1. 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 and 1959 Algue filed a protest or request for reconsideration which was not acted upon by the Bureau of Internal Revenue(BIR). . The petitioner claims that these payments are fictitious because most of the payees are members of the same family in control of Algue. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction.The counsel for Algue had to accept the warrant of distraint and levy. Algue, however, filed a petition for review with the Court of Tax Appeals. Issue: Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. . 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 Tax Code: SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions (a) Expenses: (1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; ... 22 and Revenue Regulations No. 2, Section 70 (1), reading as follows: SEC. 70. Compensation for personal services .-Among the ordinary and necessary expenses paid or incurred in carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for personal services actually rendered. The test of deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and its practical application may be further stated and illustrated as follows: Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few stockholders, Practically all of whom draw salaries. If in such a case the

salaries are in excess of those ordinarily paid for similar services, and the excessive payment correspond or bear a close relationship to the stockholdings of the officers of employees, it would seem likely that the salaries are not paid wholly for services rendered, but the excessive payments are a distribution of earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.) 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. 2. PAL v. EDU G.R. No. L- 41383 August 15, 1988 Facts: PAL is a corporation organized and existing under the laws of the Philippines and engaged in the air transportation business under a legislative franchise, Act No. 42739, as amended by Republic Act Nos. 25 and 269. Under its franchise, PAL is exempt from the payment of taxes. Sometime in 1971, however, Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and Traffic Code. Because of Elevates refusal to register PALs motor vehicles unless the amounts imposed were settled, the latter paid the amounts in protest. PAL then requested for a refund of the amount it paid, invoking the ruling in Calalang v. Lorenzo where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise. Elevate, however, denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus Lines, Inc. to the effect that motor vehicle registration fees are not taxes, but regulatory fees imposed as an incident of the exercise of the police power of the state. They contended that while Act 4271 exempts PAL from the payment of any tax except two per cent on its gross revenue or earnings, it does not exempt the latter from paying regulatory fees, such as motor vehicle registration fees.

Issue:

WON motor vehicle registration fees should be considered as taxes or regulatory fees. Held: It depends on the purpose of the fees. The fees may properly be regarded as taxes even though they also serve as an instrument of regulation. These exactions are sometimes called regulatory taxes for indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148). 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. Such is the case of motor vehicle registration fees. It is patent therefrom 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 Rep. Act 4136 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. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal to be revenue-raising.

Thus, they are not mentioned by Sec. 591-593 of the Code as taxes like the motor vehicle registration fee and chauffers' license fee. Such fees are to go into the expenditures of the Land Transportation Commission. It is quite apparent that vehicle registration fees were originally simple exceptional intended only for rigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which modem life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without changing the earlier deputy of registration payments as "fees," their nature has become that of "taxes."

Neither do we find merit in the argument that the 20% retention of exporter's foreign exchange constitutes an export tax. A tax is a levy for the purpose of providing revenue for government operations, while the proceeds of the 20% retention, as we have seen, are applied to strengthen the Central Bank's international reserve. 2. The margin fees are not ordinary and necessary business expenses. Petitioner contends that such remittance was an expenditure necessary and proper for the conduct of its corporate affairs. The Court cited Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue, where it laid down the rules on the deductibility of business expenses, thus: the law allowing expenses as deduction from gross income for purposes of the income tax is Section 30(a) (1) of the National Internal Revenue which allows a deduction of 'all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. 'An item of expenditure, in order to be deductible under this section of the statute, must fall squarely within its language. We come, then, to the statutory test of deductibility where it is axiomatic that o be deductible as a business expense, three conditions are imposed, namely: (1) the expense must be ordinary and necessary, (2) it must be paid or incurred within the taxable year, and (3) it must be paid or incurred in carrying on a trade or business. In addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or records the deductions claimed under the law, otherwise, the same will be disallowed. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate andhelpful in the development of the taxpayer's business. It is 'ordinary' when it connotes a paymentwhich is normal in relation to the business of the taxpayer and the surrounding circumstancesAssuming that the expenditure is ordinary and necessary in the operation of the taxpayer's business,the answer to the question as to whether the expenditure is an allowable deduction as a businessexpense must be determined from the nature of the expenditure itself, which in turn depends on theextent and permanency of the work accomplished by the expenditure. The Court held that the CTA was correct in saying that the margin fees are not expenses in connection with the production or earning of petitioner's incomes in the Philippines. Since the margin fees in question were incurred for the remittance of funds to petitioner's Head Office in New York, which is a separate and distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the development of petitioner's business in the Philippines exclusively or were incurred for purposes proper to the conduct of the affairs of petitioner's branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the Philippines exclusively. ESSO has not shown that the remittance to the head office of part of its profits was made in furtherance of its own trade or business. It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot now claim this as an ordinary and necessary expense paid or incurred in carrying on its own trade or business.

