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ABRA VALLEY COLLEGE, INC., represented by PEDRO V.

BORGONIA, petitioner,
vs.
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA,
Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued,
Abra; HEIRS OF PATERNO MILLARE,respondents.

This is a petition for review on certiorari of the decision * of the defunct Court of First
Instance of Abra, Branch I, dated June 14, 1974, rendered in Civil Case No. 656,
entitled "Abra Valley Junior College, Inc., represented by Pedro V. Borgonia, plaintiff vs.
Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal
Treasurer of Bangued, Abra and Paterno Millare, defendants," the decretal portion of
which reads:
IN VIEW OF ALL THE FOREGOING, the Court hereby declares:
That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra,
the Provincial Treasurer of said province against the lot and building of the Abra
Valley Junior College, Inc., represented by Director Pedro Borgonia located at
Bangued, Abra, is valid;
That since the school is not exempt from paying taxes, it should therefore pay all
back taxes in the amount of P5,140.31 and back taxes and penalties from the
promulgation of this decision;
That the amount deposited by the plaintaff him the sum of P60,000.00 before the
trial, be confiscated to apply for the payment of the back taxes and for the
redemption of the property in question, if the amount is less than P6,000.00, the
remainder must be returned to the Director of Pedro Borgonia, who represents
the plaintiff herein;
That the deposit of the Municipal Treasurer in the amount of P6,000.00 also
before the trial must be returned to said Municipal Treasurer of Bangued, Abra;
And finally the case is hereby ordered dismissed with costs against the plaintiff.
SO ORDERED. (Rollo, pp. 22-23)

Petitioner, an educational corporation and institution of higher learning duly incorporated


with the Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of
Answer by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972
in the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of

Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate
taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot
and building covered by Original Certificate of Title No. Q-83 duly registered in the name
of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and
Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes
thereon. The "Notice of Sale" was caused to be served upon the petitioner by the
respondent treasurers on July 8, 1972 for the sale at public auction of said college lot
and building, which sale was held on the same date. Dr. Paterno Millare, then Municipal
Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly accepted.
The certificate of sale was correspondingly issued to him.
On August 10, 1972, the respondent Paterno Millare (now deceased) filed through
counstel a motion to dismiss the complaint.
On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer,
through then Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer
by the respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This
was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31,
1972.
On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid;
Rollo, pp. 106-108).
On October 12, 1972, with the aforesaid sale of the school premises at public auction,
the respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra,
Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial and
municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale.
Hence, on December 14, 1972, petitioner, through Director Borgonia, deposited with the
trial court the sum of P6,000.00 evidenced by PNB Check No. 904369.
On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied
by the trial court in its questioned decision. Said Stipulations reads:
STIPULATION OF FACTS
COME NOW the parties, assisted by counsels, and to this Honorable
Court respectfully enter into the following agreed stipulation of facts:
1. That the personal circumstances of the parties as stated in paragraph 1
of the complaint is admitted; but the particular person of Mr. Armin M.

Cariaga is to be substituted, however, by anyone who is actually holding


the position of Provincial Treasurer of the Province of Abra;
2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot
and buildings thereon located in Bangued, Abra under Original Certificate
of Title No. 0-83;
3. That the defendant Gaspar V. Bosque, as Municipal treasurer of
Bangued, Abra caused to be served upon the Abra Valley Junior College,
Inc. a Notice of Seizure on the property of said school under Original
Certificate of Title No. 0-83 for the satisfaction of real property taxes
thereon, amounting to P5,140.31; the Notice of Seizure being the one
attached to the complaint as Exhibit A;
4. That on June 8, 1972 the above properties of the Abra Valley Junior
College, Inc. was sold at public auction for the satisfaction of the unpaid
real property taxes thereon and the same was sold to defendant Paterno
Millare who offered the highest bid of P6,000.00 and a Certificate of Sale
in his favor was issued by the defendant Municipal Treasurer.
5. That all other matters not particularly and specially covered by this
stipulation of facts will be the subject of evidence by the parties.
WHEREFORE, it is respectfully prayed of the Honorable Court to consider
and admit this stipulation of facts on the point agreed upon by the parties.
Bangued, Abra, April 12, 1973.
Sgd. Agripino Brillantes
Typ AGRIPINO BRILLANTES
Attorney for Plaintiff
Sgd. Loreto Roldan
Typ LORETO ROLDAN
Provincial Fiscal
Counsel for Defendants
Provincial Treasurer of
Abra and the Municipal
Treasurer of Bangued, Abra
Sgd. Demetrio V. Pre
Typ. DEMETRIO V. PRE

