taxcases2table2

8/10/2019 taxcases2table2

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DIGESTED TAX CASES PART III dennisaranabriljdii 1 | P a g e

PARTIES FACTS ISSUE/S SC RULING

Petitioner:

Province of Abra

Respondent:Hon. Judge

Hernando

First, there was a denial of a motion to dismiss an

action for declaratory relief by private

respondent Roman Catholic Bishop of Bangued

desirous of being exempted from a real estate tax

followed by a summary judgment granting such

exemption, without even hearing the side of

petitioner.

There being a tax assessment made by the

Provincial Assessor on the properties of

respondent Roman Catholic Bishop, petitioner

failed to exhaust the administrative remedies

available under Presidential Decree No. 464

before filing such court action. Further, it was

pointed out to respondent Judge that he failed to

abide by the pertinent provision of such

Presidential Decree which provides as follows:

"No court shall entertain any suit assailing the

validity of a tax assessed under this Code until

the taxpayer, shall have paid, under protest, the

tax assessed against him nor shall any court

declare any tax invalid by reason of irregularities

or informalities in the proceedings of the officerscharged with the assessment or collection of

taxes, or of failure to perform their duties within

this time herein specified for their performance

unless such irregularities, informalities or failure

shall have impaired the substantial rights of the

taxpayer; nor shall any court declare any portion

of the tax assessed under the provisions of this

Code invalid except upon condition that the

taxpayer shall pay the just amount of the tax, as

determined by the court in the pending

proceeding."

When asked to comment, respondent Judge

began with the allegation that there "is no

question that the real properties sought to be

taxed by the Province of Abra are properties ofthe respondent Roman Catholic Bishop of

Bangued, Inc."

WON the Province of

Abra was given due

process.

No, there was no due process. Petitioner Province of Abra is therefore fully justified in invoking

the protection of procedural due process. If there is any case where proof is necessary to

demonstrate that there is compliance with the constitutional provision that allows an exemption,

this is it. Instead, respondent Judge accepted at its face the allegation of private respondent. All

that was alleged in the petition for declaratory relief filed by private respondents, after

mentioning certain parcels of land owned by it, are that they are used "actually, directly and

exclusively" as sources of support of the parish priest and his helpers and also of privaterespondent Bishop. In the motion to dismiss filed on behalf of petitioner Province of Abra, the

objection was based primarily on the lack of jurisdiction, as the validity of a tax assessment may

be questioned before the Local Board of Assessment Appeals and not with a court. There was also

mention of a lack of a cause of action, but only because, in its view, declaratory relief is not proper,

as there had been breach or violation of the right of government to assess and collect taxes on

such property. It clearly appears, therefore, that in failing to accord a hearing to petitioner

Province of Abra and deciding the case immediately in favor of private respondent, respondent

Judge failed to abide by the constitutional command of procedural due process.

The Court ordered to hear the case first.

NOTA BENE: Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents

appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious,

charitable, or educational purposes shall be exempt from taxation." The present Constitution

added "charitable institutions, mosques, and non-profit cemeteries" and required that for the

exemption of ":lands, buildings, and improvements," they should not only be "exclusively" but also"actually and "directly" used for religious or charitable purposes. Reliance on past decisions would

have sufficed were the words "actually" as well as "directly" not added. There must be proof

therefore of the actualand direct use of the lands, buildings, and improvements for religious or

charitable purposes to be exempt from taxation.

It has been the constant and uniform holding that exemption from taxation is not favored and is

never presumed, so that if granted it must be strictly construed against the taxpayer. Affirmatively

put, the law frowns on exemption from taxation, hence, an exempting provision should be

construed strictissimi juris."


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Parayno v.

Jovellanos

Petitioner was the owner of a gasoline filling

station in Calasiao, Pangasinan. In 1989, some

residents of Calasiao petitioned the Sangguniang

Bayan (SB) of said municipality for the closure or

transfer of the station to another location. The

matter was referred to the Municipal Engineer,

Chief of Police, Municipal Health Officer and the

Bureau of Fire Protection for investigation. Upon

their advise, the Sangguniang Bayan

recommended to the Mayor the closure or

transfer of location of petitioner's gasoline

station.

Petitioner claimed that her gasoline station was

not covered by Section 44 of the Official Zoning

Code since it was not a "gasoline service station"

but a "gasoline filling station" governed by

Section 21 thereof.

1) WON, the legal

maxim of ejusdem

generisdid not apply

to her case

2) WON, the

closure/transfer of her

gasoline filling station

by respondent

municipality was an

invalid exercise of the

latter's police powers.

1) No, it is evident from that the ordinance intended these two terms to be separate and distinct

from each other. Even respondent municipality's counsel admitted this dissimilarity during the

hearing on the application for the issuance of a writ of preliminary prohibitory and mandatory

injunction.

Respondent municipality thus could not find solace in the legal maxim of ejusdem generis which

means "of the same kind, class or nature." Under this maxim, where general words follow the

enumeration of particular classes of persons or things, the general words will apply only to

persons or things of the same general nature or class as those enumerated. Instead, what applied

in this case was the legal maxim expressio unius est exclusio alteriuswhich means that the express

mention of one thing implies the exclusion of others. Hence, because of the distinct and definite

meanings alluded to the two terms by the zoning ordinance, respondents could not insist that

"gasoline service station" under Section 44 necessarily included "gasoline filling station" under

Section 21. Indeed, the activities undertaken in a "gas service station" did not automatically

embrace those in a "gas filling station."

2) No, respondent municipality failed to comply with the due process clause when it passed

Resolution No. 50. While it maintained that the gasoline filling station of petitioner was less than

100 meters from the nearest public school and church, the records do not show that it evenattempted to measure the distance, notwithstanding that such distance was crucial in determining

whether there was an actual violation of Section 44. The different local offices that respondent

municipality tapped to conduct an investigation never conducted such measurement either.

Moreover, petitioner's business could not be considered a nuisance which respondent

municipality could summarily abate in the guise of e xercising its police powers. The abatement of

a nuisance without judicial proceedings is possible only if it is a nuisanceper se. A gas station is

not a nuisanceper se or one affecting the immediate safety of persons and property, hence, it

cannot be closed down or transferred summarily to another location.


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Commissioner of

Customs v.

Hypermix Feeds

On 7 November 2003, petitioner Commissioner

of Customs issued CMO 27-2003. Under the

Memorandum, for tariff purposes, wheat was

classified according to the following: (1)

importer or consignee; (2) country of origin; and

(3) port of discharge. The regulation provided an

exclusive list of corporations, ports of discharge,

commodity descriptions and countries of origin.

Depending on these factors, wheat would be

classified either as food grade or feed grade. The

corresponding tariff for food grade wheat was

3%, for feed grade, 7%.

CMO 27-2003 further provided for the proper

procedure for protest or Valuation and

Classification Review Committee (VCRC) cases.

Under this procedure, the release of the articles

that were the subject of protest required the

importer to post a cash bond to cover the tariff

differential.

A month after the issuance of CMO 27-2003, on

19 December 2003, respondent filed a Petition

for Declaratory Relief with the Regional Trial

Court (RTC) of Las Pias City. It anticipated the

implementation of the regulation on its imported

and perishable Chinese milling wheat in transit

from China.

WON, CMO 27-2003

was valid.

No, petitioners failed to follow the publication requirements enumerated by the Revised

Administrative Code.

CMO 27-3003 is unconstitutional for being violative of the equal protection clause of the

Constitution.

