Cebu,
demanded payment for realty taxes on several parcels of land
belonging to MCIAA in the total amount of P2,229,078.79. MCIAA
objected to the demand and asserted that it is an instrumentality
of the government performing governmental functions even citing
Sec. 133 of the LGC. Cebu City refused to cancel and set aside
MCIAA's realty tax account, insisting that it is a government-owned
corporation whose tax exemption privilege has been withdrawn under
Sec. 193 and 234 of the LGC. As the City of Cebu was about to issue
a warrant of levy against the properties of MCIAA, the latter was
compelled to pay its tax account "under protest" and thereafter
filed a Petition for Declaratory Relief with the RTC. It contended
that the taxing powers of local government units do not extend
to
the levy of taxes or fees of any kind on an instrumentality of
the national government. Petitioner insisted that while it is
indeed a a government-owned corporation, it nonetheless stands on
the same footing as an agency or instrumentality of the national
government by the very nature of its powers and functions.
Respondent City, however, asserted that MACIAA is not an
instrumentality of the government but merely a government-owned
corporation performing proprietary functions As such, all
exemptions previously granted to it were deemed withdrawn by
operation of law. RTC dismissed the petition ruling that the tax
exemption provided for in RA 6958 creating petitioner had been
expressly repealed by the provisions of RA 7160 (New Local
Government Code). MR was denied. Hence, petitioner filed a petition
for review under Rule 45 of the ROC on a pure question of law.
Petitioner claims the exemption provided under Sec. 14 of RA 6958
was not repealed because being an instrumentality of the National
Government, Sec. 133 of the LGC prohibits local government units
from imposing taxes, fees, or charges of any kind on it. Respondent
City of Cebu points out that the petitioner is a government-owned
corporation, and Section 234 thereof does not distinguish between
government-owned corporation or government-owned or controlled
corporations performing governmental and purely proprietary
functions. ISSUE: WON the Respondent LGU (City of Cebu) has the
power to levy real property tax from the petitioner MCIAA. RULING:
YES. As a general rule, the power to tax is an incident of
sovereignty and is unlimited in its range, acknowledging in its
very nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which imposes
the tax on the constituency who are to pay it.
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The power to tax is primarily vested in the Congress; however,
in our jurisdiction, it may be exercised by local legislative
bodies, no longer merely by virtue of a valid delegation as before,
but pursuant to direct authority conferred by Section 5, Article X
of the Constitution. There can be no question that under Section 14
of R.A. No. 6958 the petitioner is exempt from the payment of
realty taxes imposed by the National Government or any of its
political subdivisions, agencies, and instrumentalities.
Nevertheless, since taxation is the rule and exemption therefrom
the exception, the exemption may thus be withdrawn at the pleasure
of the taxing authority. The only exception to this rule is where
the exemption was granted to private parties based on material
consideration of a mutual nature, which then becomes contractual
and is thus covered by the non-impairment clause of the
Constitution. Section 234 of LGC provides for the exemptions from
payment of real property taxes and withdraws previous exemptions
therefrom granted to natural and juridical persons, including
government owned and controlled corporations, except as provided
therein. These exemptions are based on the ownership, character,
and use of the property. As a general rule, as laid down in Sec.
133 the taxing powers of LGUs cannot extend to the levy of "taxes,
fees, and charges of any kind of the National Government, its
agencies and instrumentalties, and local government units";
however, pursuant to Section 232, provinces, cities, municipalities
in the Metropolitan Manila Area may impose the real property tax
except on "real property owned by the Republic of the Philippines
or any of its political subdivisions except when the beneficial
used thereof has been granted, for consideration or otherwise, to a
taxable person", as provided in item (a) of the first paragraph of
Section 234 As to tax exemptions or incentives granted to or
presently enjoyed by natural or juridical persons, including GOCCs,
Sec. 193 of the LGC prescribes the general rule that they are
withdrawn upon the
effectivity of the LGC, except those granted to local water
districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions,
and unless otherwise provided in the LGC. The latter proviso could
refer to Section 234, which enumerates the properties exempt from
real property tax. But the last paragraph of Section 234 further
qualifies the retention of the exemption in so far as the real
property taxes are concerned by limiting the retention only to
those enumerated there-in; all others not included in the
enumeration lost the privilege upon the effectivity of the LGC.
Moreover, even as the real property is owned by the Republic of the
Philippines, or any of its political subdivisions covered by item
(a) of the first paragraph of Section 234, the exemption is
withdrawn if the beneficial use of such property has been granted
to taxable person for consideration or otherwise.
The last paragraph of Sec. 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from real property taxes granted
to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section,
and the petitioner is, undoubtedly, a government-owned corporation,
it necessarily follows that its exemption from such tax granted it
in Sec. 14 of its charter, R.A. No. 6958, has been withdrawn. Any
claim to the contrary can only be justified if the petitioner can
seek refuge under any of the exceptions provided in Sec. 234, but
not under Sec. 133, as it now asserts, since, as shown above, the
said section is qualified by Section 232 and 234. In short, the
petitioner can no longer invoke the general rule in Section
133.
DISPOSITIVE: Respondent WON. Petition is DENIED.
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CASE 2: PANTORGO COMMISSIONER OF INTERNAL REVENUE V. AZUCENA
REYES DOCTRINE: Taxpayers shall be informed in writing of the law
and the facts on which assessment is made, otherwise, the
assessment shall be void. Although taxes are the lifeblood of the
government, their assessment and collection should be made in
accordance with law as any arbitrariness will negate the very
reason for government itself. FACTS: 1. July 8, 1993- Maria
Tancinco (decedent) died, leaving a 1, 292 sq. m. residential lot
and an old house located at Dasma Village, Makati City. 2. Feb. 17,
1997- Certain Raymond Abad (from Revenue District Office) conducted
an investigation on the decedents estate. 3. Feb 12, 1998- BIR
issued a preliminary assessment notice against the estate in the
amount of P14, 580, 618.67. Then on May 1998, the heirs received a
final estate tax assessment notice and a demand letter for the
amount of P14, 912, 205.47, inclusive of surcharge and interest
which was dated April 22, 1998. 4. Nov. 1998- CIR issued a
preliminary collection letter followed by a Final Notice Before
Seizure then in 1999, Warrant of Distraint was served upon the
estate followed by Notices of Levy on Real Property and Tax Lien
against the estate. 5. Azucena Reyes (one of the heirs) protested
the notice of levy. However, other heirs proposed a compromise
settlement of P1M. So then Reyes proposed to pay 50% on the basic
tax due, citing the heirs inability to pay tax assessment. However,
CIR rejected the offer and demanded payment of P18,034,382.13. 6.
Reyes again proposed to pay 100% basic tax due. However, as the
estate failed to pay its tax liability within 2000 deadline, BIR
notified Reyes that the property would be sold at public
auction.
7. Reyes filed a protest with the BIR assailing the scheduled
auction sale. She offered to file estate tax return and pay the
correct amount of tax without interest. 8. Without acting on Reyes
protest, CIR proceed with the auction sale. 9. Reyes filed a
Petition for Review with Court of Tax Appeals (CTA). CTA ordered
CIR to refrain from auction sale proceeding. 10. During the
pendency of the Petition for Review with CTA, BIR issued Revenue
regulation offering certain taxpayers with delinquent accounts and
disputed assessments and opportunity to compromise tax liability.
11. Reyes filed Motion for Postponement before CTA citing her
pending application for compromise with the BIR. Motion was
granted. 12. CIR averred that an application for compromise of a
tax liability requires the evaluation and approval of either
National Evaluation Board (NEB) or Regional Evaluation Board (REB).
13. CTA= ordered Reyes to pay deficiency estate tax (P19M). CTA
stated that at the time the assessment notice and demand letter
were issued, the heirs knew very well the law and the facts on
which the same were based. 14. CA= in favor of Reyes Hence, this
petition. ISSUE: WON CIRs assessment against the estate is valid.
RULING: NO. Assessment is not valid. Reyes has not been informed of
the basis of the estate tax liability. The Court cannot approve an
assessment based on estimates that appear to be arbitrary. Although
taxes are the life-blood of the government, their assessment and
collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. 1.