Attorney for Defendant


Paterno Millare (Rollo, pp. 17-18)
Aside from the Stipulation of Facts, the trial court among others, found the following: (a)
that the school is recognized by the government and is offering Primary, High School
and College Courses, and has a school population of more than one thousand students
all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from
the plaza and about 120 meters from the Court of First Instance building; (c) that the
elementary pupils are housed in a two-storey building across the street; (d) that the high
school and college students are housed in the main building; (e) that the Director with
his family is in the second floor of the main building; and (f) that the annual gross
income of the school reaches more than one hundred thousand pesos.
From all the foregoing, the only issue left for the Court to determine and as agreed by
the parties, is whether or not the lot and building in question are used exclusively for
educational purposes. (Rollo, p. 20)
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon.
Eustaquio Z. Montero, filed a Memorandum for the Government on March 25, 1974, and
a Supplemental Memorandum on May 7, 1974, wherein they opined "that based on the
evidence, the laws applicable, court decisions and jurisprudence, the school building
and school lot used for educational purposes of the Abra Valley College, Inc., are
exempted from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49;
44 and 49).
Nonetheless, the trial court disagreed because of the use of the second floor by the
Director of petitioner school for residential purposes. He thus ruled for the government
and rendered the assailed decision.
After having been granted by the trial court ten (10) days from August 6, 1974 within
which to perfect its appeal (Per Order dated August 6, 1974; Annex "G" of Petition;
Rollo, p. 57) petitioner instead availed of the instant petition for review on certiorari with
prayer for preliminary injunction before this Court, which petition was filed on August 17,
1974 (Rollo, p.2).
In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to
the petition (Rollo, p. 58). Respondents were required to answer said petition (Rollo, p.
74).
Petitioner raised the following assignments of error:

I
THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF
THE COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF
THE PETITIONER.
II
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND
BUILDING OF THE PETITIONER ARE NOT USED EXCLUSIVELY FOR
EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT
RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.
III
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND
BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND
IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES.
IV
THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00
DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31
REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)
The main issue in this case is the proper interpretation of the phrase "used exclusively
for educational purposes."
Petitioner contends that the primary use of the lot and building for educational purposes,
and not the incidental use thereof, determines and exemption from property taxes under
Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and sale of
subject college lot and building, which are contrary thereto as well as to the provision of
Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal
basis and therefore void.
On the other hand, private respondents maintain that the college lot and building in
question which were 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 and Director thereof, Mr. Pedro V. Borgonia, and his family including the
in-laws and grandchildren; and (3) for commercial purposes because the ground floor of
the college building is being used and rented by a commercial establishment, the

Northern Marketing Corporation (See photograph attached as Annex "8" (Comment;


Rollo, p. 90]).
Due to its time frame, the constitutional provision which finds application in the case at
bar is Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which
expressly grants exemption from realty taxes for "Cemeteries, churches and
parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable or educational purposes ...
Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by
Republic Act No. 409, otherwise known as the Assessment Law, provides:
The following are exempted from real property tax under the Assessment
Law:
xxx xxx xxx
(c) churches and parsonages or convents appurtenant thereto, and all
lands, buildings, and improvements used exclusively for religious,
charitable, scientific or educational purposes.
xxx xxx xxx
In this regard petitioner argues that the primary use of the school lot and building is the
basic and controlling guide, norm and standard to determine tax exemption, and not the
mere incidental use thereof.
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 of Nueva 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 phrase "exclusively used for educational purposes" was further clarified by this
Court in the cases of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA
186 [1961] and Commissioner of Internal Revenue vs. Bishop of the Missionary District,
14 SCRA 991 [1965], thus
Moreover, the exemption in favor of property used exclusively for
charitable or educational purposes is 'not limited to property actually
indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends
to facilities which are incidental to and reasonably necessary for the
accomplishment of said purposes, such as in the case of hospitals, "a
school for training nurses, a nurses' home, property use to provide
housing facilities for interns, resident doctors, superintendents, and other
members of the hospital staff, and recreational facilities for student nurses,
interns, and residents' (84 CJS 6621), such as "Athletic fields" including "a
firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2, p.
1430).
The test of exemption from taxation is the use of the property for purposes mentioned in
the Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).
It must be stressed however, that while this Court allows a more liberal and nonrestrictive 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 main or primary purposeeducational, the lease of the first
floor thereof to the Northern Marketing Corporation cannot by any stretch of the
imagination be considered incidental to the purpose of education.
It will be noted however that the aforementioned lease appears to have been raised for
the first time in this Court. That the matter was not taken up in the to court is really
apparent in the decision of respondent Judge. No mention thereof was made in the
stipulation of facts, not even in the description of the school building by the trial judge,
both embodied in the decision nor as one of the issues to resolve in order to determine
whether or not said properly may be exempted from payment of real estate taxes (Rollo,
pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even
after it was raised in this Court.

Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the
first time on appeal. Nonetheless, as an exception to the rule, this Court has held that
although a factual issue is not squarely raised below, still in the interest of substantial
justice, this Court is not prevented from considering a pivotal factual matter. "The
Supreme Court is clothed with ample authority to review palpable errors not assigned as
such if it finds that their consideration is necessary in arriving at a just decision." (Perez
vs. Court of Appeals, 127 SCRA 645 [1984]).
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.
PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I,
is hereby AFFIRMED subject to the modification that half of the assessed tax be
returned to the petitioner.
SO ORDERED.

ANTERO M. SISON, JR., petitioner,


vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue;
ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue; TOMAS
TOLEDO Deputy Commissioner, Bureau of Internal Revenue; MANUEL ALBA,
Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit,
and CESAR E. A. VIRATA, Minister of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.

FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition
proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends upon a
showing of its constitutional infirmity. The assailed provision further amends Section 21
of the National Internal Revenue Code of 1977, which provides for rates of tax on
citizens or residents on (a) taxable compensation income, (b) taxable net income, (c)
royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any
other monetary benefit from deposit substitutes and from trust fund and similar
arrangements, (e) dividends and share of individual partner in the net profits of taxable
partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue
thereof, "he would be unduly discriminated against by the imposition of higher rates of
tax upon his income arising from the exercise of his profession vis-a-vis those which are
imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the
above sction as arbitrary amounting to class legislation, oppressive and capricious in
character 5 For petitioner, therefore, there is a transgression of both the equal protection
and due process clauses 6 of the Constitution as well as of the rule requiring uniformity
in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer
within 10 days from notice. Such an answer, after two extensions were granted the
Office of the Solicitor General, was filed on May 28, 1982. 8 The facts as alleged were
admitted but not the allegations which to their mind are "mere arguments, opinions or
conclusions on the part of the petitioner, the truth [for them] being those stated [in their]
Special and Affirmative Defenses." 9 The answer then affirmed: "Batas Pambansa Big.
135 is a valid exercise of the State's power to tax. The authorities and cases cited while

correctly quoted or paraghraph do not support petitioner's stand." 10 The prayer is for
the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The
reason was so clearly set forth by retired Chief Justice Makalintal thus: "The areas
which used to be left to private enterprise and initiative and which the government was
called upon to enter optionally, and only 'because it was better equipped to administer
for the public welfare than is any private individual or group of individuals,' continue to
lose their well-defined boundaries and to be absorbed within activities that the
government must undertake in its sovereign capacity if it is to meet the increasing social
challenges of the times." 11 Hence the need for more revenues. The power to tax, an
inherent prerogative, has to be availed of to assure the performance of vital state
functions. It is the source of the bulk of public funds. To praphrase a recent decision,
taxes being the lifeblood of the government, their prompt and certain availability is of the
essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of
sovereignty. It is the strongest of all the powers of of government." 13 It is, of course, to
be admitted that for all its plenitude 'the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits . Adversely affecting as it does
properly rights, both the due process and equal protection clauses inay properly be
invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it
were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that
"the power to tax involves the power to destroy." 14 In a separate opinion in Graves v.
New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark
characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the
times following] a free use of absolutes." 16 This is merely to emphasize that it is riot
and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully
conclude: "The web of unreality spun from Marshall's famous dictum was brushed away
by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy
while this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law
overrides any legislative or executive, act that runs counter to it. In any case therefore
where it can be demonstrated that the challenged statutory provision as petitioner
here alleges fails to abide by its command, then this Court must so declare and
adjudge it null. The injury thus is centered on the question of whether the imposition of a
higher tax rate on taxable net income derived from business or profession than on
compensation is constitutionally infirm.