The equal protection clause means that no person or class of persons shall be deprived of the

same protection of laws enjoyed by other persons or other classes in the same place in like

circumstances. Thus, the guarantee of the equal protection of laws is not violated if there is a

reasonable classification. For a classification to be reasonable, it must be shown that (1) it rests

on substantial distinctions; (2) it is germane to the purpose of the law; (3) it is not limited to

existing conditions only; and (4) it applies equally to all members of the same class.

Unfortunately, CMO 27-2003 does not meet these requirements. We do not see how the quality of

wheat is affected by who imports it, where it is discharged, or which country it came from.

Thus, on the one hand, even if other millers excluded from CMO 27 -2003 have imported food

grade wheat, the product would still be declared as feed grade wheat, a classification subjecting

them to 7% tariff. On the other hand, even if the importers listed under CMO 27-2003 have

imported feed grade wheat, they would only be made to pay 3% tariff, thus depriving the state of

the taxes due. The regulation, therefore, does not become disadvantageous to respondent only, buteven to the state.


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Plaintiff-appellant:

ORMOC SUGAR

COMPANY, INC.

(OSCI)

Defendants-

appellees:Treasurer of

Ormoc City,

Municipal Board

of Ormoc, Hon.

Cornejos, Mayor

Municipal Ordinance No. 4: imposing on any and

all productions of centrifugal sugar milled at the

Ormoc Sugar Company, Inc., in Ormoc City amunicipal tax equivalent to 1% per export sale to

the USA and other foreign countries.

Payments were made, under protest.

OSCIs Arguments:

OSCI filed a complaint against the City, its

Treasurer, Mun. Board and Mayor, alleging that:

a.

The ordinance was unconstitutional

fore being violative of the equal

protection clause and the rule of

uniformity of taxation, aside from

being an export tax forbidden under

Sec. 2287 of the Revised Admin. Code.

b. The tax is neither a production nor a

license tax which Ormoc is authorized

to impose

c.

The tax amounts to a customs duty, feeor charge in violation of paragraph 1 of

Sec. 2 of RA 2264 because the tax is on

both the sale and export of sugar

Defendants Arguments:

a. The tax ordinance was within the citys

power to enact under the Local

Autonomy Act

b. The ordinance did not violate the said

constitutional limitations

CFI: upheld the constitutionality of the ordinance

and declared the taxing power of defendant not

excluded in its charter

WON the

constitutional limits on

the power of taxation

(EP Clause and rule of

uniformity of taxation)

were infringed.

Unconstitutional.

The equal protection clause applies only to persons or things identically situated and does not

bar a reasonable classification of the subject of legislation, and a classification is reasonable

where:

(1)

It is based on substantial distinctions which make real differences;

(2) These are germane to the purpose of the law;

(3) The classification applies not only to present conditions but also to future conditions

which are substantially identical to those of the present; and

(4)

The classification applies only to those who belong to the same class.

Ordinance does not meet them. Why?

For it taxes only centrifugal sugar produced and exported by the OSCI and none other.

OSCI was the only sugar central in the city at the time the ordinance was enacted. The

classification should be in terms applicable to future conditions as well, to be reasonable.

The taxing ordinance should not be singular and exclusive as to exclude any subsequently

established sugar central, of the same class as OSCI, for the coverage of tax. As it is now, even if

alter a similar company is set up, it cannot be subject to the tax because the ordinance expressly

points only OSCI as the entity to be levied upon

Ordinance declared unconstitutional.


5/19



MANILA RACE

HORSE TRAINERS

ASSOCIATION,

INC., v MANUEL

DE LA FUENTE

Manila Race Horses Trainers Association, Inc., a

non-stock corporation duly organized and

existing under and by virtue of the laws of the

Philippines, are owners of boarding stables for

race horses and that their rights as such are

affected by Ordinance No. 3065 (a tax on race

horses as distinct from boarding stables. It is

argued that by section 2 the basis of the license

fees "is the number of race horses kept or

maintained in the boarding stables to be paid by

the maintainers at the rate of P10.00 a year for

each race horse;" that "the fee is increased

correspondingly P10 for each additional race

horse maintained or fed in the stable;" and that

"by the same token, an empty stable for race

horse pays no license fee at all.") of the City of

Manila.

WON, said ordinance is

valid.

Yes, from the context of Ordinance No. 3065, the intent to tax or license stables and not horses is

clearly manifest. The tax is assessed not on the owners of the horses but on the owners of the

stables.

It is also plain from the text of the whole ordinance that the number of horses is used in the

assessment purely as a method of fixing an equitable and practical distribution of the burden

imposed by the measure. Far from being obnoxious, the method is fair and just. It is but fair and

just that for a boarding stable where only one horse is maintained proportionately less amount

should be exacted than for a stable where more horses are kept and from which greater income

is derived.

The ordinance in question is not discriminatory but savors of class legislation. In taxing only

boarding stables for race horses, the ordinance does not make arbitrary classification. It was said

that there is equality and uniformity in taxation if all articles or kinds of property of the same

class are taxed at the same rate. The fact that some places of amusement are not taxed while

others, such as cinematographs, are taxed, is not argument at all against the equality and

uniformity of tax imposition." There would be discrimination if some boarding stables of the

same class used for the same number of horses were not taxed or were made to pay less or more

than others.


TIU VS COURT OF

APPEALS

The constitutional rights to equal protection of

the law is not violated by an executive order,

issued pursuant to law, granting tax and duty

incentives only to the business and residents

within the "secured area" of the Subic Special

Economic Zone and denying them to those who

live within the Zone but outside such "fenced-in"

territory. The Constitution does not require

absolute equality among residents. It is enough

that all persons un der like circumstances or

conditions are given the same privileges and

required to follow the same obligations. In short, a

classification based on valid and reasonable

standards does not violate the equal protectionclause.

Facts: Congress passed into law RA 7727 An act

accelerating the conversion of military

reservations into other productive uses, creating

the bases conversion and development authority

for this purpose, providing funds therefor and for

WON EO 97-A violates

the equal protection

clause of the

Constitution?

(Specifically the issue

of WON the provision

of EO 97-A confining

the application of RA

7727 within the

secured area and

excluding residents of

the zone outside the

secured area is

discriminatory or not)

We rule in favor of the constitutionality and validity of the assailed EO. Said Order is not violative

of the equal protection clause; neither is it discriminatory. Rather, than we find real and

substantive distinctions between the circumstances obtaining inside and those outside the Subic

Naval Base, thereby justifying a valid and reasonable classification.

:The fundamental right of equal protection of the laws is not absolute, but is subject to

reasonable classification. If the groupings are characterized by substantial distinctions that make

real differences, one class may be treated and regulated differently from another. The

classification must also be germane to the purpose of the law and must apply to all those

belonging to the same class. Explaining the nature of the equal protection guarantee, the Court

in Ichong v. Hernandezsaid:

The equal protection of the law clause is against undue favor and individual or class privilege, as

well as hostile discrimination or the oppression of inequality. It is not intended to prohibit

legislation which is limited either [by] the object to which it is directed or by [the] territory

within which it is to operate. It does not demand absolute equality among residents; it merely

requires that all persons shall be treated alike, under likecircumstances and conditionsboth as to

privileges conferred and liabilities enforced. The equal protection clause is not infringed by

legislation which applies only to those persons falling within a specified class, if it applies alike to

all persons within such class, and reasonable. grounds exist for making a distinction between

those who fall within such class and those who do not.

:Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the

purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all


6/19


other purposes.

:Section 12 thereof created the Subic Special

Economic Zone and granted there to special

privileges. President Ramos issued EO 97-A,

specifying the area within which the tax-and-dut-

free privilege was operative:

Sec. 1.1. The Secured Area consisting of the

presently fenced-in former Subic Naval Base shall

be the only completely tax and duty-free area in

the SSEFPZ [Subic Special Economic and Free

Port Zone]..

:The petitioners challenged before this court the

constitutionality of EO 97-A for being violative of

their right to equal protection of laws since only

to the business and residents within the "secured

area" of the Subic Special Econimic Zone are

granted tax and duty incentives and denying

them to those who live within the Zone but

outside such fenced-in

members of the same class.

:From the above provisions of the law, it can easily be deduced that the real concern of RA 7227

is to convert the lands formerly occupied by the US military bases into economic or industrial

areas. In furtherance of such objective, Congress deemed it necessary to extend economic

incentives to attract and encourage investors, both local and foreign. Among such enticements

are:(1) a separate customs territory within the zone, (2) tax-and-duty-free importation's, (3)

restructured income tax rates on business enterprises within the zone, (4) no foreign exchange

control, (5) liberalized regulations on banking and finance, and (6) the grant of resident status to

certain investors and of working visas to certain foreign executives and workers .

:We believe it was reasonable for the President to have delimited the application of some

incentives to the confines of the former Subic military base. It is this specific area which the

government intends to transform and develop from its status quoanteas an abandoned naval

facility into a self-sustaining industrial and commercial zone, particularly for big foreign and

local investors to use as operational bases for their businesses and industries. Why the seeming

bias for the big investors? Undeniably, they are the ones who can pour huge investments to spur

economic growth in the country and to generate employment opportunities for the Filipinos, the

ultimate goals of the government for such conversion. The classification is, therefore, germane to

the purposes of the law. And as the legal maxim goes, "The intent of a statute is the law.

:Certainly, there are substantial differences between the big investors who are being lured to

establish and operate their industries in the so-called "secured area" and the present business

operators outside the area. On the one hand, we are talking of billion-peso investments and

thousands of new, jobs. On the other hand, definitely none of such magnitude. In the first, the

economic impact will be national; in the second, only local. Even more important, at this time the

business activities outside the "secured area" are not likely to have any impact in achieving thepurpose of the law, which is to turn the former military base to productive use for the benefit of

the Philippine economy. There is, then, hardly any reasonable basis to extend to them the

benefits and incentives accorded in RA 7227. Additionally, as the Court of Appeals pointed out, it

will be easier to manage and monitor the activities within the "secured area," which is already

fenced off, to prevent "fraudulent importation of merchandise" or smuggling.

:It is well-settled that the equal-protection guarantee does not require territorial uniformity of

laws. As long as there are actual and material differences between territories, there is no

violation of the constitutional clause. And of course, anyone, including the petitioners, possessing

the requisite investment capital can always avail of the same benefits by channeling his or her

resources or business operations into the fenced-off free port zone.


7/19



Petitioner:

Cagayan Electric

Power & Light

Co., Inc.

Respondents:CIR and CA

About: Liability of Cagayan Electric for income tax amounting to P74,149.73 for the more than

seven-month period of the year 1969 in addition to franchise tax.

Cagayan Electric is the holder of a legislative franchise, RA 3247, under which its payment of

3% tax on itsgross earningsfrom the sale of electric current is in lieu of all taxes and

assessments of whatever authority upon privileges, earnings, income, franchise, and poles,

wires, transformer, and insulators of the grantee, from which taxes and assessments the

grantee is hereby expressly exempted.

RA 5431 amended sec. 24 of Tax Code by making liable for income tax all corporate taxpayers

not specifically exempt under par (c) (1) of said section and section 27 of the Tax C ode

notwithstanding the provisions of existing special or general laws to the c ontrary. Thus,

Cagayan Electric and other subject companies were subjected to income tax in addition to

franchise tax.

Cag.Elec.s franchise was amended by RA 6020 authorizing it to furnish electricity to other

municipalities. The amendment reenacted the exemption in its original charter or neutralized

the modification made by RA 5431 more than a year before.

CIR required CagElec to pay deficiency income taxs for 1968-1971. CagElec contested, CIR

cancelled the assessments for 70 and 71 but insisted on those for 68 and 69.

Tax Court: CagElec liable only for the income tax (Jan1-Aug3, 1969) or before the passage ofRA 6020 which reiterated its tax exemption.

CagElecs Arguments:

a. Its franchise tax is a commutative tax which already includes the income tax

b. RA 5431 as amended did not amend, alter or repeal its franchise

c. Its franchise is not a contract which can be impaired by an implied repeal

d.

Sec 24(d) of the Tax Code should be construed strictly against the Govt.

WON Cagayan

Electric is

income tax

exempt.

Yes, but only from January 1 Aug 3, 1961 when its tax

exemption was modified by RA 5431.

We hold that Congress could impair petitioner's legislative

franchise by making it liable for income tax from which

heretofore it was exempted by virtue of the exemption

provided for in section 3 of its franchise.

Republic Act No. 5431, in amending section 24 of the Tax

Code by subjecting to income tax all corporate taxpayers

not expressly exempted therein and in section 27 of the

Code, had the effect of withdrawing petitioner's exemption

from income tax.

The Tax Court acted correctly in holding that the exemption

was restored by the subsequent enactment on August 4,

1969 of Republic Act No. 6020 which reenacted the said tax

exemption. Hence, the petitioner is liable only for the

income tax for the period from January 1 to August 3, 1969

when its tax exemption was modified by Republic Act No.

5431.


Plaintiff-appellant:

American Bible

Society

Defendant-

appellee: City ofManila

ABS is a foreign, non-stock, non-profit,

religious, missionary corporation duly

registered and doing business in the

Philippines.

City of Manila is a mun. corporation withpowers under RA 409, Revised Charter of

the City of Manila.

ABS agency has been distributing and

selling bibles and/or gospel portions

throughout the Philippines. City

Treasurer informed ABS that it was

(1) WON the

ordinances are

constitutional

and valid

(2) WON the

provisions ofsaid ordinances

are applicable to

the case at bar

This Ordinance is of general application and not particularly directed against institutions like the

plaintiff, and it does not contain any provisions whatever prescribing religious censorship nor

restraining the free exercise and enjoyment of any religious profession. Section 1 of Ordinance No.3000 reads as follows:

SEC. 1. PERMITS NECESSARY. It shall be unlawful for any person or entity to conduct or engage in

any of the businesses, trades, or occupations enumerated in Section 3 of this Ordinance or other

businesses, trades, or occupations for which a permit is required for the proper supervision and

enforcement of existing laws and ordinances governing the sanitation, security, and welfare of the

public and the health of the employees engaged in the business specified in said section 3

hereof,WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR FROM THE MAYOR AND THE


8/19


conducting business of general

merchandise without Mayors permit and

municipal license in violation of certain

ordinances; it required ABS to secure the

corresponding permit and license fees,

together with compromise (P5821.45)

ABS protested the requirements but still

paid to avoid closing of its business. It

also gave notice that suit would be taken

to question the legality of the ordinances,

under which the said fees were collected.

That its parent society is in NY, USA

That its contiguous real properties

located at Isaac Peral are exempt from

real estate taxes.