Sec. 228 (2) Tax Code is clear and mandatory which provides that
The taxpayers shall be informed in writing of the law and the
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facts on which the assessment is made: otherwise, the assessment
shall be void. 2. Reyes was not informed in writing of the law and
the facts on which the assessment of estate taxes had been made.
She was merely notified of the findings by the CIR, who had simply
relied upon the former provisions (Sec. 229) prior to the amendment
by RA 8424 (Tax Reform Act of 1997). 3. RA 8424 had already been
amended the provisions of Sec. 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIRs
findings was changed in 1998 to informing the taxpayer of not only
the law but also of the facts otherwise, the assessment would be
invalid. 4. During the dates Feb 1998 (preliminary assessment
notice was issued) and April 1998 (final estate tax assessment
notice and demand letter was issued), RA 8424 was already in
effect. Thus, the notice required under the old law was no longer
sufficient under the new law. 5. CIR violated the cardinal rule in
administrative law that the taxpayer be accorded due process. No
valid notice was sent. To proceed with tax collection without first
establishing a valid assessment is violative of the principle of
admin investigation: taxpayers should be able to present their case
and adduce supporting evidence. 6. Failure to comply with Sec. 228
does not only render the assessment void, but also finds no
validation in any provision of Tax Code. DISPOSITIVE: Petition
denied. CASE 3: KADJIM COMMISSIONER VS. ALGUE
FACTS: The Philippine Sugar Estate Development Company (PSEDC)
appointed Algue Inc. as its agent, authorizing it to sell its land,
factories, and oil manufacturing process. The Vegetable Oil
Investment Corporation (VOICP) purchased PSEDC properties. For
the sale, Algue received a commission of P125,000 and it was from
this commission that it paid Guevara, et. al. organizers of the
VOICP, P75,000 in promotional fees. In 1965, Algue received an
assessment from the Commissioner of Internal Revenue in the amount
of P83,183.85 as delinquency income tax for years 1958 amd 1959.
Algue filed a protest or request for reconsideration which was not
acted upon by the Bureau of Internal Revenue (BIR). The counsel for
Algue had to accept the warrant of distrant and levy. Algue,
however, filed a petition for review with the Coourt of Tax
Appeals.
ISSUE: Whether the assessment was reasonable.
HELD: Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. Every person who is able
to pay must contribute his share in the running of the government.
The Government, for his 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 is an arbitrary method of exaction
by those in the seat of power. Tax collection, however, should be
made in accordance with law as any arbitrariness will negate the
very reason for government itself. For all the awesome power of the
tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate that the law has not been observed.
Herein, the claimed deduction (pursuant to Section 30 [a] [1] of
the Tax Code and Section 70 [1] of Revenue Regulation 2: as to
compensation for personal services) had been legitimately by Algue
Inc. It has further proven that the payment of fees was reasonable
and necessary in light of the efforts exerted by the
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payees in inducing investors (in VOICP) to involve themselves in
an experimental enterprise or a business requiring millions of
pesos. The assessment was not reasonable.
CASE 4: FILIO EMILIO Y. HILADO V. THE COLLECTOR OF INTERNAL
REVENUE FACTS: Hilado filed his income tax return wherein he
claimed the amount of P12,387.65 as a deductible item from his
gross income pursuant to the Collector of Internal Revenues General
Circular No. V-123, issued pursuant to certain rules laid down by
the Secretary of Finance. Subsequently, the new Secretary of
Finance, through the CIR, issued General Circular No. V-139 that
revoked General Circular No. V-123. The new laid down the rule
states that losses of property which occurred during the period of
World War II from fires, storms, shipwreck or other casualty, or
from robbery, theft, or embezzlement are deductible for income tax
purposes in the year of actual destruction of said property. As a
consequence, the P12,387.65 was disallowed as a deduction from
petitioners gross income for 1951 and the CIR demanded from him the
payment of P3,546 as deficiency income tax for the year. The
petitioner contented that he must be exempted of P3,546 as
deficiency income tax for the year ISSUE:
1. Whether or not the internal revenue laws ceases during a
conquest and colonization?
2. Whether or not the Secretary of Finance has an authority to
revoke General Circular No. V-123 of his predecessor?
3. Whether or not the retroactive application of General
Circular No. V-123 revoking General Circular No. V-139 impaired the
vested rights of the taxpayer?
4. Whether or not the taxpayer is exempted from paying the
P3,546 deficiency income tax?
HELD: 1. No, the internal revenue laws does not cease during
a
conquest and colonization. 2. Yes, the Secretary of Finance has
the authority to revoke
General Circular No. V-123 of his predecessor. 3. No, the
retroactive application of General Circular No. V-
123 revoking General Circular No. V-139 does not impair the
vested rights of the taxpayer.
4. No, the taxpayer is exempted from paying the P3,546
deficiency income tax.
RATIO: 1. It is well known that our internal revenue laws are
not political in nature and as such were continued in force during
the period of enemy occupation and in effect were actually enforced
by the occupation government. As a matter of fact, income tax
returns were filed during that period and income tax payment were
effected and considered valid and legal. Such tax laws are deemed
to be the laws of the occupied territory and not of the occupying
enemy. Law once established continues until changed by some
competent legislative power. It is not changed merely by change of
sovereignty. Conquest or colonization is impotent to bring law to
an end; inspite of change of constitution, the law continues
unchanged until the new sovereign by legislative act creates a
change. 2. The Secretary of Finance is vested with authority to
revoke, repeal or abrogate the acts or previous rulings of his
predecessor in office because the construction of a statute by
those administering it is not binding on their successors if
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thereafter the latter become satisfied that a different
construction should be given. 3. Under Art. 2254 of the Civil
Code,
No vested/acquired right can arise from acts/omissions which are
against the law or which infringe upon the rights of others.
General Circular No. V-123, having been issued on a wrong
construction by the law, cannot give rise to a vested right that
can be invoked by a taxpayer. A vested right cannot spring from a
wrong interpretation. An administrative officer cannot change a law
enacted by Congress. Once a regulation which merely interprets a
statute is determined erroneous, it becomes a nullity. The
Collector of Internal Revenues erroneous construction of the law
does not preclude or stop the Government from collecting a tax
legally due. 4. In the circumstance, the said amount would at most
be a proper deduction from his 1950 gross income. Furthermore, the
said amount cannot be considered as a business asset which can be
deducted as a loss in contemplation of law because its collection
is not enforceable as a matter of right, but it is dependent merely
upon the generosity and magnanimity of the U. S. government. As the
end of 1945, there was absolutely no law under which Petitioner
could claim compensation for the destruction of his properties
during the battle for the liberation of the Philippines. Under the
Philippine Rehabilitation Act of 1946, the payments of claims by
the War Damage Commission merely depended upon its discretion to be
exercised in the manner it may see fit, but the non-payment of
which cannot give rise to any enforceable right.
CASE 5: AGUILAR SISON v ANCHETA CASE 6: SEMILLA
CIR v. PINEDA DOCTRINE: The BIR should be given, in instances
like the case at bar, the necessary discretion to avail itself of
the most expeditious way to collect the tax as may be envisioned in
the particular provision of the Tax Code above quoted, because
taxes are the lifeblood of government and their prompt and certain
availability is an imperious need. In this case the suit seeks to
achieve only one objective: payment of the tax. The adjustment of
the respective shares due to the heirs from the inheritance, as
lessened by the tax, is left to await the suit for contribution by
the heir from whom the Government recovered said tax. FACTS: 1.
Atanasio Pineda died, survived by his wife, Felicisima Bagtas,
and 15 children, the eldest is Atty. Manuel B. Pineda. Estate
proceedings were had in Court, so that the estate was divided among
and awarded to the heirs. And the proceedings terminated on June 8,
1948. Manuel B. Pineda's share amounted to about P2,500.00.
2. After the estate proceedings were closed, the Bureau of
Internal Revenue investigated the income tax liability of the
estate for the years 1945, 1946, 1947 and 1948 and it found that
the corresponding income tax returns were not filed.