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere


allegation, as here. does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a provision
as void or its face, he has not made out a case. This is merely to adhere to the
authoritative doctrine that were the due process and equal protection clauses are
invoked, considering that they arc not fixed rules but rather broad standards, there is a
need for of such persuasive character as would lead to such a conclusion. Absent such
a showing, the presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is
so arbitrary that it finds no support in the Constitution. An obvious example is where it
can be shown to amount to the confiscation of property. That would be a clear abuse of
power. It then becomes the duty of this Court to say that such an arbitrary act amounted
to the exercise of an authority not conferred. That properly calls for the application of the
Holmes dictum. It has also been held that where the assailed tax measure is beyond the
jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute
is so harsh and unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a
denial of this constitutional mandate whether the assailed act is in the exercise of the
lice power or the power of eminent domain is to demonstrated that the governmental act
assailed, far from being inspired by the attainment of the common weal was prompted
by the spirit of hostility, or at the very least, discrimination that finds no support in
reason. It suffices then that the laws operate equally and uniformly on all persons under
similar circumstances or that all persons must be treated in the same manner, the
conditions not being different, both in the privileges conferred and the liabilities
imposed. Favoritism and undue preference cannot be allowed. For the principle is that
equal protection and security shall be given to every person under circumtances which if
not Identical are analogous. If law be looked upon in terms of burden or charges, those
that fall within a class should be treated in the same fashion, whatever restrictions cast
on some in the group equally binding on the rest." 20 That same formulation applies as
well to taxation measures. The equal protection clause is, of course, inspired by the
noble concept of approximating the Ideal of the laws benefits being available to all and
the affairs of men being governed by that serene and impartial uniformity, which is of the
very essence of the Idea of law. There is, however, wisdom, as well as realism in these
words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is
not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of
the laws,' and laws are not abstract propositions. They do not relate to abstract units A,
B and C, but are expressions of policy arising out of specific difficulties, address to the
attainment of specific ends by the use of specific remedies. The Constitution does not
require things which are different in fact or opinion to be treated in law as though they

were the same." 21 Hence the constant reiteration of the view that classification if
rational in character is allowable. As a matter of fact, in a leading case of Lutz V.
Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate,
it is inherent in the power to tax that a state be free to select the subjects of taxation,
and it has been repeatedly held that 'inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the
Constitution: "The rule of taxation shag be uniform and equitable." 24 This requirement is
met according to Justice Laurel in Philippine Trust Company v. Yatco, 25 decided in 1940,
when the tax "operates with the same force and effect in every place where the subject
may be found. " 26 He likewise added: "The rule of uniformity does not call for perfect
uniformity or perfect equality, because this is hardly attainable." 27 The problem of
classification did not present itself in that case. It did not arise until nine years later,
when the Supreme Court held: "Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall be taxed at the same rate.
The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the differentiation"
complained of "conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore uniform." 29 There is
quite a similarity then to the standard of equal protection for all that is required is that
the tax "applies equally to all persons, firms and corporations placed in similar
situation." 30
8. Further on this point. Apparently, what misled petitioner is his failure to take into
consideration the distinction between a tax rate and a tax base. There is no legal
objection to a broader tax base or taxable income by eliminating all deductible items
and at the same time reducing the applicable tax rate. Taxpayers may be classified into
different categories. To repeat, it. is enough that the classification must rest upon
substantial distinctions that make real differences. In the case of the gross income
taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification
is the susceptibility of the income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing a set of reduced tax rates to
be applied to all of them. Taxpayers who are recipients of compensation income are set
apart as a class. As there is practically no overhead expense, these taxpayers are e not
entitled to make deductions for income tax purposes because they are in the same
situation more or less. On the other hand, in the case of professionals in the practice of
their calling and businessmen, there is no uniformity in the costs or expenses necessary
to produce their income. It would not be just then to disregard the disparities by giving
all of them zero deduction and indiscriminately impose on all alike the same tax rates on
the basis of gross income. There is ample justification then for the Batasang Pambansa

to adopt the gross system of income taxation to compensation income, while continuing
the system of net income taxation as regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering
the (1) lack of factual foundation to show the arbitrary character of the assailed
provision; 31 (2) the force of controlling doctrines on due process, equal protection, and
uniformity in taxation and (3) the reasonableness of the distinction between
compensation and taxable net income of professionals and businessman certainly not a
suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.

