PHILIPPINE AIRLINES, INC. v.

EDU
G.R. No. L- 41383, August 15, 1988
FACTS:

The Philippine Airlines (PAL) is a corporation engaged in the air transportation

business under a legislative franchise, Act No. 42739. Under its franchise, PAL is
exempt from the payment of taxes.

Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate

(Elevate) issued a regulation pursuant to Section 8, Republic Act 4136, otherwise
known as the Land and Transportation and Traffic Code, requiring all tax exempt
entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the
amounts imposed under Republic Act 4136 were paid. PAL thus paid, under protest,
registration fees of its motor vehicles. After paying under protest, PAL through
counsel, wrote a letter dated May 19,1971, to Land Transportation Commissioner
Romeo Edu (Edu) demanding a refund of the amounts paid. Edu denied the request
for refund. Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo
Carbonell (Carbonell).

The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals
which in turn certified the case to the Supreme Court.

ISSUE:

Whether or not motor vehicle registration fees are considered as taxes.

RULING:

Yes. 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. The motor vehicle registration fees are actually taxes
intended for additional revenues of the government even if one fifth or less of the
amount collected is set aside for the operating expenses of the agency
administering the program.

Commissioner of Internal Revenue vs. Algue Inc.

GR No. L-28896 | Feb. 17, 1988
Facts:

· Algue Inc. is a domestic corp engaged in engineering, construction and other

allied activities

· On Jan. 14, 1965, the corp received a letter from the CIR regarding its
delinquency income taxes from 1958-1959, amtg to P83,183.85

· A letter of protest or reconsideration was filed by Algue Inc on Jan 18

· On March 12, a warrant of distraint and levy was presented to Algue Inc. thru
its counsel, Atty. Guevara, who refused to receive it on the ground of the pending
protest

· Since the protest was not found on the records, a file copy from the corp was
produced and given to BIR Agent Reyes, who deferred service of the warrant

· On April 7, Atty. Guevara was informed that the BIR was not taking any action
on the protest and it was only then that he accepted the warrant of distraint and
levy earlier sought to be served

· On April 23, Algue filed a petition for review of the decision of the CIR with the
Court of Tax Appeals

· CIR contentions:

- the claimed deduction of P75,000.00 was properly disallowed because it was

not an ordinary reasonable or necessary business expense

- payments are fictitious because most of the payees are members of the same
family in control of Algue and that there is not enough substantiation of such
payments

· CTA: 75K had been legitimately paid by Algue Inc. for actual services
rendered in the form of promotional fees. These were collected by the Payees for
their work in the creation of the Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.

Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by Algue as legitimate business expenses in its income tax returns

Ruling:

· Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance, made in accordance with law.

· RA 1125: the appeal may be made within thirty days after receipt of the
decision or ruling challenged

· During the intervening period, the warrant was premature and could therefore
not be served.

· Originally, CIR claimed that the 75K promotional fees to be personal holding
company income, but later on conformed to the decision of CTA

· There is no dispute that the payees duly reported their respective shares of the
fees in their income tax returns and paid the corresponding taxes thereon. CTA also
found, after examining the evidence, that no distribution of dividends was involved
· CIR suggests a tax dodge, an attempt to evade a legitimate assessment by
involving an imaginary deduction

· Algue Inc. was a family corporation where strict business procedures were not
applied and immediate issuance of receipts was not required. at the end of the
year, when the books were to be closed, each payee made an accounting of all of
the fees received by him or her, to make up the total of P75,000.00. This
arrangement was understandable in view of the close relationship among the
persons in the family corporation

· The amount of the promotional fees was not excessive. The total commission
paid by the Philippine Sugar Estate Development Co. to Algue Inc. was P125K. 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.

· Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - 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 xxx

· the burden is on the taxpayer to prove the validity of the claimed deduction

· In this case, Algue Inc. 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.

· Taxes are what we pay for civilization society. Without taxes, the government
would be paralyzed for lack of the motive power to activate and operate it. Hence,
despite the natural reluctance to surrender part of one's hard earned income to the
taxing authorities, every person who is able to must contribute his share in the
running of the government. The government for its part, is expected to respond in
the form of tangible and intangible benefits intended to improve the lives of the
people and enhance their moral and material values

· Taxation must be exercised reasonably and in accordance with the

prescribed procedure. If it is not, then the taxpayer has a right to complain and the
courts will then come to his succor

Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in
accordance with Rep. Act No. 1125. And we also find that the claimed deduction
by Algue Inc. was permitted under the Internal Revenue Code and should therefore
not have been disallowed by the CIR
Valentin Tio vs Videogram Regulatory Board
Facts:

In 1985, Presidential Dedree No. 1987 entitled “An Act Creating the Videogram
Regulatory Board” was enacted which gave broad powers to the VRB to regulate
and supervise the videogram industry. The said law sought to minimize the economic
effects of piracy. There was a need to regulate the sale of videograms as it has
adverse effects to the movie industry. The proliferation of videograms has
significantly lessened the revenue being acquired from the movie industry, and that
such loss may be recovered if videograms are to be taxed. Section 10 of the PD
imposes a 30% tax on the gross receipts payable to the LGUs.