3. The representative of the Collector of Internal Revenue filed
said returns for the estate on the basis of information and data
obtained from the aforesaid estate proceedings and issued an
assessment. Atty. Pineda appealed to the CTA and argued that he is
liable "only that proportionate part or portion pertaining to him
as one of the heirs."
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4. CTA: rendered judgment reversing the decision of the
Commissioner on the ground that his right to assess and collect the
tax has prescribed.
5. Commissioner appealed and this Court affirmed the findings of
the Tax Court in respect to the assessment for income tax for the
year 1947 but held that the right to assess and collect the taxes
for 1945 and 1946 has not prescribed.
6. Remanded the case to the Tax Court for further appropriate
proceedings. CTA: rendered judgment holding Manuel B. Pineda liable
for the payment corresponding to his share.
7. Commissioner of Internal Revenue appealed to the SC and
proposed that Atty. Pineda be liable for the payment of all the
taxes found by the Tax Court to be due from the estate.
ISSUE: WON the BIR can collect the full amount of estate taxes
from an heir's inheritance? RULING: YES. The Government can require
Atty. Pineda to pay the full amount of the taxes assessed. The
reason is that the Government has a lien on the P2,500.00 received
by him from the estate as his share in the inheritance, for unpaid
income taxes for which said estate is liable. By virtue of such
lien, the Government has the right to subject the property in
Pineda's possession to satisfy the income tax assessment. After
such payment, Pineda will have a right of contribution from his
co-heirs, to achieve an adjustment of the proper share of each heir
in the distributable estate. All told, the Government has two ways
of collecting the tax in question. One, by going after all the
heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received; and second, is by
subjecting said property of the estate which is in the hands of an
heir or transferee to the payment of the tax due. This second
remedy is the very avenue the Government took in this case to
collect the tax. The Bureau of Internal Revenue should be given, in
instances like the case at bar, the necessary
discretion to avail itself of the most expeditious way to
collect the tax as may be envisioned in the particular provision of
the Tax Code above quoted, because taxes are the lifeblood of
government and their prompt and certain availability is an
imperious need. Section 315 of the Tax Code: If any person,
corporation, partnership, joint-account (cuenta en participacion),
association, or insurance company liable to pay the income tax,
neglects or refuses to pay the same after demand, the amount shall
be a lien in favor of the Government of the Philippines from the
time when the assessment was made by the Commissioner of Internal
Revenue until paid with interest, penalties, and costs that may
accrue in addition thereto upon all property and rights to property
belonging to the taxpayer: . . .
CASE 7: CADA THE PHILIPPINE GUARANTY CO v. THE COMMISSIONER OF
INTERNAL REVENUE and THE COURT OF TAX APPEALS DOCTRINE: The power
to tax is an attribute of sovereignty. It is a power emanating from
necessity. It is a necessary burden to preserve the State's
sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of
civil servants to serve, public improvement designed for the
enjoyment of the citizenry and those which come within the State's
territory, and facilities and protection which a government is
supposed to provide. Considering that the reinsurance premiums in
question were afforded protection by the government and the
recipient foreign reinsurers exercised rights and privileges
guaranteed by our laws, such reinsurance premiums and reinsurers
should share the burden of maintaining the state.
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FACTS: 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.
Philippine Guaranty Co., Inc., thereby agreed to cede to the
foreign reinsurers a portion of the premiums on insurance in
consideration for the assumption by the latter of liability on an
equivalent portion of the risks insured. 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. 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 brought to the Court of
Tax Appeals. The Court of Tax Appeals rendered judgment ordering
Philippine Guaranty Co., Inc. 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. ISSUE: WON the reinsurance premiums ceded to foreign
reinsurers not doing business in the Philippines are subject to
withholding tax under Section 53 and 54 of the Tax Code HELD: YES.
The reinsurance premiums ceded to foreign reinsurers not doing
business in the Philippines are subject to withholding tax under
Section 53 and 54 of the Tax Code. Sec. 54 (Tax Code). Payment of
corporation income tax at source. In the case of foreign
corporations subject to taxation under this Title not engaged in
trade or business within the Philippines and
not having any office or place of business therein, there shall
be deducted and withheld at the source in the same manner and upon
the same items as is provided in Section fifty-three a tax equal to
twenty-four per centum thereof, and such tax shall be returned and
paid in the same manner and subject to the same conditions as
provided in that section. The applicable portion of Section 53
provides: (b) Nonresident aliens. All persons, corporations and
general copartnerships (compaias colectivas), in what ever capacity
acting, including lessees or mortgagors of real or personal
property, trustees acting in any trust capacity, executors,
administrators, receivers, conservators, fiduciaries, employers,
and all officers and employees of the Government of the Philippines
having the control, receipt, custody, disposal, or payment of
interest, dividends, rents, salaries, wages, premiums, annuities,
compensation, remunerations, emoluments, or other fixed or
determinable annual or periodical gains, profits, and income of any
nonresident alien individual, not engaged in trade or business
within the Philippines and not having any office or place of
business therein, shall (except in the case provided for in
subsection [a] of this section) deduct and withhold from such
annual or periodical gains, profits, and income a tax equal to
twelve per centum thereof: Provided That no deductions or
withholding shall be required in the case of dividends paid by a
foreign corporation unless (1) such corporation is engaged in trade
or business within the Philippines or has an office or place of
business therein, and (2) more than eighty-five per centum of the
gross income of such corporation for the three-year period ending
with the close of its taxable year preceding the declaration of
such dividends (or for such part of such period as the corporation
has been in existence)was derived from sources within the
Philippines as determined under the provisions of section
thirty-seven: Provided, further, That the Collector of Internal
Revenue may authorize such tax to be deducted and withheld from the
interest
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upon any securities the owners of which are not known to the
withholding agent. DISPOSITIVE: CIR won. The above-quoted
provisions allow no deduction from the income therein enumerated in
determining the amount to be withheld. According, in computing the
withholding tax due on the reinsurance premium in question, no
deduction shall be recognized. JUDGMENT APPEALED FROM IS HEREBY
AFFIRMED. CASE 8: PASCUAL COLLECTOR OF INTERNAL REVENUE VS. YUSECO
DOCTRINE: Taxes being the chief source of revenue for the
Government to keep it running must be paid immediately and without
delay. FACTS: 1. Yuseco did not file income tax returns for the
calendar years
1945 and 1946. 2. Upon coming to the knowledge of the same, the
Collector of
Internal Revenue made income tax returns for Yuseco. 3. The
Collector (hehe) assessed the same and demanded from
Yuseco the sums representing alleged income taxes and surcharges
for the mentioned years.
4. Yuseco wrote the petitioner inquiring how the amounts were
arrived at. The latter furnished him with the information sought,
at the same time demanding the payment of the same.
5. Yuseco persistently asked for a reinvestigation, which was
likewise denied by the petitioner, repeatedly demanding for the
payment of the sums due.
6. 3 years later, the petitioner Collector issued a warrant of
distraint and levy upon Yusecos properties. It was not executed.
Yuseco sought the withdrawal of the warrant.
7. The petitioner again demanded for payment of the sums due
plus penalties incident to the delinquency. Thereafter, no further
action was taken to collect.
8. 2 years from the last issuance, the petitioner issued another
warrant of distraint and levy on Yusecos properties, this time for
the collection of income tax due for 1946.
9. With the distraint sill in force, Yuseco filed a petition for
prohibition with the Court of Tax Appeals which granted his
petition, enjoining the Collector of Internal Revenue from any
further proceeding to effect by summary methods the collection of
the alleged income taxes assessed against him.