ORMOC SUGAR COMPANY, INC., plaintiff-appellant,


vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC CITY,
HON. ESTEBAN C. CONEJOS as Mayor of Ormoc City and ORMOC
CITY, defendants-appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo and Teehankee, Carreon & Taada for
plaintiff-appellant.
Ramon O. de Veyra for defendants-appellees.
BENGZON, J.P., J.:
On January 29, 1964, the Municipal Board of Ormoc City passed 1 Ordinance No.
4, Series of 1964, imposing "on any and all productions of centrifugal sugar milled at the
Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one per
centum (1%) per export sale to the United States of America and other foreign
countries." 2
Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc.
on March 20, 1964 for P7,087.50 and on April 20, 1964 for P5,000, or a total of
P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of First
Instance of Leyte, with service of a copy upon the Solicitor General, a
complaint 3 against the City of Ormoc as well as its Treasurer, Municipal Board and
Mayor, alleging that the afore-stated ordinance is unconstitutional for being violative of
the equal protection clause (Sec. 1[1], Art. III, Constitution) and the rule of uniformity of
taxation (Sec. 22[1]), Art. VI, Constitution), aside from being an export tax forbidden
under Section 2287 of the Revised Administrative Code. It further alleged that the tax is
neither a production nor a license tax which Ormoc City under Section 15-kk of its
charter and under Section 2 of Republic Act 2264, otherwise known as the Local
Autonomy Act, is authorized to impose; and that the tax amounts to a customs duty, fee
or charge in violation of paragraph 1 of Section 2 of Republic Act 2264 because the tax
is on both the sale and export of sugar.
Answering, the defendants asserted that the tax ordinance was within defendant
city's power to enact under the Local Autonomy Act and that the same did not violate the
afore-cited constitutional limitations. After pre-trial and submission of the case on
memoranda, the Court of First Instance, on August 6, 1964, rendered a decision that
upheld the constitutionality of the ordinance and declared the taxing power of defendant

chartered city broadened by the Local Autonomy Act to include all other forms of taxes,
licenses or fees not excluded in its charter.
Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar Company, Inc.
Appellant alleges the same statutory and constitutional violations in the aforesaid taxing
ordinance mentioned earlier.
Section 1 of the ordinance states: "There shall be paid to the City Treasurer on
any and all productions of centrifugal sugar milled at the Ormoc Sugar Company,
Incorporated, in Ormoc City, a municipal tax equivalent to one per centum (1%) per
export sale to the United States of America and other foreign countries." Though
referred to as a tax on the export of centrifugal sugar produced at Ormoc Sugar
Company, Inc. For production of sugar alone is not taxable; the only time the tax applies
is when the sugar produced is exported.
Appellant questions the authority of the defendant Municipal Board to levy such
an export tax, in view of Section 2287 of the Revised Administrative Code which denies
from municipal councils the power to impose an export tax. Section 2287 in part states:
"It shall not be in the power of the municipal council to impose a tax in any form
whatever, upon goods and merchandise carried into the municipality, or out of the same,
and any attempt to impose an import or export tax upon such goods in the guise of an
unreasonable charge for wharfage use of bridges or otherwise, shall be void."
Subsequently, however, Section 2 of Republic Act 2264 effective June 19, 1959,
gave chartered cities, municipalities and municipal districts authority to levy for public
purposes just and uniform taxes, licenses or fees. Anent the inconsistency between
Section 2287 of the Revised Administrative Code and Section 2 of Republic Act 2264,
this Court, in Nin Bay Mining Co. v. Municipality of Roxas 4 held the former to have been
repealed by the latter. And expressing Our awareness of the transcendental effects that
municipal export or import taxes or licenses will have on the national economy, due to
Section 2 of Republic Act 2264, We stated that there was no other alternative until
Congress acts to provide remedial measures to forestall any unfavorable results.
The point remains to be determined, however, whether constitutional limits on the
power of taxation, specifically the equal protection clause and rule of uniformity of
taxation, were infringed.
The Constitution in the bill of rights provides: ". . . nor shall any person be denied
the equal protection of the laws." (Sec. 1 [1], Art. III) In Felwa vs. Salas, 5 We ruled that
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; (4) the classification applies only to those
who belong to the same class.
A perusal of the requisites instantly shows that the questioned ordinance does not
meet them, for it taxes only centrifugal sugar produced and exported by the Ormoc
Sugar Company, Inc. and none other. At the time of the taxing ordinance's enactment,
Ormoc Sugar Company, Inc., it is true, was the only sugar central in the city of Ormoc.
Still, the classification, to be reasonable, should be in terms applicable to future
conditions as well. The taxing ordinance should not be singular and exclusive as to
exclude any subsequently established sugar central, of the same class as plaintiff, for
the coverage of the tax. As it is now, even if later a similar company is set up, it cannot
be subject to the tax because the ordinance expressly points only to Ormoc City Sugar
Company, Inc. as the entity to be levied upon.
Appellant, however, is not entitled to interest; on the refund because the taxes
were not arbitrarily collected (Collector of Internal Revenue v. Binalbagan). 6 At the time
of collection, the ordinance provided a sufficient basis to preclude arbitrariness, the
same being then presumed constitutional until declared otherwise.
WHEREFORE, the decision appealed from is hereby reversed, the challenged
ordinance is declared unconstitutional and the defendants-appellees are hereby ordered
to refund the P12,087.50 plaintiff-appellant paid under protest. No costs. So ordered.