That it was never required to pay any

municipal license fee or tax before the

war, nor the ABS in the US pay any

license fee or sales tax for the sale of

bible therein.

That it never made any profit from the

sale of its bibles.

That in order to maintain its operating

cost it obtains substantial remittances

from NY office and voluntary

contributions and gifts from certain

churches in the US and PH.

ABS argument:

Said ordinances were illegal

and unconstitutional

The ordinance providing for

taxes based on gross sales or

receipts, on order to be valid

under the new Charter of theCity, must first be approved by

the President of the PH

Citys arguments:

Ordinances were enacted by

the Mun. Board of the City by

virtue of the power granted to

NECESSARY LICENSE FROM THE CITY TREASURER.

The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned

in Section 3 of the Ordinance, and the record does not show that a permit is required therefor under

existing laws and ordinances for the proper supervision and enforcement of their provisions

governing the sanitation, security and welfare of the public and the health of the employees engaged

in the business of the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which

reads as follows:

79. All other businesses, trades or occupations not

mentioned in this Ordinance, except those upon which the

City is not empowered to license or to tax P5.00

Therefore, the necessity of the permit is made to depend upon the power of the City to license or taxsaid business, trade or occupation.

The license fees required to be paid quarterly in Section 1 of said Ordinance No. 2529, as amended,

are not imposed directly upon any religious institution but upon those engaged in any of the

business or occupations therein enumerated, such as retail "dealers in general merchandise" which,

it is alleged, cover the business or occupation of selling bibles, books, etc

Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider

concept of taxation and is different from the provisions of Section 2444(m-2) that the former cannot

be considered as a substantial re-enactment of the provisions of the latter. We have quoted above the

provisions of section 2444(m-2) of the Revised Administrative Code and We shall now copy

hereunder the provisions of Section 18, subdivision (o) of Republic Act No. 409, which reads asfollows:

(o) To tax and fix the license fee on dealers in general merchandise, including importers

and indentors, except those dealers who may be expressly subject to the payment of some

other municipal tax under the provisions of this section.

Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail

dealers. For purposes of the tax on retail dealers, general merchandise shall be classified

into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential

commodities, and (4) miscellaneous articles. A separate license shall be prescribed for

each class but where commodities of different classes are sold in the same establishment,

it shall not be compulsory for the owner to secure more than one license if he pays the

higher or highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the

license tax as such, as may be provided by ordinance.

For purposes of this section, the term "General merchandise" shall include poultry and


9/19


it by the Revised Admin. Code,

superseded by RA 409

(Revised Charter of the City of

Manila).

That Abs; contention that it

never makes any profit from

the sale of its bible is

untenable

CFI: dismissed case for lack of merits

CA: certified the case to the SC b/c the

errors assigned to it involved only

questions of law

livestock, agricultural products, fish and other allied products.

The only essential difference that We find between these two provisions that may have any bearing

on the case at bar, is that, while subsection (m-2) prescribes that the combined total tax of any dealer

or manufacturer, or both, enumerated under subsections (m-1) and (m-2), whether dealing in one or

all of the articles mentioned therein,shall not be in excess of P500 per annum, the corresponding

section 18, subsection (o) of Republic Act No. 409, does not contain any limitation as to the amount

of tax or license fee that the retail dealer has to pay per annum. Hence, and in accordance with theweight of the authorities above referred to that maintain that "all rights and liabilities which have

accrued under the original statute are preserved and may be enforced, since the reenactment

neutralizes the repeal, therefore continuing the law in force without interruption", We hold that the

questioned ordinances of the City of Manila are still in force and effect.

It is contended however that the fact that the license tax can suppress or control this activity is

unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license tax a

flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The power to impose a

license tax on the exercise of these freedom is indeed as potent as the power of censorship which this

Court has repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure to

defray the expenses of policing the activities in question. It is in no way apportioned. It is flat license

tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by

the constitutional liberties of press and religion a nd inevitably tends to suppress their exercise. That

is almost uniformly recognized as the inherent vice and evil of this flat license tax."

Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code,provides:

SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. The following organizationsshall not be taxed under this Title in respect to income received by them as such

(e) Corporations or associations organized and operated exclusively for religious,

charitable, . . . or educational purposes, . . .: Provided, however, That the income of

whatever kind and character from any of its properties, real or personal, or from any

activity conducted for profit, regardless of the disposition made of such income, shall be

liable to the tax imposed under this Code;

Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this

tax and says that such exemption clearly indicates that the act of distributing and selling bibles, etc. ispurely religious and does not fall under the above legal provisions.

It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was

in some instances a little bit higher than the actual cost of the same but this cannot mean that

appellant was engaged in the business or occupation of selling said "merchandise" for profit. For this

reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be

applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious


10/19


profession and worship as well as its rights of dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit

before any person can engage in any of the businesses, trades or occupations enumerated therein,

We do not find that it imposes any charge upon the en joyment of a right granted by the Constitution,

nor tax the exercise of religious practices.

It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if

applied to plaintiff Society. But as Ordinance No. 2529 of the Ci ty of Manila, as amended, is not

applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the business of

plaintiff Society involved herein for, as stated before, it would impair plaintiff's right to the free

exercise and enjoyment of its religious profession and worship, as well as its rights of dissemination

of religious beliefs, We find that Ordinance No. 3000, as amended is also inapplicable to saidbusiness, trade or occupation of the plaintiff.


Petitioner:Arturo M.

Tolentino

Respondent: Sec.

of Finance and

CIR

Unconstitutionality of RA 7726 or the E-VAT Law

There are various suits challenging theconstitutionality of RA 7716 on various grounds.

The value-added tax (VAT) is levied on the sale,

barter or exchange of goods and properties as

well as on the sale or exchange of services. It is

equivalent to 10% of the gross selling price or

gross value in money of goods or properties sold,

bartered or exchanged or of the gross receipts

from the sale or exchange of services. Republic

ActNo. 7716 seeks to widen the tax base of the

existing VAT system and enhance its

administration by amending the National

Internal Revenue

Code. Among the Petitioners was the Philippine P

ress Institute which claim that R.A.7716 violates

their press freedom and re ligious liberty, having

removed them from the exemption to pay Value

Added Tax. It is contended by the PPI that by

removing the exemption of the press from the

VAT while maintaining those granted to others,

the law discriminates against the press. At any

rate, it is averred, "even non-discriminatory

taxation of constitutionally guaranteed freedom

is unconstitutional." PPI argued that the VAT is in

WON the purpose of

VAT is the same as that

of a license tax

WON R.A. No. 7716 is

unconstitutional on

the ground that it

violates the contract

clause under Art. III,

sec 10 of the Bill of

Rights.

WON RA 7716 is

procedurally infirm.

On the 1stissue, NO.:

A license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is

unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its

applica tion to o thers, such those selling goods, is v alid, its a pplicat ion to t he press or to religious groups,

such as the Jehovahs Witnesses, inconnection with the latters sale ofreligious books andpamphlets, is unconstitutional.As

the U.S. Supreme Court put it, it isone thing to impose a tax on income or property of a preacher.

It is quite another thing to exact a tax onhim for deliveringa sermon.

The VAT is, however, different.It is nota license tax.

It is not a tax on the e xercise of a privilege, much less a constitutional right. It is imposed on the

sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the

lease of properties purely for revenue purposes. To subject the press to its payment is not to

burden the exercise of its right any more than to make the press pay income tax or subject it to

general regulation is not to violate its freedom under the Constitution.