ISSUE: WON it was proper for the Court of Tax Appeals to grant
the petition to enjoin, the same being an independent special civil
action, the petitioner from collecting income taxes due. RULING:
NO. The jurisdiction of the CTA is limited to appeals from
decisions or rulings of the Collector of Internal Revenue,
Commissioner of Customs and Provincial or City Boards of Assessment
Appeals in the proper cases. Discussion relevant to topic: Taxes
being the chief source of revenue for the Government to keep it
running must be paid immediately and without delay. A taxpayer who
feels aggrieved by the decision or ruling handed down by a revenue
officer and appeals from his decision or ruling to the Court of Tax
Appeals must pay the tax assessed, except that, if in the opinion
of the Court the collection would jeopardize the interest of the
Government and/or the taxpayer, it could suspend the collection and
require the taxpayer either to deposit the amount claimed or to
file a surety bond for not more than double the amount of the tax
assessed. LAW: No appeal taken to the [CTA] shall suspend the
payment, levy, distraint, and/or sale of any property of the
taxpayer for the satisfaction of his tax liability as provided by
existing law;
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Provided, however, That when in the opinion of the Court the
collection by the Bureau of Internal Revenue or the Commissioner of
Customs may jeopardize the interest of the Government and/or the
taxpayer the Court at any stage of the proceeding may suspend the
said collection and require the taxpayer either to deposit the
amount claimed or to file a surety bond for not more than double
the amount with the Court. (Sec. 11, Republic No. 1125) DIPOSITIVE:
Judgment under review is annulled and set aside. CASE 9: AGBISIT
ROXAS V. CTA DOCTRINE: The power of taxation is sometimes called
also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer.
It must be exercised fairly, equally and uniformly, lest the tax
collector kill the hen that lays the golden egg. FACTS: Antonio,
Eduardo, and Jose Roxas (petitioners) formed a partnership called
Roxas y Compania to manage the properties they inherited from their
grandparents, which included a 19,000 hectare agricultural land
located in Nasugbu, Batangas. The tenants who have been tilling the
said agricultural land expressed their desire to purchase parcels
of land which they actually occupy. The Government, in consonance
with the constitutional mandate to acquire big landed estates and
apportion them among landless tenants-farmers, persuaded the Roxas
brothers to sell the same. The Roxas brothers agreed to sell 13,500
hectares to the Government for distribution to actual occupants.
However, the Government did not have funds to cover the purchase
price, and so a special arrangement was made wherein an amount of
P1,500,000 was advanced to Roxas as a loan by the Rehabilitation
Finance Corporation. Under the arrangement,
Roxas y Compania allowed the farmers to buy the lands for the
same price but by instalment, and contracted to pay its loan from
the proceeds of the yearly amortizations paid by the farmers. Roxas
y Compania derived net gains from said instalment payments, 50% of
which was reported for income tax. However, the CIR demanded from
Roxas, the payment of deficiency income taxes resulting from the
sale of the farmlands and considered the partnership as engaged in
the business of real estate, hence, 100% of the profits derived
therefrom was taxed. The brothers protested the assessment but the
same was denied. On appeal the CTA sustained the assessment. ISSUE:
Whether or not Roxas is liable for the payment of deficiency income
for the sale of the farmlands? RULING: NO. Roxas y Compania cannot
be considered a real estate dealer for the sale in question,
although the farmers paid Roxas, on instalment basis, for the
parcels of land. It should be borne in mind that the sale of the
Nasugbu farm lands to the very farmers who tilled them for
generations was not only in consonance with, but more in obedience
to the request and pursuant to the policy of our Government to
allocate lands to the landless. It was the bounden duty of the
Government to pay the agreed compensation after it had persuaded
Roxas to sell its haciendas, and to subsequently subdivide them
among the farmers at very reasonable terms and prices. However, the
Government could not comply with its duty for lack of funds.
Obligingly. Roxas shouldered the Governments burden, went out of
its way and sold lands directly to the farmers in the same way and
under the same terms as would have been the case had the Government
done it itself. It does not conform with our sense of justice in
the instant case for the Government to persuade the taxpayer to
lend it a helping hand and later on to penalize him for duly
answering the urgent call.
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DISPOSITIVE: Roxas won. The amount of deficiency income tax they
had to pay was reduced. CASE 10: GUEVARA, ARJUNA TAADA V ANGARA
DOCTRINE: By their inherent nature, treaties really limit or
restrict the absoluteness of sovereignty. In some treaties, the
Philippines has effectively agreed to limit the exercise of its
sovereign powers of taxation, eminent domain and police power for
the reciprocal commitment of the other contracting states in
granting the same privilege and immunities to the Philippines, its
officials and citizens. FACTS: This is a petition seeking to
nullify the Philippine ratification of the World Trade Organization
(WTO) Agreement. Petitioners question the concurrence of herein
respondents acting in their capacities as Senators via signing the
said agreement. The WTO opens access to foreign markets, especially
its major trading partners, through the reduction of tariffs on its
exports, particularly agricultural and industrial products. Thus,
provides new opportunities for the service sector cost and
uncertainty associated with exporting and more investment in the
country. These are the predicted benefits as reflected in the
agreement and as viewed by the signatory Senators, a free market
espoused by WTO. Petitioners on the other hand viewed the WTO
agreement as one that limits, restricts and impair Philippine
economic sovereignty and legislative power. That the Filipino First
policy of the Constitution was taken for granted as it gives
foreign trading intervention. ISSUE: WON the provisions of the WTO
Agreement and its annexes limit, restrict, or impair the exercise
of legislative power by Congress.
RULING: NO. The Supreme Court ruled that while sovereignty has
traditionally been deemed absolute and all-encompassing on the
domestic level, it is however subject to restrictions and
limitations voluntarily agreed to by the Philippines, expressly or
impliedly, as a member of the family of nations. Unquestionably,
the Constitution did not envision a hermit-type isolation of the
country from the rest of the world. In its Declaration of
Principles and State Policies, the Constitution adopts the
generally accepted principles of international law as part of the
law of the land, and adheres to the policy of peace, equality,
justice, freedom, cooperation and amity, with all nations. By their
inherent nature, treaties really limit or restrict the absoluteness
of sovereignty. By their voluntary act, nations may surrender some
aspects of their state power in exchange for greater benefits
granted by or derived from a convention or pact. A portion of
sovereignty may be waived without violating the Constitution, based
on the rationale that the Philippines adopts the generally accepted
principles of international law as part of the law of the land and
adheres to the policy of x x x cooperation and amity with all
nations. CASE 11: REYES LTO v CITY OF BUTUAN
FACTS: Relying on the Constitution and Section 129 and Section
133of the Local Government code, the Sangguniang Panglungsod of
Butuan Passed an Ordinance, which the ordinance provided for, among
other things, the payment of franchise fees for the grant of the
franchise of tricycles-for-hire, fees for the registration of the
vehicle, and fees for the issuance of a permit for the driving
thereof.
LTO explains that one of the functions of the national
government that, indeed, has been transferred to local government
units is the franchising authority over tricycles-for-hire of the
Land
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Transportation Franchising and Regulatory Board ("LTFRB") but
not, it asseverates, the authority of LTO to register all motor
vehicles and to issue to qualified persons of licenses to drive
such vehicles
The RTC ruled in favor of city of Butuan and issuing a permanent
writ of injunction prohibiting LTO from registering tricycles and
issuing licenses to tricycle drivers, the CA sustained the RTC
ISSUE: WON there is a difference between the inherent powers of
the government
HELD: YES. The reliance made by respondents on the broad taxing
power of local government units, specifically under Section 133 of
the Local Government Code, is tangential. Police power and
taxation, along with eminent domain, are inherent powers of
sovereignty which the State might share with local government units
by delegation given under a constitutional or a statutory fiat. All
these inherent powers are for a public purpose and legislative in
nature but the similarities just about end there. The basic aim of
police power is public good and welfare.
Taxation, in its case, focuses on the power of government to
raise revenue in order to support its existence and carry out its
legitimate objectives. Although correlative to each other in many
respects, the grant of one does not necessarily carry with it the
grant of the other. The two powers are, by tradition and
jurisprudence, separate and distinct powers, varying in their
respective concepts, character, scopes and limitations.
To construe the tax provisions of Section 133(1) indistinctively
would result in the repeal to that extent of LTO's regulatory power
which evidently has not been intended. If it were otherwise,
the
law could have just said so in Section 447 and 458 of Book III
of the Local Government Code in the same manner that the specific
devolution of LTFRB's power on franchising of tricycles has been
provided. Repeal by implication is not favored.