3. G.R. Nos. L-28508-9 July 7, 1989 ESSO STANDARD EASTERN, INC., (formerly, StandardVacuum Oil Company), petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE, respondent. Facts: The CTA denied ESSOs claims for refund of overpaid income taxes of P102,246.00 for 1959 and P434,234.93 for 1960 in CTA Cases No. 1251 and 1558 respectively. In CTA Case No. 1251, petitioner ESSO deducted from its gross income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum concessions. This claim wasdisallowed by the respondent Commissioner of Internal Revenue on the ground that the expenses should be capitalizedand might be written off as a loss only when a "dry hole" should result. ESSO then filed an amended return where itasked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells and claimed asordinary and necessary expenses the margin fees paid to the Central Bank on profit remittances to its New York headoffice. In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the year 1960 arising from the disallowanceof the margin fees paid by ESSO to the Central Bank on its profit remittances to its New York head office. ESSOsettled the same by applying as tax credit its overpayment on its income tax in 1959 and paying under protest theremaining amount. The CIR denied the claims for refund of the overpayment of its 1959 and 1960 income taxes, holding that the marginfees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses. ESSO appealedto the CTA and sought the refund, contending that the margin fees were deductible from gross income either as a tax or as an ordinary and necessary business expense, which was also denied. Issue: WON the margin fees were deductible from gross income as a tax or an ordinary and necessary business expense Held:1. The margin fee was imposed by the State in the exercise of its police power and not the power of taxation. There are at least two cases where we have held that a margin fee is not a tax but an exaction designed to curb the excessive demands upon our international reserve. The Court stated through Justice Jose P. Bengzon: A margin levy on foreign exchange is a form of exchange control or restriction designed to discourage imports and encourage exports, and ultimately, 'curtail any excessive demand upon the international reserve' in order to stabilize the currency. By its nature, the margin levy is part of the rate of exchange as fixed by the government. Moreover, it has been settled that a tax is levied to provide revenue for government operations, while the proceeds of the margin fee are applied to strengthen our country's international reserves. Earlier, in Chamber of Agriculture and Natural Resources of the Philippines v. Central Bank, the same idea was expressed, though in connection with a different levy, through Justice J.B.L. Reyes:

4. Physical Therapy vs. Municipal Board of Manila [G.R. No. L10448. August 30, 1957.] 5. G.R. No. L-17725 February 28, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs. MAMBULAO LUMBER COMPANY, ET AL., defendantsappellants.

FACTS: It appears that defendant Mambulao Lumber Company paid to the Republic of the Philippines a total amount P9,127.50 P8,200.52 for 'reforestation charges' from 1947 to 1956. These reforestation were paid to the plaintiff in pursuance of Section 1 of Republic Act 115 which provides that there shall be collected, in addition to the regular forest charges provided under Section 264 of Commonwealth Act 466 known as the National Internal Revenue Code, the amount of P0.50 on each cubic meter of timber... cut out and removed from any public forest for commercial purposes. The amount collected shall be expended by the director of forestry, with the approval of the secretary of agriculture and commerce, for reforestation and afforestation of watersheds, denuded areas ... and other public forest lands, which upon investigation, are found needing reforestation or afforestation .... It is now the contention of the defendant Lumber Company that since the Republic of the Philippines has not made use of those reforestation charges collected from it for reforesting the denuded area of the land covered by its license, the Republic of the Philippines should refund said amount, or, if it cannot be refunded, at least it should be compensated with what Mambulao Lumber Company owed the Republic of the Philippines for reforestation charges. ISSUE: Whether the sum of P9,127.50 paid by defendant-appellant company to plaintiff-appellee as reforestation charges may be set off or applied to the payment of the sum due and owing from appellant to appellee arguing that said sum not having been used in the reforestation of the area covered by its license, the same is refundable to it or may be applied in compensation. HELD: NO. Section 1 of Republic Act No. 115, provides that the amount collected as reforestation charges from a timber licenses or concessionaire shall constitute a fund to be known as the Reforestation Fund, and that the same shall be expended by the Director of Forestry, with the approval of the Secretary of Agriculture and Natural Resources for the reforestation or afforestation, among others, of denuded areas which, upon investigation, are found to be needing reforestation or afforestation. The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature of a tax which forms a part of the Reforestation Fund, payable by him irrespective of whether the area covered by his license is reforested or not. Said fund, as the law expressly provides, shall be expended in carrying out the purposes provided for thereunder, namely, the reforestation or afforestation, among others, of denuded areas needing reforestation or afforestation. Also, the principle of compensation in Article 1278 of the new Civil Code is not applicable because appellant and appellee are not mutually creditors and debtors of each other.With respect to the forest charges which the defendant has paid to the government, they are in the coffers of the government as taxes collected. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of

contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required. ... If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great confusion.

6. FRANCIA VS. IAC & FERNANDEZ Gutierrez, Jr., J.: Facts: Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated Pasay City, Metro Manila covered by Transfer Certificate of Title in the Registry of Deeds of Pasay City. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction. Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas. Francia received a notice of hearing filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez.chanroblesvirtualawlibrary On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980. The lower court rendered a decision in favor of Ho Fernandez. The Appellate Court affirmed the decision of the lower court in toto, hence, this petition for review. Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15, 1977. Issue: Whether or not Francias tax delinquency can be set-off by legal compensation. Ruling: There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279. We have consistently ruled that there can be no offsetting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of set-off or compensation. We stated that: A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on..The general rule based on grounds of public policy is well settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and

enforcing of which, the personal consent of individual taxpayers is not required. 7. DOMINGO vs. GARLITOS FACTS Petitioner is the Commissioner of Internal Revenue. In this petition for certiorari and mandamus, he seeks for an order in this Court directing the respondent Hon. Lorenzo Garlitos, the judge of CFI Leyte, to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes. In a special proceedings entitled "In the matter of the Intestate Estate of the Late Walter Scott Price", the SC, in Domingo vs. Hon. Moscoso, declared as final and executory the order for the payment by the estate of Price estate and inheritance taxes, charges and penalties, amounting to P40,058.55. In order to enforce the claims, the fiscal presented a petition to the court below for the execution of the judgment. This petition was, however, denied by the respondent judge. The latter ruled that the execution is not justifiable as the Government is indebted to the estate under administration in the amount of P262,200. Said amount arose from a contract between Simeon Price, the administratrix of the estate of her late husband Walter Scott Price, and Director Zoilo Castrillo of the Bureau of Lands. Thus, the payment of inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by the SC be deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona Price. Respondent also ordered that the payment of the claim of the Collector of Internal Revenue be deferred until the Government shall have paid its accounts to the administratrix herein amounting to P262,200.00. According to him, it is only fair for the Government, as a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking into consideration that the amount due to the Government draws interests while the credit due to the present state does not accrue any interest. ISSUE WON petitioner, as the Commissioner of Internal Revenue, has the right to execute the judgment for taxes against the estate of the deceased Walter Scott Price. NO. HELD The petition to set aside the orders of the court below and for the execution of the claim of the Government against the estate is misplaced. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. In Aldamiz vs. Judge of the Court of First Instance of Mindoro , we held that a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts and expenses of administration. The proper procedure is for the court to order the sale of personal estate or the sale or mortgage of real property of the deceased and all debts or expenses of administrator and with the written notice to all the heirs legatees and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90, section 2. And when sale or mortgage of real estate is to be made, the regulations contained in Rule 90, section 7, should be complied with.1wph1.t Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective portions in the estate prior to settlement and payment of the debts and expenses of administration and it is later ascertained that there are such debts and expenses to be paid. In such case "the court having jurisdiction of the estate may, by order for that purpose, after hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall contribute, and may issue execution if circumstances require"

The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the court for an order to require the administrator to pay the amount due from the estate and required to be paid. The claim of the estate against the Government has already been recognized. Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. An amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount. Thus: ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price. DISPOSITION: The petition is dismissed.