On the 2ndissue, NO.

No. The Supreme Court the contention of CREBA, that the imposition of the VAT on the sales and

leases of real estate by virtue of contracts entered into prior to the effectivity of the law would

violate the constitutional provision of non-impairment of contracts, is only slightly less abstract

but nonetheless hypothetical. It is enough to say that the parties to a contract cannot, through the

exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not

only are existing laws read into contracts in order to fix obligations as between parties, but the


11/19


the nature of a license tax.

The Chamber of Real Estate and Builders

Association (CREBA) contends that the

imposition of VAT on sales and leases by virtue of

contracts entered into prior to the effectivity of

the law would violate the constitutional

provision of non-impairment of contracts.

Tolentino averred that this revenue bill did not

exclusively originate from the House of

Representatives as required by Section 24,

Article 6 of the Constitution. Even though RA

7716 originated as HB 11197 and that it passed

the 3 readings in the HoR, the same did not

complete the 3 readings in Senate for after the

1streading it was referred to the Senate Ways &

Means Committee thereafter Senate passed its

own version known as Senate Bill 1630.

Tolentino averred that what Senate could have

done is amend HB 11197 by striking out its text

and substituting it with the text of SB 1630 in

that way the bill remains a House Bill and the

Senate version just becomes the text (only thetext) of the HB. (Its ironichowever to note

that Tolentino and co-petitioner Raul Roco even

signed the said Senate Bill.)

reservation of essential attributes of sovereign power is a lso read into contracts as a basic

postulate of the legal order. The policy of protecting contracts against impairment presupposes

the maintenance of a government which retains adequate authority to secure the peace and good

order of society. In truth, the Contract Clause has never been thought as a limitation on the

exercise of the State's power of taxation save only where a tax exemption has been granted for a

valid consideration.

Such is not the case of PAL in G.R. No. 115852, and the Court does not understand it to make this

claim. Rather, its position, as discussed above, is that the removal of its tax exemption cannot be

made by a general, but only by a specific, law.

Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal and

substantive aspects as this has been raised in the various cases before it. To sum up, the Court

holds:

(1) That the procedural requirements of the Constitution have been complied with by Congress

in the enactment of the statute;

(2) That judicial inquiry whether the formal requirements for the enactment of statutes - beyond

those prescribed by the Constitution - have been observed is precluded by the principle of

separation of powers;

(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with

the free exercise of religion, nor deny to any of the parties the right to an education; and

(4) That, in view of the absence of a factual foundation of record, claims that the law isregressive, oppressive and confiscatory and that it violates vested rights protected under the

Contract Clause are prematurely raised and do not justify the grant of prospective relief by writ

of prohibition.

On the 3rdissue, NO.

By a 9-6 vote, the Supreme Court rejected the challenge, holding that such consolidation was

consistent with the power of the Senate to propose or concur with amendments to the version

originated in the HoR. What the Constitution simply means, according to the 9 justices, is that the

initiative must come from the HoR. Note also that there were several instances before where

Senate passed its own version rather than having the HoR version as far as revenue and other

such bills are concerned. This practice of amendment by substitution has always been accepted.

The proposition of Tolentino concerns a mere matter of form. There is no showing that it would

make a significant difference if Senate were to adopt his over what has been done.



12/19


Petitioner:Abra Valley

College, Inc.

Respondents:

Hon. Juan

Aquino, Armin

Cariaga, et. al.

AVCI, offering primary, high school and college courses,

having a population of more than 1000 students, located in

the heart of the town of Bangued, housing elementary

pupils in a two-storey bldg. across the street, housing high

school and college students in the main bldg., housing the

Director with his family in the 2nd floor of the main bldg.,

and having an annual gross income of the school reaching

more than 100,000, is the owner of the lot and buildings

under an OCT. Defendant Mun Treasurer served a Notice of

Seizure on the property of AVCI for the satisfaction of real

property taxes.

Properties of AVCI were sold at public auction and later on

sold to defendant Millare , Cert of Sale issued in the latters

favor by the Mun Treasurer.

Supplementary Memorandum: the school building and

school lot used for educational purposes of the Abra Valley

College, Inc., are exempted from the payment of taxes

TC: disagrees b/c of the use of the 2nd floor by the Director

of the school for residential purposes

AVCIs arguments: The primary use of the lot and bldg. for

educational purposes, and not the incidental use

thereof, determines an exemption from property

taxes under the Constitution, hence, the seizure

and subsequent sale of the properties are

without legal basis and therefore void.

The primary use of the school lot and bldg. is the

basic and controlling guide, norm and standard

to determine tax exemption, and not the mere

incidental use thereof.

Aquino, et. al.s arguments:

The college lot and bldg. subjected to seizure and

sale to answer for the unpaid tax are used (1) for

the educational purposes of the college; (2) as

the permanent residence of the President andDirector thereof and his family; and (3) for

commercial purposes because the ground floor of

the college bldg. is being use and rented by a

commercial establishment, the Northern Mktg

Corp.

WON AVCIs

lot and

building are

used

exclusively

for

educational

purposes,

thus exempt

from realty

tax.

No, because the 1stfloor is used for commercial purposes by the Northern Mktg. Corp.

As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this

Court ruled that while it may be true that the YMCA keeps a lodging and a boarding house and

maintains a restaurant for its members, still these do not constitute business in the ordinary

acceptance of the word, but an institution used exclusively for religious, charitable and

educational purposes, and as such, it is entitled to be exempted from taxation.

In the case of Bishop ofNueva Segovia v. Provincial Board of Ilocos Norte , 51 Phil. 352 [1972], this

Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly

used as a cemetery. It was clarified that the term "used exclusively" considers incidental use also.

Thus, the exemption from payment of land tax in favor of the convent includes, not only the land

actually occupied by the building but also the adjacent garden devoted to the incidental use of

the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of

lodging place, also qualifies for exemption because this constitutes incidental use in religious

functions.

The test of exemption from taxation is the use of the property for purposes mentioned in the

Constitution.

It must be stressed however, that while this Court allows a more liberal and non-restrictive

interpretation of the phrase "exclusively used for educational purposes" as provided for in

Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has

always been made that exemption extends to facilities which are incidental to and reasonably

necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school

building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence.

Thus, while the use of the second floor of the main building in the case at bar for residential

purposes of the Director and his family, may find justification under the concept of incidental

use, which is complimentary to the ma in or primary purposeeducational, the lease of the first

floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination beconsidered incidental to the purpose of education.

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school

building as well as the lot where it is built, should be taxed, not because the second floor of the

same is being used by the Director and his family for residential purposes, but because the first

floor thereof is being used for commercial purposes. However, since only a portion is used for

purposes of commerce, it is only fair that half of the assessed tax be returned to the school

involved.


13/19



CITY ASSESSOR

OF CEBU CITY VS

ASSOCIATION OF

BENEVOLA DE

CEBU, INC.

: Association of Benevola de

Cebu, Inc. is a non-stock, non-

profit organization organised

under the laws of the Philippines

and is the owner of Chong Hua

Hospital in Cebu City.

Respondent constructed the CHH

Medical Arts centre and a

certificate of occupancy was

issued to the centre with a

classification of commercial

clinic.

:Petitioner City Assessor assessed

the medical arts building as

commercial at 35% thus

respondent filed a letter-petition

asserting that the medical arts is

part of CHH and ought to be

imposed the same special

assessment level of 10% with

that of CHH.:Petitioner contended that the

Medical arts building is a

separate building from the CHH

used as commercial clinic/room

spaces for renting out to

physicians and, thus, classified as

commercial. It contended that the

medical specialists charged

consultation fees for patients and

that it is built on rented land.