The power over tricycles granted under Section 458(a)(3)(VI) of
the Local Government Code to LGUs is the power to regulate their
operation and to grant franchises for the operation thereof. The
exclusionary clause contained in the tax provisions of Section
133(1) of the Local Government Code must not be held to have had
the effect of withdrawing the express power of LTO to cause the
registration of all motor vehicles and the issuance of licenses for
the driving thereof. These functions of the LTO are essentially
regulatory in nature, exercised pursuant to the police power of the
State, whose basic objectives are to achieve road safety by
insuring the road worthiness of these motor vehicles and the
competence of drivers prescribed by R. A. 4136. Not insignificant
is the rule that a statute must not be construed in isolation but
must be taken in harmony with the extant body of laws
CASE 12: DACARA PHIL. MATCH CO. V. CEBU DOCTRINE: The taxing
power of cities, municipalities and municipal districts may be used
(1) "upon any person engaged in any occupation or business, or
exercising any privilege" therein; (2) for services rendered by
those political subdivisions or rendered in connection with any
business, profession or occupation being conducted therein, and (3)
to levy, for public purposes, just and uniform taxes, licenses or
fees. FACTS: Ordinance No. 279 of Cebu provides that "an ordinance
imposing a quarterly tax on gross sales or receipts of
merchants,
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dealers, importers and manufacturers of any commodity doing
business" in Cebu City. It imposes a sales tax of one percent (1%)
on the gross sales, receipts or value of commodities sold,
bartered, exchanged or manufactured in the city in excess of P2,000
a quarter. Section 9 of the ordinance provides that, for purposes
of the tax, "all deliveries of goods or commodities stored in the
City of Cebu, or if not stored are sold" in that city, "shall be
considered as sales" in the city and shall be taxable. Thus, it
would seem that under the tax ordinance sales of matches
consummated outside of the city are taxable as long as the matches
sold are taken from the company's stock stored in Cebu City.
The Philippine Match Co., Ltd., whose principal office is in
Manila, is engaged in the manufacture of matches, questioned the
legality of the tax collected by the City of Cebu on sales of
matches stored by the company in Cebu City but delivered to
customers outside the city.
The company in its letter to the city treasurer sought the
refund of the sales tax paid for out-of-town deliveries of matches.
However, the city treasurer denied the request. His stand is that
under section 9 of the ordinance all out-of-town deliveries of
latches stored in the city are subject to the sales tax imposed by
the ordinance. The company filed a complaint for the refund of
P12,844.61 as excess sales tax paid, and that the city treasurer be
ordered to pay damages. TC: Sustained the tax on the sales of
matches booked and paid for in Cebu City although the matches were
shipped directly to customers outside of the city. The lower court
held that the said
sales were consummated in Cebu City because delivery to the
carrier in the city is deemed to be a delivery to the customers
outside of the city. Trial court also ordered the defendants to
refund to the plaintiff the sum of P8,923.55 as taxes paid out the
said out-of-town deliveries with legal rate of interest from the
respective dates of payment. ISSUE: WON the City of Cebu can tax
sales of matches which were perfected and paid for in Cebu City but
the matches were delivered to customers outside of the City.
RULING: YES. The city can validly tax the sales of matches to
customers outside of the city as long as the orders were booked and
paid for in the company's branch office in the city. Those matches
can be regarded as sold in the city, as contemplated in the
ordinance, because the matches were delivered to the carrier in
Cebu City. Generally, delivery to the carrier is delivery to the
buyer. The taxing power validly delegated to cities and
municipalities is defined in the Local Autonomy Act, Republic Act
No. 2264, which took effect on June 19, 1959 and which provides:
SEC. 2. Taxation. Any provision of law to the contrary
notwithstanding, all chartered cities, municipalities and municipal
districts shall have authority to impose municipal license taxes or
fees upon persons engaged in any occupation or business, or
exercising privileges in chartered cities,. municipalities or
municipal districts by requiring them to secure licenses at rates
fixed by the municipal board or city council of the city, the
municipal council of the municipality, or the municipal district
council of the municipal district; to collect fees and charges for
services rendered by the city, municipality or municipal district;
to regulate and impose reasonable fees for services rendered in
connection with any business, profession or occupation being
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conducted within the city, municipality or municipal district
and otherwise to levy for public purposes, just and uniform taxes,
licenses or fees. Further, the taxing power of cities,
municipalities and municipal districts may be used (1) "upon any
person engaged in any occupation or business, or exercising any
privilege" therein; (2) for services rendered by those political
subdivisions or rendered in connection with any business,
profession or occupation being conducted therein, and (3) to levy,
for public purposes, just and uniform taxes, licenses or fees. The
sales in the instant case were in the city and the matches sold
were stored in the city. The fact that the matches were delivered
to customers, whose places of business were outside of the city,
would not place those sales beyond the city's taxing power. Those
sales formed part of the merchandising business being assigned on
by the company in the city. In essence, they are the same as sales
of matches fully consummated in the city. DISPOSITIVE: Trial Court
affirmed. CASE 13: CARILLO MATALIN COCONUT V. MUNICIPAL COUNCIL OF
MALABANG, LANAO DOCTRINE: Tax imposed and collected must at all
times be for public purpose, just and uniform. It must not be
excessive or confiscatory. Otherwise, it would be unconstitutional.
FACTS: Municipal Council of Malabang, Lanao del Sur, invoking the
authority of Section 2 the Local Autonomy Act, enacted Municipal
Ordinance No. 45-46, entitled "AN ORDINANCE IMPOSING A POLICE
INSPECTION FEE OF P.30 PER SACK OF CASSAVA STARCH PRODUCED AND
SHIPPED OUT OF
THE MUNICIPALITY OF MALABANG AND IMPOSING PENALTIES FOR
VIOLATIONS THEREOF." The ordinance made it unlawful for any person,
company or group of persons "to ship out of the Municipality of
Malabang, cassava starch or flour without paying to the Municipal
Treasurer or his authorized representatives the corresponding fee
fixed by (the) ordinance." It imposed a "police inspection fee" of
P.30 per sack of cassava starch or flour, which shall be paid by
the shipper before the same is transported or shipped outside the
municipality. Any person or company or group of individuals
violating the ordinance "is liable to a fine of not less than
P100.00, but not more than P1,000.00, and to pay Pl.00 for every
sack of flour being illegally shipped outside the municipality, or
to suffer imprisonment of 20 days, or both, in the discretion of
the court. This ordinance is now being questioned as
unconstitutional. ISSUE: WON the Municipal Ordinance is
unconstitutional. HELD: YES. The amount collected under the
ordinance in question partakes of the nature of a tax, although
denominated as "police inspection fee" since its undeniable purpose
is to raise revenue. However, we cannot agree with the trial
court's finding that the tax imposed by the ordinance is a
percentage tax on sales which is beyond the scope of the
municipality's authority to levy under Section 2 of the Local
Autonomy Act. Under the said provision, municipalities and
municipal districts are prohibited from imposing" any percentage
tax on sales or other taxes in any form based thereon. " The tax
imposed under the ordinance in question is not a percentage tax on
sales or any other form of tax based on sales. It is a fixed tax of
P.30 per bag of cassava starch or flour "shipped out" of the
municipality. It is not based on sales. However, the tax imposed
under the ordinance can be stricken down on another ground.
According to Section 2 of the abovementioned Act, the tax levied
must be "for public purposes, just and uniform". As correctly held
by the trial court, the so-called "police inspection fee" levied by
the ordinance is "unjust and
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unreasonable." Said the court a quo: ...The Court finally finds
the inspection fee of P0.30 per bag, imposed by the ordinance in
question to be excessive and confiscatory. It has been shown by the
petitioner, Matalin Coconut Company, Inc., that it is merely
realizing a marginal average profit of P0.40, per bag, of cassava
flour starch shipped out from the Municipality of Malabang because
the average production is P15.60 per bag, including transportation
costs, while the prevailing market price is P16.00 per bag. The
further imposition, therefore, of the tax of P0.30 per bag, by the
ordinance in question would force the petitioner to close or stop
its cassava flour starch milling business considering that it is
maintaining a big labor force in its operation, including a force
of security guards to guard its properties. The ordinance,
therefore, has an adverse effect on the economic growth of the
Municipality of Malabang, in particular, and of the nation, in
general, and is contrary to the economic policy of the government.