G.R. No. L-29646 November 10, 1978


MAYOR ANTONIO J. VILLEGAS, petitioner,

vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.
This is a petition for certiorari to review tile decision dated September 17, 1968 of
respondent Judge Francisco Arca of the Court of First Instance of Manila, Branch I, in
Civil Case No. 72797, the dispositive portion of winch reads.
Wherefore, judgment is hereby rendered in favor of the petitioner and
against the respondents, declaring Ordinance No. 6 37 of the City of
Manila null and void. The preliminary injunction is made permanent. No
pronouncement as to cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.
(SGD.) FRANCISCO ARCA
The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on
February 22, 1968 and signed by the herein petitioner Mayor Antonio J. Villegas of
Manila on March 27, 1968. 2
City Ordinance No. 6537 is entitled:
AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A
CITIZEN OF THE PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF
EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF TRADE,
BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA WITHOUT
FIRST SECURING AN EMPLOYMENT PERMIT FROM THE MAYOR OF
MANILA; AND FOR OTHER PURPOSES. 3
Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to
engage or participate in any position or occupation or business enumerated therein,
whether permanent, temporary or casual, without first securing an employment permit
from the Mayor of Manila and paying the permit fee of P50.00 except persons employed
in the diplomatic or consular missions of foreign countries, or in the technical assistance

programs of both the Philippine Government and any foreign government, and those
working in their respective households, and members of religious orders or
congregations, sect or denomination, who are not paid monetarily or in kind.
Violations of this ordinance is punishable by an imprisonment of not less than three (3)
months to six (6) months or fine of not less than P100.00 but not more than P200.00 or
both such fine and imprisonment, upon conviction. 5
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in
Manila, filed a petition with the Court of First Instance of Manila, Branch I, denominated
as Civil Case No. 72797, praying for the issuance of the writ of preliminary injunction
and restraining order to stop the enforcement of Ordinance No. 6537 as well as for a
judgment declaring said Ordinance No. 6537 null and void. 6
In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for
wanting the ordinance declared null and void:
1) As a revenue measure imposed on aliens employed in the City of Manila,
Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity in
taxation;
2) As a police power measure, it makes no distinction between useful and nonuseful occupations, imposing a fixed P50.00 employment permit, which is out of
proportion to the cost of registration and that it fails to prescribe any standard to
guide and/or limit the action of the Mayor, thus, violating the fundamental
principle on illegal delegation of legislative powers:
3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who
are thus, deprived of their rights to life, liberty and property and therefore,
violates the due process and equal protection clauses of the Constitution. 7
On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on
September 17, 1968 rendered judgment declaring Ordinance No. 6537 null and void
and making permanent the writ of preliminary injunction. 8
Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas
filed the present petition on March 27, 1969. Petitioner assigned the following as errors
allegedly committed by respondent Judge in the latter's decision of September
17,1968: 9
I

THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR


OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL
RULE OF UNIFORMITY OF TAXATION.
II
RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT
ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE
PRINCIPLE AGAINST UNDUE DESIGNATION OF LEGISLATIVE POWER.
III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT
ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE
DUE PROCESS AND EQUAL PROTECTION CLAUSES OF THE
CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and
void on the ground that it violated the rule on uniformity of taxation because the rule on
uniformity of taxation applies only to purely tax or revenue measures and that
Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police
power of the state, it being principally a regulatory measure in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue measure
because its principal purpose is regulatory in nature has no merit. While it is true that
the first part which requires that the alien shall secure an employment permit from the
Mayor involves the exercise of discretion and judgment in the processing and approval
or disapproval of applications for employment permits and therefore is regulatory in
character the second part which requires the payment of P50.00 as employee's fee is
not regulatory but a revenue measure. There is no logic or justification in exacting
P50.00 from aliens who have been cleared for employment. It is obvious that the
purpose of the ordinance is to raise money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because it fails to
consider valid substantial differences in situation among individual aliens who are
required to pay it. Although the equal protection clause of the Constitution does not
forbid classification, it is imperative that the classification should be based on real and
substantial differences having a reasonable relation to the subject of the particular
legislation. The same amount of P50.00 is being collected from every employed alien
whether he is casual or permanent, part time or full time or whether he is a lowly
employee or a highly paid executive

Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in
the exercise of his discretion. It has been held that where an ordinance of a municipality
fails to state any policy or to set up any standard to guide or limit the mayor's action,
expresses no purpose to be attained by requiring a permit, enumerates no conditions
for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor
arbitrary and unrestricted power to grant or deny the issuance of building permits, such
ordinance is invalid, being an undefined and unlimited delegation of power to allow or
prevent an activity per se lawful. 10
In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law
granted a government agency power to determine the allocation of wheat flour among
importers, the Supreme Court ruled against the interpretation of uncontrolled power as it
vested in the administrative officer an arbitrary discretion to be exercised without a
policy, rule, or standard from which it can be measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and
refuse permits of all classes conferred upon the Mayor of Manila by the Revised Charter
of Manila is not uncontrolled discretion but legal discretion to be exercised within the
limits of the law.
Ordinance No. 6537 is void because it does not contain or suggest any standard or
criterion to guide the mayor in the exercise of the power which has been granted to him
by the ordinance.
The ordinance in question violates the due process of law and equal protection rule of
the Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of
Manila who may withhold or refuse it at will is tantamount to denying him the basic right
of the people in the Philippines to engage in a means of livelihood. While it is true that
the Philippines as a State is not obliged to admit aliens within its territory, once an alien
is admitted, he cannot be deprived of life without due process of law. This guarantee
includes the means of livelihood. The shelter of protection under the due process and
equal protection clause is given to all persons, both aliens and citizens. 13
The trial court did not commit the errors assigned.
WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement
as to costs.

Arturo Tolentino vs Secretary of Finance

Tolentino et al is questioning the constitutionality of RA 7716 otherwise known as the Expanded


Value Added Tax (EVAT) Law. 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 1st reading 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 w/ the text of SB 1630 in that way the bill remains a
House Bill and the Senate version just becomes the text (only the text) of the HB. Tolentino and
co-petitioner Roco [however] even signed the said Senate Bill.
ISSUE: Whether or not EVAT originated in the HoR.
HELD: By a 9-6 vote, the SC 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.
TOLENTINO VS. THE SECRETARY OF FINANCE Case Digest
ARTURO M. TOLENTINO VS. THE SECRETARY
OF FINANCE and THECOMMISSIONER OF INTERNAL REVENUE1994 Aug 25G.R.
No. 115455235 SCRA 630FACTS:
The valued-added tax (VAT) is levied on the sale, barter or exchange of goodsand
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
itsadministration by amending the National Internal Revenue Code.The Chamber of
Real Estate and Builders Association (CREBA) contends that theimposition 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.
ISSUE:
Whether R.A. No. 7716 is unconstitutional on ground that it violates the contractclause
under Art. III, sec 10 of the Bill of Rights.

RULING:
No. The Supreme Court the contention of CREBA, that the imposition of theVAT on the
sales and leases of real estate by virtue of contracts entered into prior to theeffectivity 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 saythat 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 readinto contracts in order
to fix obligations as between parties, but the reservation of essential attributes of
sovereign power is also read into contracts as a basic postulate of the legal order. The
policy of protecting contracts against impairment presupposes themaintenance of a
government which retains adequate authority to secure the peace andgood order of
society. In truth, the Contract Clause has never been thought as alimitation on the
exercise of the State's power of taxation save only where a taxexemption 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 itto make this claim. Rather, its position, as discussed
above, is that the removal of its taxexemption 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 andsubstantive 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 byCongress 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 theprinciple 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 aneducation; 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 protectedunder the Contract Clause are prematurely raised
and do not justify the grant of prospective relief by writ of prohibition.WHEREFORE, the
petitions are DISMISSED.