:Respondent contended that the

medical arts building is actually,

directly and exclusively part of

CHH and should have a special

assessment level of 10%

:The Local boards of assessmentappeals and the central board of

assessment appeals ruled that

the medical arts building ruled

that the special assessment level

should be 10%. CA affirmed their

decisions

WON the special

assessment level of

10% should be

assessed on the

Medical Arts

building

Yes. Chong Hua Hospital Medical Arts Center is an integral part of Chong Hua Hospital. It is undisputed that the

doctors and medical specialists holding clinics in CHHMAC are those duly accredited by CHH, that is, they are

consultants of the hospital and the ones who can treat CHHspatients confined in it. This fact alone takes away

CHHMAC from being categorized as commercial since a tertiary hospital like CHH is required by law to have a

pool of physicians who comprises the required medical departments in various medical fields.

:Based on these provisions, these physicians holding offices or clinics in CHHMAC, duly appointed or accredited by

CHH, precisely fulfill and carry out their roles in the hospitals services for i ts patients through the CHHMAC. The

fact that they are holding office in a separate building, like at C HHMAC, does not take away the essence and nature

of their services vis--vis the over-all operation of the hospital and the benefits to the hospitals patients. Given

what the law requires, it is clear that CHHMAC is an integral part of CHH.

:These accredited physicians normally hold offices within the premises of the hospital; in which case there is no

question as to the conduct of their business in the ambit of diagnosis, treatment and/or confinement of

patients. This was the case before 1998 and before CHHMAC was built. Verily, their transfer to a more spacious

and, perhaps, convenient place and location for the benefit of the hospitals patients does not remove them from

being an integral part of the overall operation of the hospital.

:Conversely, it would have been different if CHHMAC was also open for non-accredited physicians, that is, any

medical practitioner, for then respondent would be running a commercial building for lease only to doctors which

would indeed subject the CHHMAC to the commercial level of 35% assessment.

:Moreover, the CHHMAC, being hundred meters away from the CHH main building, does not denigrate from its

being an integral part of the latter.:Verily, being an integral part of CHH, CHHMAC should be under the same special assessment level of as that of the

former.

:Given our discussion above, the C HHMAC facility, while seemingly not indispensable to the operations of CHH, is

definitely incidental to and reasonably necessary for the operations of the hospital.

:For one, as found by the appellate court, the CHHMAC facility is primarily used by the hospitals accredited

physicians to perform medical check-up, diagnosis, treatment, and care of patients. For another, it also serves as a

specialized outpatient department of the hospital.

:Thus, the importance of CHHMAC in the operation of CHH cannot be over-emphasized nor disputed. Clearly, it

plays a key role a nd provides critical support to hospital operations.

:Finally, respondents charge of rentals for the offices and clinics its accredited physicians occupy cannot be

equated to a commercial venture, which is mainly for profit.

:Respondents explanation on this point is well taken. First, CHHMAC is only for its consultants or accredited

doctors and medical specialists. Second, the charging of rentals is a practical necessity: (1) to recoup the

investment cost of the building, (2) to cover the rentals for the lot CHHMAC is built on, and (3) to maintain the

CHHMAC building and its facilities. Third, as correctly pointed out by respondent, it pays the proper taxes for its

rental income. And, fourth, if there is indeed any net income from the lease income of CHHMAC, such does notinure to any private or individual person as it will be used for respondents other charitable projects..

:Given the foregoing arguments, we fail to see any reason why the CHHMAC building should be classified as

commercial and be imposed the commercial level of 35% as it is not operated primarily for profit butas an

integral part of CHH. The CHHMAC, with operations being devoted for the benefit of the CHHs patients, should be

accorded the 10% special assessment.


14/19



Petitioner: Lung

Center of the

Philippines

Respondent:Quezon City and

Constantino

Paras, City

Assessor

The Petitioner is a non-stock, non-profit

entity which owns a parcel of land in

Quezon City. Erected in the middle of the

aforesaid lot is a hospital known as the

Lung Center of the Philippines. The

ground floor is being leased to a canteen

and small store spaces, medical

professionals who use the same as their

private clinics, as well as to other private

parties. The right portion of the lot is

being leased for commercial purposes to

the Elliptical Orchids and Garden

Center. The petitioner accepts paying

and non-paying patients. It also renders

medical services to out-patients, both

paying and non-paying. Aside from its

income from paying patients, LCP

receives annual subsidies from the

government.

Both the land and the hospital bldg. of

LCP were assessed for real property

taxes.

LCP filed for a Claim for Exemption from

real property taxes with the City

Assessor, predicated on its claim that it is

a charitable institution. Request was

denied, and petition filed before the Local

Board of Assessment Appeals of QC for

the reversal of the resolution.

QC-LBAA: held LCP liable for real

property taxes

CBAA: affirmed LBAAs decision ruling

that LCP was not a charitable institution

and that its real properties were not

actually, directly and exclusively used forcharitable purposes

LCPs arguments:

Under sec 28, par 3 of the

Constitution, the property is

exempt from real property

(1) WON LCP is a

charitable

institution within

the context of PD

1823 and the

Constitution and RA

7160

(2) WON the real

properties of LCP

are exempt from

RPT

On the 1stissue: Yes.

To determine whether an enterprise is a charitable institution/entity or not, the elements which

should be considered include the statute creating the enterprise, its corporate purposes, its

constitution and by-laws, the methods of administration, the nature of the actual work performed,

the character of the services rendered, the indefiniteness of the beneficiaries, and the use and

occupation of the properties.

The test whether an enterprise is charitable or not is whether it exists to carry out a purpose

reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage.

Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the

provisions of the decree, is to be administered by the Office of the President of the

Philippines with the Ministry of Health and the Ministry of Human Settlements. It was organized

for the welfare and benefit of the Filipino people principally to help combat the high incidence of

lung and pulmonary diseases in the Philippines.

The purposes for which the petitioner was created are spelled out in its Articles of

Incorporation, thus: xxx

Hence, the medical services of the petitioner are to be rendered to the public in g eneral in any and

all walks of life including those who are poor and the needy without discrimination. After all, any

person, the rich as well as the poor, may fall sick or be injured or wounded and become a subjectof charity.

As a general principle, a charitable institution does not lose its character as such and its exemption

from taxes simply because it derives income from paying patients, whether out-patient, or

confined in the hospital, or receives subsidies from the government, so long as the money received

is devoted or used altogether to the charitable object which it is intended to achieve; and no

money inures to the private benefit of the persons managing or operating the institution.

The money received by the petitioner becomes a part of the trust fund and must be devoted to

public trust purposes and cannot be diverted to private profit or benefit.

Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose

its character as a charitable institution simply because the gift or donation is in the form of

subsidies granted by the government.

In this case, the petitioner adduced substantial evidence that it spent its i ncome, including

the subsidies from the government for 1991 and 1992 for its patients and for the operation of the

hospital. It even incurred a net loss in 1991 and 1992 from its operations.

On the 2ndissue: Some are not exempt.


15/19


taxes; that a min of 60% of its

hospital beds are exclusively

used for charity patients and

that the major thrust of its

hospital operation is to serve

charity patients.