DISPOSITIVE: Matalin Coconut won. CASE 14: MARASIGAN LUTZ V.
ARANETA DOCTRINE: Taxation may be made the implement of the State's
police power. FACTS: 1. The present case initiated in the CFI
questioning the legality of
the imposition of taxes pursuant to C.A. No. 567 or the Sugar
Adjustment Act. Said law was enacted "to obtain a readjustment of
the benefits derived from the sugar industry by the component
elements thereof" and "to stabilize the sugar industry so as to
prepare it for the eventuality of the loss of its preferential
position in the United States market and the imposition of the
export taxes" thru the Tydings-McDuffy Act.
2. In section 2 of Commonwealth Act 567, it provides for an
increase of the existing tax on the manufacture of sugar, on a
graduated basis, on each picul of sugar manufactured. On the other
hand, section 3 thereof 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 another tax based on the
rental and 12% of the assessed value of the land. Finally, Sec. 6
thereof provides for the objectives to which the collected tax
would be applied (decrease in production cost, improvement of
living conditions in sugar mills, establishment of sugar stations
etc.).
3. Walter Lutz (plaintiff) in his capacity as Judicial
Administrator of the Intestate Estate of Antonio Jayme Ledesma,
seeks to recover from the CIR the sum of P14,666.40 paid by the
estate as taxes, for the crop years 1948-1949 and 1949-1950. He
alleged that such tax is unconstitutional and void, being levied
for the aid and support of the sugar industry exclusively, which in
plaintiff's opinion is not a public purpose for which a tax may be
constitutionally levied. As the action was dismissed by the CFI,
the plaintiffs appealed the case directly to the SC.
4. The basic defect of the plaintiffs position is his assumption
that the tax provided for in Commonwealth Act No. 567 is a pure
exercise of the taxing power.
ISSUE: WON the tax provided for in Commonwealth Act No. 567 is a
pure exercise of the power of taxation? RULING: NO. An analysis of
the aforementioned act shows that the tax was levied with a
regulatory purpose, which is to provide means for the
rehabilitation and stabilization of the threatened sugar industry.
It is primarily an exercise of the police power. The sugar industry
is one of the primary sources of the states wealth as it generates
foreign exchange, provides employment and currency stability. Its
protection, promotion and advancement is therefore imperative.
There is no question that the protection and
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16
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 promotion. In the case
at bar, the legislative discretion must be allowed fully play,
subject only to the test of reasonableness. The means provided in
section 6 of the law is not questioned whether or not they 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 as a means to
implement the state's police power. It is also inherent in the
power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that "inequalities which
result from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation." CASE 15: MOLON
NATIONAL TELECOMMUNICATIONS COMMISSION, vs. HONORABLE COURT OF
APPEALS and PHILIPPINE LONG DISTANCE TELEPHONE COMPANY DOCTRINE: It
bears stressing that it is not the NTC that imposed such a fee. It
is the legislature itself. Since Congress has the power to exercise
the State inherent powers of Police Power, Eminent Domain and
Taxation, the distinction between police power and the power to
tax, which could be significant if the exercising authority were
mere political subdivisions (since delegation by it to such
political subdivisions of one power does not necessarily include
the other), would not be of any moment when, as in the case under
consideration, Congress itself exercises the power. All that is to
be done would be to apply and enforce the law when sufficiently
definitive and not constitutional infirm.
FACTS: At bar is a Petition for Review on Certiorari seeking to
modify NTC Decision and tResolution of the Court of Appeals.
1988, the National Telecommunications Commission (NTC) served on
the Philippine Long Distance Telephone Company (PLDT) assessment
notices and demands for payment. In its two letter-protests dated
February 23, 1988 and July 14, 1988, and position papers dated
November 8, 1990 and March 12, 1991, respectively, the PLDT
challenged the aforesaid assessments, theorizing: (a) The
assessments were being made to raise revenues and not as mere
reimbursements for actual regulatory expenses in violation of the
doctrine in PLDT vs. PSC, 66 SCRA 341 [1975]; (b) The assessment
under Section 40 (e) should only have been on the basis of the par
values of private respondents outstanding capital stock; (c)
Petitioner has no authority to compel private respondents payment
of the assessed fees under Section 40 (f) for the increase of its
authorized capital stock since petitioner did not render any
supervisory or regulatory activity and incurred no expenses in
relation thereto. On September 29, 1993, the NTC rendered a
Decision denying the protest of PLDT and disposing thus: FOR ALL
THE FOREGOING, finding PLDTs protest to be without merit, the
Commission has no alternative but to uphold the law and DENIES the
protest of PLDT. On October 22, 1993, PLDT interposed a Motion for
Reconsideration which was denied by NTC in an Order issued on May
3, 1994.
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Court of appeals- Modified decision of NTC The Commission is
ordered to recompute its assessments and demands for payment from
petitioner PLDT. On November 20, 1996, NTC moved for partial
reconsideration of the above mentioned Decision, with respect to
the basis of the assessment under Section 40(e), i.e., par value of
the subscribed capital stock. CA denied Petitioners motion for
reconsideration, hence this petition. ISSUE: WHETHER THE COURT OF
APPEALS ERRED IN HOLDING THAT THE COMPUTATION OF SUPERVISION AND
REGULATION FEES UNDER SECTION 40 (F) OF THE PUBLIC SERVICE ACT
SHOULD BE BASED ON THE PAR VALUE OF THE SUBSCRIBED CAPITAL STOCK.
HELD: YES. simply put, the submission of NTC is that the fee under
Section 40 (e) should be based on the market value of PLDTs
outstanding capital stock inclusive of stock dividends and premium,
and not on the par value of PLDTs capital stock excluding stock
dividends and premium, as contended by PLDT. Clear is the ruling of
this Court in the case of Philippine Long Distance Telephone
Company vs. Public Service Commission, 66 SCRA 341, that the basis
for computation of the fee to be charged by NTC on PLDT, is the
capital stock subscribed or paid and not, alternatively, the
property and equipment. The law in point is clear and categorical.
There is no room for construction. It simply calls for application.
To repeat, the fee in question is based on the capital stock
subscribed or paid, nothing less nothing more.
It bears stressing that it is not the NTC that imposed such a
fee. It is the legislature itself. Since Congress has the power to
exercise the State inherent powers of Police Power, Eminent Domain
and Taxation, the distinction between police power and the power to
tax, which could be significant if the exercising authority were
mere political subdivisions (since delegation by it to such
political subdivisions of one power does not necessarily include
the other), would not be of any moment when, as in the case under
consideration, Congress itself exercises the power. All that is to
be done would be to apply and enforce the law when sufficiently
definitive and not constitutional infirm. The term capital and
other terms used to describe the capital structure of a corporation
are of universal acceptance, and their usages have long been
established in jurisprudence. Briefly, capital refers to the value
of the property or assets of a corporation. The capital subscribed
is the total amount of the capital that persons (subscribers or
shareholders) have agreed to take and pay for, which need not
necessarily be, and can be more than, the par value of the shares.