8. Davao Gulf Lumber Corporation vs. Commissioner of Internal Revenue, 293 SCRA 76(1998)] FACTS: Petitioner is a licensed forest concessionaire possessing a Timber License Agreement granted by the Ministry of Natural Resources (now Department of Environment and Natural Resources). From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies, refined and manufactured mineral oils as well as motor and diesel fuels, which it used exclusively for the exploitation and operation of its forest concession. Said oil companies paid the specific taxes imposed, under Sections 153 and 1567 of the 1977 National Internal Revenue Code (NIRC), on the sale of said products. Being included in the purchase price of the oil products, the specific taxes paid by the oil companies were eventually passed on to the user, the petitioner in this case. Petitioner filed before Respondent Commissioner of Internal Revenue (CIR) a claim for refund in the amount of P120,825.11, representing 25% of the specific taxes actually paid on the abovementioned fuels and oils that were used by petitioner in its operations as forest concessionaire. It is an unquestioned fact that petitioner complied with the procedure for refund, including the submission of proof of the actual use of the aforementioned oils in its forest concession as required by Law. On June 21, 1994, the CTA rendered its decision finding petitioner entitled to a partial refund of specific taxes the latter had paid in the reduced amount of P2,923.15. The CTA ruled that the claim on purchases of lubricating oil (from July 1, 1980 to January 19, 1981) and on manufactured oils other than lubricating oils (from July 1, 1980 to January 4, 1981) had prescribed. Disallowed on the ground that they were not included in the original claim filed before the CIR were the claims for refund on purchases of manufactured oils from January 1, 1980 to June 30, 1980 and from February 1, 1982 to June 30, 1982. In regard to the other purchases, the CTA granted the claim, but it computed the refund based on rates deemed paid under RA 1435, and not on the higher rates actually paid by petitioner under the NIRC.Insisting that the basis for computing the refund should be the increased rates prescribed by Sections 153 and 156 of the NIRC, petitioner elevated the matter to the Court of Appeals. As noted earlier, the Court of Appeals affirmed the CTA Decision.

Hence, this petition for review. [Davao Gulf Lumber Corporation vs. Commissioner of Internal Revenue, 293 SCRA 76(1998)]

ISSUE: Whether or not petitioner is entitled under Republic Act No. 1435 to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured mineral oils and other oil products taxed under Sec. 153 and Sec. 156 of the 1977 (Sec. 142 and Sec. 145 of the 1939) National Internal Revenue Code.

No. It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state.

HELD: Yes he may claim but he cannot claim on the higher rate. A tax cannot be imposed unless it is supported by the clear and express language of a statute;19 on the other hand, once the tax is unquestionably imposed, [a] claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken.20 Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption,21 it must be construed strictissimi juris against the grantee. Hence, petitioners claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken. We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and found no expression of a legislative will authorizing a refund based on the higher rates claimed by petitioner. The mere fact that the privilege of refund was included in Section 5, and not in Section 1, is insufficient to support petitioners claim. When the law itself does not explicitly provide that a refund under RA 1435 may be based on higher rates which were nonexistent at the time of its enactment, this Court cannot presume otherwise. [Davao Gulf Lumber Corporation vs. Commissioner of Internal Revenue, 293 SCRA 76(1998)]

10. CIR vs. CA, CTA and Young Mens Christian Association / GR. No. 124043 / October 14, 1998 / Panganiban, J. FACTS:

YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives.

1980 YMC earned an income of 676, 829.80 from leasing out a portion of its premises to shop owners and 44, 259 from parking fees collected from nonmembers.

9. CALTEX VS. COA FACTS: Commission on Audit (COA) sent a letter to Caltex Philippines, Inc. (Caltex) directing the latter to remit to the OPSF its collection, excluding that unremitted for the years 1986 and 1988, of the additional tax on petroleum products authorized under the aforesaid Section 8 of P.D. No. 1956 which as of 31 December 1987, amounted to 335,037,649.00 and informing it that, pending such remittance, all of its claims for from the OPSF shall be held in abeyance. On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification with the OEA showed that the grand total of its unremitted collections of the above tax is P1,287,668,820.00, directing it to remit the same, with interest and surcharges thereon,; and directing it to desist from further offsetting the taxes collected against outstanding claims in 1989 and subsequent periods. Petitioner requested the COA for an early release of its reimbursement certificates from the OPSF covering claims with the Office of energy Affairs since June 1987 up to March 1989, but the COA denied petitioner's request saying it was bereft of legal basis. Caltexs omnibus petition for reconsideration as denied.

1984 CIR issued an assessment of 415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding tax on rentals and professional fees and deficiency withholding tax on wages.

YMCA protested the assessment but CIR denied the claim. YMCA filed a petition for review with CTA.

CTA: Ruling in favor of YMCA. The leasing of the facilities are reasonably incidental and necessary for the accomplishment of the objectives of YMCA.

CA: Ruling in favor of CIR. YMCA filed a motion for reconsideration CA: Reversed itself and ruled in favor of YMCA.