That it is a charitable

institution and is exempt from

real property taxes.Its character as a charitable

institution is not altered by the

fact that it admits paying

patients and renders medical

services to them, leases portions

of the land to private parties,

and rents out portions of the

hospital to private medical

practitioners from which it

derives income to be used for

operational expenses.

That it receives subsidies from

the government attests to its

character as a charitable

institution.

That the exclusivity required

in the Constitution does not

necessarily mean solely.That even if a portion of its real

estate is leased out to private

individuals from whom it

derives income, it does not lose

its character as a charitable

institution, and its exemption

from the payment of real estate

taxes on its real property.

That it is entitles to realty tax

exemptions b/c its land bldg.

and improvements, are

actually, directly andexclusively devoted for

charitable purposes.

That while it is not declared

RPT exempt under its charter,

said exemption may

nevertheless be extended

upon proper application.

Even as we find that the petitioner is a charitable institution, we hold, anent the second

issue, that those portions of its real property that are leased to private entities are not exempt

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

purposes.

The settled rule in this jurisdiction is that laws granting exemption from tax are

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

power. Taxation is the rule and exemption is the exception. The effect of an exemption is

equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearlyshown and based on language in the law too plain to be mistaken.

Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically

provides that the petitioner shall enjoy the tax exemptions and privileges:

SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized

primarily to help combat the high incidence of lung and pulmonary diseases in the Philippines, all

donations, contributions, endowments and equipment and supplies to be imported by authorized

entities or persons and by the Board of Trustees of the Lung C enter of the Philippines, Inc., for the

actual use and benefit of the Lung Center, shall be e xempt from income and gift taxes, the same

further deductible in full for the purpose of determining the maximum deductible a mount under

Section 30, paragraph (h), of the National Internal Revenue Code, as amended.

The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees

imposed by the Government or any political subdivision or instrumentality thereof with respect toequipment purchases made by, or for the Lung Center.

It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption

privileges for its real properties as well as the building constructed thereon.

Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:

(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques,

non-profit cemeteries, and all lands, buildings, and

improvements, actually, directly and exclusively used for religious, charitable or educationalpurposes shall be exempt from taxation.[32]

The tax exemption under this constitutional provision coverspropertytaxes only.[33]As Chief

Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: . . .

what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands,

buildings and improvements actually, directly and exclusively used for religious, charitable or

educational purposes.

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
http://sc.judiciary.gov.ph/jurisprudence/2004/jun2004/144104.htm#_ftn32http://sc.judiciary.gov.ph/jurisprudence/2004/jun2004/144104.htm#_ftn32http://sc.judiciary.gov.ph/jurisprudence/2004/jun2004/144104.htm#_ftn32http://sc.judiciary.gov.ph/jurisprudence/2004/jun2004/144104.htm#_ftn33http://sc.judiciary.gov.ph/jurisprudence/2004/jun2004/144104.htm#_ftn33http://sc.judiciary.gov.ph/jurisprudence/2004/jun2004/144104.htm#_ftn33http://sc.judiciary.gov.ph/jurisprudence/2004/jun2004/144104.htm#_ftn33http://sc.judiciary.gov.ph/jurisprudence/2004/jun2004/144104.htm#_ftn32


16/19


Citys arguments:

LCP is not a charitable entity

b/c its real property is not

exempt from the payment of

real taxes under PD 1823 and

even under the Constitution

b/c it failed to prove that it is a

charitable institution and thatthe property is actually,

directly and exclusively used

for charitable purposes.

LCP uses the subsidies granted

by the govt for charity patients

and uses the rest of its income

from the property for the

benefit of paying the patients,

among other purposes.

LCP failed to adduce

substantial evidence that

100% of its out-patients and

170 beds in the hospital are

reserved for indigent patients.

exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a

charitable institution; and (b) its real properties

areACTUALLY, DIRECTLYand EXCLUSIVELYused for charitable purposes. Exclusive is

defined as possessed and enjoyed to the exclusion of others; debarred from participation or

enjoyment; and exclusively is defined, ina manner to exclude; as enjoying a privilege

exclusively.[40]If real property is used for one or more commercial purposes, it is not exclusively

used for the exempted purposes but is subject to taxation.[41] The words dominant use or

principal use cannot be substituted for the words used exclusively without doing violence to

the Constitutions and the law.[42]Solely is synonymous with exclusively.

What is meant by actual, direct and exclusive use of the property for charitable purposes is

the direct and immediate and actual application of the property itself to the purposes for which

the charitable institution is organized. It is not the use of the income from the real property that is

determinative of whether the property is used for tax-exempt purposes.[44]

The petitioner failed to discharge its burden to prove that the entirety of its real property is

actually, directly and exclusively used for charitable purposes. While portions of the hospital are

used for the treatment of patients and the dispensation of medical services to them, whether

paying or non-paying, other portions thereof are being leased to private individuals for their

clinics and a canteen. Further, a portion of the land is being leased to a private individual for her

business enterprise under the business name Elliptical Orchids andGarden Center. Indeed, the

petitioners evidence shows that it collectedP1,136,483.45 as rentals in 1991 and P1,679,999.28

for 1992 from the said lessees.

Accordingly, we hold that the portions of the land leased to private entities as well as those

parts of the hospital leased to private individuals are not exempt from such taxes.[45]On the other

hand, the portions of the land occupied by the hospital and portions of the hospital used for its

patients, whether paying or non-paying, are exempt from real property taxes.
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MIAA VS CA MIAA operates the NAIA and as its operator,

MIAA administers the land, improvements and

equipment within the NAIA Complex. The MIAA

charter transferred to MIAA land, including

runways and buildings. Its charter further

provides that no portion of the land transferred

to MIAA shall be disposed of through sale and

any other mode unless specifically approved bythe president.

:The Office of the Government Corporate Counsel

opined that the Local Government Code

withdrew the exemption from real estate tax

granted to MIAA. MIAA paid some of the real

estate tax already due.

:MIAA received final notices of real estate tax

delinquency from the city of paranaque for the

taxable years of 1992-2001.

:City of Paranque issued notices of levy and

warrants of levy on airport lands and buildings

and even threatened to sell at public auction the

airport lands and buildings should MIAA fail to

pay the real estate tax delinquency.

:The OGCC opined that section 21 of the MIAA

charter is the proof that MIAA is exempt from

real estate tax.

:MIAA filed with CA to restrain the city of prance

form imposing real estate tax and levying and

auctioning for public sale the airport lands and

buildings. But CA dismissed the petitioner.

:Meanwhile, the city of paranaque posted notices

of auction sale. A day before the public auction,

MIAA filed a restraining order to which the court

issued.

:MIAA points out that it cannot lick ownership

over these properties since the real owner of the

airport lands and buildings is the republic of the

Philippines. The MIAA charter mandates MIAA to

devote the airport lands and buildings for the

benefit of the general public. And since theairport lands and buildings are devoted to public

use and public service, the ownership remains

with the state thus inalienable are not subject to

real estate tax by local governemnts.

:MIAA also points out that Section 21 of the MIAA

charter specifically exempts MIAA from the

payment of real estate tax.MIAA insists that it is

WON the airport lands

and buildings of MIAA

are exempt from real

estate tax under

existing laws.

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local

governments.

:First, MIAA is not a government-owned or controlled corporation but an instrumentalityof the

National Government and thus exempt from local taxation. Second, the real properties of MIAA

are owned by the Republicof the Philippines and thus exempt from real estate tax.