In fine, it is the amount that the corporation receives, inclusive
of the premiums if any, in consideration of the original issuance
of the shares. In the case of stock dividends, it is the amount
that the corporation transfers from its surplus profit account to
its capital account. It is the same amount that can loosely be
termed as the trust fund of the corporation. The Trust Fund
doctrine considers this subscribed capital as a trust fund for the
payment of the debts of the corporation, to which the creditors may
look for satisfaction. Until the liquidation of the corporation, no
part of the subscribed capital may be returned or released to the
stockholder (except in the redemption of
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18
redeemable shares) without violating this principle. Thus,
dividends must never impair the subscribed capital; subscription
commitments cannot be condoned or remitted; nor can the corporation
buy its own shares using the subscribed capital as the
consideration therefor. Dispositive portion: RTC and CA decision
set aside and NTC to compute based on capital stock subscribed or
paid and strictly in accordance with the foregoing disquisition and
conclusion. CASE 16: VILLANUEVA MANILA MEMORIAL PARK, INC. VS
SECRETARY OF THE DEPARTMENT OF SOCIAL WELFARE DOCTRINE: Tax
measures are but "enforced contributions exacted on pain of penal
sanctions" and "clearly imposed for a public purpose. In
conclusion, we maintain that the correct rule in determining
whether the subject regulatory measure has amounted to a "taking"
under the power of eminent domain is the one laid down in Alalayan
v. National Power Corporation and followed in Carlos Superdurg
Corporation consistent with long standing principles in police
power and eminent domain analysis. Thus, the deprivation or
reduction of profits or income. Gross sales must be clearly shown
to be unreasonable, oppressive or confiscatory. Under the specific
circumstances of this case, such determination can only be made
upon the presentation of competent proof which petitioners failed
to do. A law, which has been in operation for many years and
promotes the welfare of a group accorded special concern by the
Constitution, cannot and should not be summarily invalidated on a
mere allegation that it reduces the profits or income/gross sales
of business establishments.
FACTS: Petitioners Manila Memorial Park, Inc. and La Funeraria
Paz-Sucat, Inc., domestic corporations engaged in the business of
providing funeral and burial services filed against public
respondents Secretaries of the Department of Social Welfare and
Development (DSWD) and the Department of Finance (DOF). On April
23, 1992, RA 7432 was passed into law, granting senior citizens
certain privileges. The law pertaining to the case is presented
below:
SECTION 4. Privileges for the Senior Citizens. The senior
citizens shall be entitled to the following:
a) the grant of twenty percent (20%) discount from all
establishments relative to utilization of transportation services,
hotels and similar lodging establishment[s], restaurants and
recreation centers and purchase of medicine anywhere in the
country: Provided, That private establishments may claim the cost
as tax credit;
b) a minimum of twenty percent (20%) discount on admission fees
charged by theaters, cinema houses and concert halls, circuses,
carnivals and other similar places of culture, leisure, and
amusement;
c) exemption from the payment of individual income taxes:
Provided, That their annual taxable income does not exceed the
property level as determined by the National Economic and
Development Authority (NEDA) for that year;
d) exemption from training fees for socioeconomic programs
undertaken by the OSCA as part of its work;
e) free medical and dental services in government
establishment[s] anywhere in the country, subject to guidelines to
be issued by the Department of Health, the Government Service
Insurance System and the Social Security System;
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f) to the extent practicable and feasible, the continuance of
the same benefits and privileges given by the Government Service
Insurance System (GSIS), Social Security System (SSS) and PAG-IBIG,
as the case may be, as are enjoyed by those in actual service.
On August 23, 1993, Revenue Regulations (RR) No. 02-94 was
issued to implement RA 7432. Sections 2(i) and 4 of RR No. 02-94
provide:
Sec. 2. DEFINITIONS. For purposes of these regulations: i. Tax
Credit refers to the amount representing the 20% discount granted
to a qualified senior citizen by all establishments relative to
their utilization of transportation services, hotels and similar
lodging establishments, restaurants, drugstores, recreation
centers, theaters, cinema houses, concert halls, circuses,
carnivals and other similar places of culture, leisure and
amusement, which discount shall be deducted by the said
establishments from their gross income for income tax purposes and
from their gross sales for value-added tax or other percentage tax
purposes. x x x x Sec. 4. RECORDING/BOOKKEEPING REQUIREMENTS FOR
PRIVATE ESTABLISHMENTS. Private establishments, i.e., transport
services, hotels and similar lodging establishments, restaurants,
recreation centers, drugstores, theaters, cinema houses, concert
halls, circuses, carnivals and other similar places of culture[,]
leisure and amusement, giving 20% discounts to qualified senior
citizens are required to keep separate and accurate record[s] of
sales made to senior citizens, which shall include the name,
identification number, gross sales/receipts, discounts, dates of
transactions and invoice number for every transaction. The amount
of 20% discount shall be deducted from the gross income for income
tax purposes and from gross sales of the business enterprise
concerned for purposes of the VAT and other percentage taxes.
In Commissioner of Internal Revenue v. Central Luzon Drug
Corporation,5 the Court declared Sections 2(i) and 4 of RR No.
02-94 as erroneous because these contravene RA 7432,6 thus:
RA 7432 specifically allows private establishments to claim as
tax credit the amount of discounts they grant. In turn, the
Implementing Rules and Regulations, issued pursuant thereto,
provide the procedures for its availment. To deny such credit,
despite the plain mandate of the law and the regulations carrying
out that mandate, is indefensible. First, the definition given by
petitioner is erroneous. It refers to tax credit as the amount
representing the 20 percent discount that "shall be deducted by the
said establishments from their gross income for income tax purposes
and from their gross sales for value-added tax or other percentage
tax purposes." In ordinary business language, the tax credit
represents the amount of such discount. However, the manner by
which the discount shall be credited against taxes has not been
clarified by the revenue regulations. By ordinary acceptation, a
discount is an "abatement or reduction made from the gross amount
or value of anything." To be more precise, it is in business
parlance "a deduction or lowering of an amount of money;" or "a
reduction from the full amount or value of something, especially a
price." In business there are many kinds of discount, the most
common of which is that affecting the income statement or financial
report upon which the income tax is based.
x x x x
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define
tax credit as the 20 percent discount deductible from gross income
for income tax purposes, or from gross sales for VAT or other
percentage tax purposes. In effect, the tax credit benefit under RA
7432 is related to a sales discount. This contrived definition is
improper, considering that the latter has to be deducted from gross
sales in order to compute the gross income in the income statement
and cannot be deducted again, even for purposes of
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computing the income tax. When the law says that the cost of the
discount may be claimed as a tax credit, it means that the amount
when claimed shall be treated as a reduction from any tax
liability, plain and simple. The option to avail of the tax credit
benefit depends upon the existence of a tax liability, but to limit
the benefit to a sales discount which is not even identical to the
discount privilege that is granted by law does not define it at all
and serves no useful purpose. The definition must, therefore, be
stricken down.
ISSUE: WON of Section 4 of Republic Act (RA) No. 7432,as amended
by RA 9257, and the implementing rules and regulations issued by
the DSWD and DOF insofar as these allow business establishments to
claim the 20% discount given to senior citizens as a tax deduction
is constitutional. RULING: YES. The 20% senior citizen discount has
not been shown to be unreasonable, oppressive or confiscatory. On
its face, we find that there are at least two conceivable bases to
sustain the subject regulations validity absent clear and
convincing proof that it is unreasonable, oppressive or
confiscatory. Congress may have legitimately concluded that
business establishments have the capacity to absorb a decrease in
profits or income/gross sales due to the 20% discount without
substantially affecting the reasonable rate of return on their
investments considering (1) not all customers of a business
establishment are senior citizens and (2) the level of its profit
margins on goods and services offered to the general public.
Concurrently, Congress may have, likewise, legitimately concluded
that the establishments, which will be required to extend the 20%
discount, have the capacity to revise their pricing strategy so
that whatever reduction in profits or income/gross sales that they
may sustain because of sales to senior citizens, can be recouped
through higher mark-ups or from other products not subject of
discounts. As a result, the discounts resulting from sales to
senior citizens will not be confiscatory or unduly oppressive.
In turn, this affects the amount of profits or income/gross
sales that a private establishment can derive from senior citizens.