ISSUE: Whether or not the income of YMCA is exempt from taxation HELD: Petition is meritorious.

Relative provision of NIRC: Sec. 27 (g) (h) and last paragraph. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions. A claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption "must expressly be granted in a statute stated in a language too clear to be mistaken."

ISSUE: Whether or not the amounts due to the OPSF from petitioner may be offset against petitioner's outstanding claims from said fund

HELD:

In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code

appropriation in question because he has not shown that he has a personal and substantial interest in said Act and that its enforcement has caused or will cause him a direct injury. ISSUE(S): 1. 2. HELD: 1. Yes. Referring to the P85,000.00 appropriation for the projected feeder roads in question, the legality thereof depended upon whether said roads were public or private property when the bill, which, latter on, became Republic Act 920, was passed by Congress, or, when said bill was approved by the President and the disbursement of said sum became effective, or on June 20, 1953. Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose, and hence, was null and void. 2. Yes. In the determination of the degree of interest essential to give the requisite standing to attack the constitutionality of a statute, the general rule is that not only persons individually affected, but also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore question the constitutionality of statutes requiring expenditure of public moneys. Whether or not R.A. No. 920 is unconstitutional Whether or not Pascual has the legal capacity to sue

Verba legis non est recedendum. CA committed reversible error when it allowed the tax exemption claimed by YMCA on income it derived from renting out its real property, on the solitary but unconvincing ground that the said income is not collected for profit but is merely incidental to its operation. The law does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it is used or disposed of. Where the law does not distinguish, neither should we.

". . . 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." The exemption created by said provision pertained only to property taxes. "The tax exemption covers property taxes only."

As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted the exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it falls under the classification nonstock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes.

12. Mactan Cebu International Airport Authority vs Marcos Date: September 11, 1996Petitioner: Mactan Cebu International Airport AuthorityRespondents: Hon. Ferdinand Marcos, City of Cebu, et al Ponente: Davide Jr

YMCA is not an educational institution. Under the Education Act of 1982, such term refers to schools. The school system is synonymous with formal education, which "refers to the hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to the higher levels." The Court has examined the "Amended Articles of Incorporation" and "By-Laws" of the YMCA, but found nothing in them that even hints that it is a school or an educational institution.

PETITION GRANTED.

11. PASCUAL VS. COMMUNICATIONS

SEC.

OF

PUBLIC

WORKS

AND

G.R. NO. L-10405, DECEMBER 29, 1960, CONCEPCION, J. FACTS: Petitioner Wenceslao Pascual as Provincial Governor of Rizal instituted an action for declatory relief, with injunction, upon the ground that Republic Act No. 920, entitled An Act Appropriating Funds for Public Works contained an item (43[h]) of P85,000.00 for the construction, reconstruction, repair, extension, and improvement of Pasig feeder road terminals, which do not connect any government property or any important premises to the main highway. According to petitioner, the Antonio Subdivision (as well as the lands on which said feeder roads were to be construed) were private property of respondent Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a member of the Senate of the Philippines. Petitioner prayed, therefore, that the contested item of R.A. No. 920 be declared null and void. Respondents maintained that petitioner could not assail the

Facts: Petitioner was created by virtue of RA6958, 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. Under Section 1: The authority shall be exempt from realty taxes imposed by the National Government or any of its political subdivisions, agencies and instrumentalities. However, the Officer of the Treasurer of Cebu City demanded payment for realty taxes on parcels of land belonging to petitioner. Petitioner objected invoking its tax exemption. It also asserted that it is an instrumentality of the government performing governmental functions, citing section 133 of the LGC which puts limitations on the taxing powers of LGUs. The city refused insisting that petitioner is a GOCC performing proprietary functions whose tax exemption was withdrawn by Sections 193 and 234 of the LGC. Petitioner filed a declaratory relief before the RTC. The trial court dismissed the petitioner ruling that the LGC withdrew the tax exemption granted the GOCCs. Issue:WON the City of Cebu has the power to impose taxes on petitioner Held:Yes Ratio: 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. Since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting

tax exemptions are thus construed strictissimi juris against the taxpayers and liberally in favor of the taxing authority. A claim of exemption from tax payment must be clearly shown and based on language in the law too plain to be mistaken. There can be no question that under Section 14 RA 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 is the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by LGUs of their power to tax, the scope thereof or its limitations, and the exemption from taxation. Section133 of the LGC prescribes the common limitations on the taxing powers of LGUs: (o) Taxes, fees or charges of any kind on the national government, its agencies and instrumentalities and LGUs. Among the "taxes enumerated in the LGC is real property tax. Section 234 of LGC provides for the exemptions from payment of GOCCs, except as provided therein. On the other hand, the LGC authorizes LGUs to grant tax exemption privileges. Reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as laid down in Secs 133 the taxing powers of LGUs cannot extend to the levy of inter alia, "taxes, fees, and charges of any kind of the National Government, its agencies and instrumentalities, and LGUs"; however, pursuant to Sec 232, provinces, cities, municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial used thereof has been granted to a taxable person."As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except 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. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from real property taxes granted to natural or juridical persons, including GOCCs, 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 Section 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 Section 234, but not under Section 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.It must show that the parcels of land in question, which are real property, are any one of those enumerated in Section 234, either by virtue of ownership, character, or use of the property. Most likely, it could only be the first, but not under any explicit provision of the said section, for one exists. In light of the petitioners theory that it is an "instrumentality of the Government", it could only be within be first item of the first paragraph of the section by expanding the scope of the terms Republic of the Philippines" to embrace ."instrumentalities" and "agencies." This view does not persuade us. In the first place, the petitioner's claim that it is an instrumentality of the Government is based on Section 133(o), which expressly mentions the word "instrumentalities"; and in the second place it fails to consider the fact that the legislature used the phrase "National Government, its agencies and instrumentalities" "in Section 133(o),but only the phrase "Republic of the Philippines or any of its political subdivision "in Section 234(a).

The terms "Republic of the Philippines" and "National Government" are not interchangeable. The former isboarder and synonymous with "Government of the Republic of the Philippines" which the Administrative Code of the1987 defines as the "corporate governmental entity though which the functions of the government are exercised through at the Philippines, including, saves as the contrary appears from the context, the various arms through which political authority is made effective in the Philippines, whether pertaining to the autonomous reason, the provincial,city, municipal or barangay subdivision or other forms of local government." These autonomous regions, provincial,city, municipal or barangay subdivisions" are the political subdivision. On the other hand, "National Government refers "to the entire machinery of the central government, as distinguished from the different forms of local Governments." The National Government then is composed of the three great departments the executive, the legislative and the judicial. An "agency" of the Government refers to "any of the various units of the Government, including a department, bureau, office instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein;" while an "instrumentality" refers 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 enjoying operational autonomy; usually through charter. This term includes regulatory agencies, chartered institutions and government-owned and controlled corporations". If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment of real property taxes under the last sentence of the said section to the agencies and instrumentalities of the National Government mentioned in Section 133(o), then it should have restated the wording of the latter. Yet, it did not Moreover, that Congress did not wish to expand the scope of the exemption in Section 234(a) to include real property owned by other instrumentalities or agencies of the government including government-owned and controlled corporations is further borne out by the fact that the source of this exemption is Section 40(a) of P.D. No. 646, otherwise known as the Real Property TaxCode. Note that as a reproduced in Section 234(a), the phrase "and any government-owned or controlled corporation so exempt by its charter" was excluded. The justification for this restricted exemption in Section 234(a) seems obvious: to limit further tax exemption privileges, specially in light of the general provision on withdrawal of exemption from payment of real property taxes in the last paragraph of property taxes in the last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local governments 33 and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. 34 The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted to government-owned and controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and there was a need for this entities to share in the requirements of the development, fiscal or otherwise, by paying the taxes and other charges due from them. The crucial issues then to be addressed are: (a) whether the parcels of land in question belong to theRepublic of the Philippines whose beneficial use has been granted to the petitioner, and (b) whether thepetitioner is a "taxable person". It may be reasonable to assume that the term "lands" refer to "lands" inCebu City then administered by the Lahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real property taxes. This section involves a "transfer" of the "lands" among other things, to the petitioner and not just the transfer of the beneficial use thereof, with the ownership being retained by the Republic of the Philippines. This "transfer" is actually an absolute conveyance of the ownership thereof because the petitioners authorized capital stock consists of "the value of such real estate owned and/or administered by the airports." Hence, the petitioner

is now the owner of the land in question and the exception in Sec 234(c) of the LGC is inapplicable. Petitioner cannot claim that it was never a "taxable person" under its Charter. It was only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax. Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the forgoing disquisitions, it had already become even if it be conceded to be an "agency" or instrumentality" of the Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner. Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Pagcor is unavailing since it was decided before the effectivity of the LGC. Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. Where it is done precisely to fulfill constitutional mandate and national policy, no one can doubt its wisdom.