:A government-owned or controlled corporation must be "organized as a stock or non-stock

corporation." MIAA is not organized as a stock or non -stock corporation. MIAA is not a stock

corporation because it has no capital stock divided into shares . MIAA has no stockholders orvoting shares.

:MIAA is a government instrumentalityvested with corporate powers to perform efficiently its

governmental functions. MIAA is like any other government instrumentality, the only difference is

that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the

Administrative Code defines a government "instrumentality" as follows: SEC. 2. General Terms

Defined. x x x x (10) Instrumentalityrefers to any agency of the National Government, not

integrated within the department framework, vested with special functions or jurisdiction by

law, endowed with some if not all corporate powers, administering special funds, and e njoying

operational autonomy, usually through a charter. x x x

:When the law vests in a government instrumentality corporate powers, the instrumentality does

not become a corporation. Unless the government instrumentality is organized as a stock or non-

stock corporation, it remains a government instrumentality exercising not only governmental but

also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,police

authorityand the levying of fees and charges. At the same time, MIAA exercises "all the powers of a

corporation under the Corporation Law, insofar as these powers are not inconsistent with the

provisions of this Executive Order.

:Likewise, when the law makes a government instrumentality operationally autonomous, the

instrumentality remains part of the National Government machinery although not integrated with

the department framework. The MIAA Charter expressly states that transforming MIAA into a

"separate and autonomous body" will make i ts operation more "financially viable.

:Many government instrumentalities are vested with corporate powers but they do not become

stock or non-stock corporations, which is a necessary condition before an agency or

instrumentality is deemed a government-owned or controlled corporation.

:Section 133(o) recognizes the basic principle that local governments cannot tax the national

government, which historically merely delegated to local governments the power to tax. While the

1987 Constitution now includes taxation as one of the powers of local governments, local

governments may only exercise such power "subject to such guidelines and limitations as the

Congress may provide.

:When local governments invoke the power to tax on national government instrumentalities, such

power is construed strictly against local governments. The rule is that a tax is never presumed and

there must be clear language in the law imposing the tax. Any doubt whether a person, article oractivity is taxable is resolved against taxation. This rule applies with greater force when local

governments seek to tax national government instrumentalities.

:Another rule is that a tax exemption is strictly construed against the taxpayer claiming the

exemption. However, when Congress grants an exemption to a national government

instrumentality from local taxation, such exemption is construed liberally in favor of the national

government instrumentality.

:No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code,


18/19


also exempt from real estate tax under Section

234 of the Local Government Code because the

Airport Lands and Buildings are owned by the

Republic.

:Respondents invoke Sec 193 of the local

government code which expressly withdrew the

tax exemption privileges of the GOCC. An

international airport is not among the exceptions

mentioned in Section 193 of the LocalGovernment Code. Thus, respondents assert that

MIAA cannot claim that the Airport Lands and

Buildings are exempt from real estate tax.

like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by

the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and

Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA

Airport Lands and Buildings are properties of public dominion and thus owned by the State or the

Republic of the Philippines.

:The Airport Lands and Buildings are devoted to public use because they are used by the public for

international and domestic travel and transportation. The fact that the MIAA collects terminal fees

and other charges from the public does not remove the character of the Airport Lands and

Buildings as properties for public use. The operation by the government of a tollway does notchange the character of the road as one for public use. Someone must pay for the maintenance of

the road, either the public indirectly through the taxes they pay the government, or only those

among the public who actually use the road through the toll fees they pay upon using the road. The

tollway system is even a more efficient and equitable manner of taxing the public for the

maintenance of public roads.

:The charging of fees to the public does not determine the character of the property whether it is of

public dominion or not. Article 420 of the Civil Code defines property of public dominion as one

"intended for public use." Even if the government collects toll fees, the road is still "intended for

public use" if anyone can use the road under the same terms and conditions as the rest of the

public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed

restrictions and other conditions for the use of the road do not affect the public character of the

road.

:SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the

real property tax: (a) Real property owned by the Republic of the Philippines or any of its political

subdivisions except when the beneficial use thereof has been granted, for consideration or

otherwise, to a taxable person

:This exemption should be read i n relation with Section 133(o) of the same Code, which prohibits

local governments from imposing "[t]axes, fees or charges of any kind on the National Government,

its agencies and instrumentalitiesx x x." The real properties owned by the Republic are titled

either in the name of the Republic itself or in the name of agencies or instrumentalities of the

National Government. The Administrative Code allows real property owned by the Republic to be

titled in the name of agencies or instrumentalities of the national government. Such real properties

remain owned by the Republic and continue to be exempt from real estate tax.

:The Republic may grant the beneficial use of its real property to an agency or instrumentality of

the national government. This happens when title of the real property is transferred to an agency or

instrumentality even as the Republic remains the owner of the real property. Such arrangement

does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states

that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof

has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government

instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus,

even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands andBuildings, such fact does not make these real properties subject to real estate tax.

:However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not

exempt from real estate tax


19/19



JOHN HAY

PEOPLES

ALTERNATIVE

COALITION

: RA 7727 Bases conversion and development act of

1992 was enacted which sought to accelerate the

conversion in to alternative productive uses of the

former military bases, namely, the clark and subic

military reservations as well as their extensions

including the john hay station in baguio city

:RA 7727 likewise created the Subic Special Economic

[and free port] zone which was granted incentivesranging for tax and duty-free importations, exemption of

businesses therein from local and national taxes, to other

hallmarks of a liberalized financial a nd business climate.

:Bases Conversion development authority (BCDA)

executed a joint venture agreement with TUNTEX and

ASIAWORD to put up a joint venture company known as

the Baguio International Development and management

corporation which would lease areas within the camp

john hay and poor point for the purpose of turning such

places into principal tourist and recreation spots.

:President ramos issues proclamation 420 which

established a Special Economic Zone on portion of camp

john hay thereby extending the economic incentives

similar to those enjoyed by Subic SEZ (there was tax

exemption within the john hay SEZ)

:Petitioners argue that nowhere in R. A. No. 7227 is there

a grant of tax exemption to SEZs yet to be establishedin

base areas, unlike the grant under Section 12 thereof of

tax exemption and investment incentives to the therein

established Subic SEZ. The grant of tax exemption to the

John Hay SEZ, petitioners conclude, thus contravenes

Article VI, Section 28 (4) of the Constitution which

provides that No law granting any tax exemption shall

be passed without the concurrence of a majority of all the

members of Congress.

: It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ which was granted by

Congress with tax exemption, investment incentives and the like. There is no express extension of

the aforesaid benefits to other SEZs still to be created at the time via presidential proclamation.

:While the grant of economic incentives may be essential to the creation and success of SEZs, free

trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The incentives

under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the

John Hay SEZ finds no support therein. Neither does the same grant of privileges to the John Hay

SEZ find support in the other laws specified under Section 3 of Proclamation No. 420, which lawswere already extant before the issuance of the proclamation or the enactment of R.A. No. 7227.

:More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the

legislature, unless limited by a provision of the state constitution, that has full power to exempt any

person or corporation or class of property from taxation, its power to exempt being as broad as its

power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions,

or local governments may pass ordinances on exemption only from local taxes.

:The challenged grant of tax exemption would circumvent the Constitutions imposition that a law

granting any tax exemption must have the concurrence of a majority of all the members of

Congress. In the same vein, the other kinds of privileges extended to the John Hay SEZ are by

tradition and usage for Congress to legislate upon.

:Contrary to public respondents suggestions, the claimed statutory exemption of the John Hay

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