In other words, the subject regulation affects the pricing, and,
hence, the profitability of a private establishment. However, it
does not purport to appropriate or burden specific properties, used
in the operation or conduct of the business of private
establishments, for the use or benefit of the public, or senior
citizens for that matter, but merely regulates the pricing of goods
and services relative to, and the amount of profits or income/gross
sales that such private establishments may derive from, senior
citizens. The subject regulation may be said to be similar to, but
with substantial distinctions from, price control or rate of return
on investment control laws which are traditionally regarded as
police power measures. These laws generally regulate public
utilities or industries/enterprises imbued with public interest in
order to protect consumers from exorbitant or unreasonable pricing
as well as temper corporate greed by controlling the rate of return
on investment of these corporations considering that they have a
monopoly over the goods or services that they provide to the
general public. The subject regulation differs therefrom in that
(1) the discount does not prevent the establishments from adjusting
the level of prices of their goods and services, and (2) the
discount does not apply to all customers of a given establishment
but only to the class of senior citizens. Nonetheless, to the
degree material to the resolution of this case, the 20% discount
may be properly viewed as belonging to the category of price
regulatory measures which affect the profitability of
establishments subjected thereto. On its face, therefore, the
subject regulation is a police power measure. DISPOSITIVE: The
Supreme Court dismissed the case and ruled in favour of the
respondents. WHEREFORE, the Petition is hereby DISMISSED for lack
of merit. The law is constitutional.
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CASE 17: CACHAPERO CIR vs ALGUE and the CTA DOCTRINES: 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.
Symbiotic Relationship as the Rationale of Taxation: 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.
It is a requirement in all democratic regimes that TAXATION be
exercised reasonably and in accordance with the prescribed
procedure.
Parties: Petitioner - Commissioner on Internal Revenue Private
Respondent Algue, Inc., a domestic corporation engaged in
engineering, construction and other allied activities FACTS:Private
respondent 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. On January 18, 1965, Algue filed a letter of
protest or request
for reconsideration. On 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. A search of the protest in the dockets of the
case proved fruitless. Atty. Guevara produced his file copy and
gave to the BIR agent, who deferred service of the warrant of
distraint.
On 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.
Sixteen days later, on April 23, 1965, Algue filed a petition
for review of the decision of the CIR with the Court of Tax
Appeals.
Procedural Issue: WON the appeal of the private respondent from
the decision of the CIR was made on time and in accordance with
law. HELD (Procedural Issue): YES. The above chronology shows that
the petition was filed seasonably. According to RA 1125, the appeal
may be made within 30 days after receipt of the decision or ruling
challenged. It is true that as a rule the warrant of distraint and
levy is "proof of
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the finality of the assessment" and renders hopeless a request
for reconsideration," being "tantamount to an outright denial
thereof and makes the said request deemed rejected." But there is a
special circumstance in the case at bar that prevents application
of this accepted doctrine. The proven fact is that 4 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 CTA correctly
noted," the protest filed by private respondent was not pro forma
and 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. Substantive Issue
The petitioner CIR contends that the claimed deduction of
P75,000.00 was properly disallowed because it was not an ordinary
reasonable or necessary business expense.
CTA agreed with Algue and 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 income but later conformed to the decision of the
respondent court rejecting this assertion. In 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. Ultimately, after its incorporation largely through
the promotion of the said persons, this new corporation purchased
the PSEDC properties. For 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. There 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. The CTA also found, after
examining the evidence, that no distribution of dividends was
involved. The 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.
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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. It 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. Admittedly, everything seemed to be
informal. This arrangement was understandable, however, in view of
the close relationship among the persons in the family corporation.
ISSUE: WON the CIR correctly disallowed the P75,000.00 deduction
claimed by private respondent Algue as legitimate business expenses
in its income tax returns. HELD: NO. 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. After
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 Sec 30 of the Tax Code and Revenue Regulations No.
2, Section 70 (1). 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.
The 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. Symbiotic Relationship as the Rationale of Taxation 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
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court in accordance with RA 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. CASE 18: CANALITA PHILIPPINE AIRLINES, INC. vs.
ROMEO EDU AND UBALDO CARBONELL DOCTRINE: If the purpose is
primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax
FACTS: 1. The Philippine Airlines (PAL) is a domestic corporation
and
engaged in the business of air transportation under a
legislative franchise, Act. No.4271, as amended by RA Nos. 2360 and
2667. Under its franchise, PAL is exempt from the payment of
taxes.According to an Opinion by the Secretary of Justice PAL has,
since 1956, not been paying motor vehicle registration fees.
2. 1971- Appellee Land Transportation Commissioner Romeo Edu,
issued a regulation requiring all tax exempt entities, among them
PAL to pay motor vehicle registration fees. Despite PALs
protestations, Commissioner Edu refused to register appellants
motor vehicles unless the amounts imposed were paid. PAL thus paid
under protest.
3. After paying , PAL wrote a letter to Commissioner Edu asking
for a refund of the amounts it paid , invoking the ruling in
Calalang v. Lorenzo where it was held that motor vehuicle
registration fees are in reality taxes from the payment of which
PAL is exmpt by virtue of its legislative franchise.
4. Appelle Edu denied the request for refund, alleging the
decision in Republic v. Philippine Rabbit Bus Lines, Inc. which
states that motor vehicles registration fee is a regulatory
exactions and not revenue measures and thus do not come within the
exemption granted to PAL under its franchise.
5. PAL filed a complaint against Commissioner Edu and National
Treasurer Ubaldo Carbonell before the CFI of Rizal.
6. TRIAL COURT: Dismissed PALs complaint, guided by the ruling
in Republic v. Philippine Rabbit Bus Lines, Inc. which considered
registration fees as regulatory fees imposed as an incident of
police power, and not taxes. From this judgemnet, PAL appealed to
the Court of Appeals which certified the case to the Supreme
Court.
ISSUE: WON Motor Vehicle Registration Fees are considered taxes?
RULING: YES. Motor Vehicle registration fees were matters
originally governed by the Revised Motor Vehicle Law. Today, the
matter is governed by the Land Transportation Code. Section 73 of
C.A.123 (which amended Sec.73 of Act 3992 and remained unrevised by
RA Nos. 587 and 1603) states: Section 73. Disposal of moneys
collected.Twenty per centum of the money collected under the
provisions of this Act shall accrue to the road and bridge funds of
the different provinces and chartered cities in proportion to the
centum shall during the next previous year and the remaining eighty
per centum shall be deposited in the Philippine Treasury to create
a special fund for the construction and maintenance of national and
provincial roads and bridges as well as the streets and bridges in
the chartered cities to be alloted by the Secretary of Public Works
and Communications for projects recommended by the Director of
Public Works in the different provinces and chartered cities.
Presently, Sec. 61 of the Land Transportation and Traffic Code
provides:
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Sec. 61. Disposal of Mortgage. CollectedMonies collected under
the provisions of this Act shall be deposited in a special trust
account in the National Treasury to constitute the Highway Special
Fund, which shall be apportioned and expended in accordance with
the provisions of the" Philippine Highway Act of 1935. "Provided,
however, That the amount necessary to maintain and equip the Land
Transportation Commission but not to exceed twenty per cent of the
total collection during one year, shall be set aside for the
purpose. (As amended by RA 64-67, approved August 6, 1971). It
appears clear that the legislative intent in the abovementioned
provisions, requiring owners of vehicles to pay for their
registration is mainly to raise funds for the construction and
maintenance of highways and to a much lesser degree, pay for
operating expenses of the administering agency. The lower court was
wrong in interpreting the case of Philippine Rabbit Bus. It
presumed that the use of the term fees in the law is to be
distinguished from other taxes. Fees may be properly regarded as
taxes although they also serve as an instrument of regulation. If
the purpose is primarily revenue, or if revenue is, at least, one
of the real and substantial purposes, then the exaction is properly
called a tax (Umali, Id.) Such is the case of motor vehicle
registration fees. It is clear that the legislators had in mind a
regulatory tax as the law refers to the imposition on the
registration, operation or ownership of a motor vehicle as a "tax
or fee." Though nowhere in the Land Transportation Code does the
law specifically state that the imposition is a tax, Section
591-593 speaks of "taxes" or fees ... for the registration or
operation or on the ownership of any motor vehicle, or for the
exercise of the profession of chauffeur ..." making the intent to
impose a tax more apparent. Even Rep. Act 5448 cited by the
respondents, speak of an "additional" tax," where the aw could
h