In 1986, Valentin Tio assailed the said PD as he averred that it is unconstitutional on

the following grounds:

1. Section 10 thereof, which imposed the 30% tax on gross receipts, is a rider and is
not germane to the subject matter of the law.

2. There is also undue delegation of legislative power to the VRB, an administrative

body, because the law allowed the VRB to deputize, upon its discretion, other
government agencies to assist the VRB in enforcing the said PD.

ISSUE: Whether or not the Valentin Tio’s arguments are correct.

HELD: No.

1. The Constitutional requirement that “every bill shall embrace only one subject
which shall be expressed in the title thereof” is sufficiently complied with if the title be
comprehensive enough to include the general purpose which a statute seeks to
achieve. In the case at bar, the questioned provision is allied and germane to, and is
reasonably necessary for the accomplishment of, the general object of the PD,
which is the regulation of the video industry through the VRB as expressed in its title.
The tax provision is not inconsistent with, nor foreign to that general subject and title.
As a tool for regulation it is simply one of the regulatory and control mechanisms
scattered throughout the PD.

2. There is no undue delegation of legislative powers to the VRB. VRB is not being
tasked to legislate. What was conferred to the VRB was the authority or discretion to
seek assistance in the execution, enforcement, and implementation of the law.
Besides, in the very language of the decree, the authority of the BOARD to solicit
such assistance is for a “fixed and limited period” with the deputized agencies
concerned being “subject to the direction and control of the [VRB].”

Republic v. Bacolod-Murcia Milling Co., Inc., etal.

Date: 9 July 1966Ponente: Justice RegalaParties: Bacolod-Murcia Milling Co., Inc.,
Ma-ao Sugar Central Co., Inc., Talisay-SilayMilling Co., petitioners, v The Republic of
the Philippines, respondent Action: Joint Appeal from Court of First Instance of
ManilaSummary:

• The three sugar centrals are sister companies under single ownership and
management.

• They were required to pay 10 centavos per picul (around 5-6 kilos) of sugar
collected for 5 crop years under Sec. 15 of RA 632.

•The sugar tax was levied to create Philsugin (Philippine Sugar Institute), to conduct
research and development for sugar and sugar by-products.

• Philsugin acquired the Insular Sugar Refinery and lost a lot of money

• Appellants stopped paying the levy because they said that the purchase was
unauthorized by RA 632. They had unpaid balances

• The Court of First Instance said that they had to pay the balance, and the
Supreme Court affirmed its decision

Definitions:

• Special assessments: a levy on property where the property against which it is

levied derives special benefits from how the money was used (in normal people
speak: whatever this tax is spent on will benefit those who paid the tax)

• RA 632: Philippine Sugar Institute charter; where Philsugin is a semi-public

corporation meant to advance the Philippine sugar industry (research, marketing,
etc.)

O Section 15 of RA 632: to raise funds for Philsugin, annual sugar production will be
levied 10c per picul of sugar collected for 5 crop years, (c.y. 1951-52to 1956). The
amount will be borne by sugar centrals and sugar cane plantersFacts:

• CFI case:

O Appellants and another sugar central, Central Azucarera del Danao, had unpaid
balance:

Bacolod-Murcia:P216,070.50

Ma-ao:P235,800.20

Talisay-Silay:P208,193.74
 Danao:P48,059.77

O 3 Sept 1951: Philsugin acquired the Insular Sugar Refinery through the sugar tax
imposed by RA632

O 1954-57: Philsugin lots a LOT of money, and at that time, 70% of Philsugin’s time
and effort had gone into the operation of Insular Sugar Refinery

O Appellants contend that the purchase of the Insular Sugar Refinery, using money
from the Philsugin fun, was not authorized by RA632 and refused to contribute to it

10c/picul is a special assessment, not a tax, and property owners who pay the
assessment don’t have to be forced to pay if the proceeds have been misapplied
to their prejudice

O Lower court’s Decision: Apellants are liable for special assessments and have to
pay the balance

Appellants are liable under RA632

• Section 3 authorizes Philsugin to buy things for sugar and its by-products, including
sugar refineries

Decision to purchase was made the board of directors, and the appellants were
duly represented by the Philippine Sugar Association, of which the appellants are
members

All of Philsugin’s transactions pass through the General Auditor, the Office of the
President, and other pertinent authorities and safeguards in order to ensure that
purchases (including that of the refinery) had been legal and proper

Appellants’ refusal to pay is like a taxpayer refusing to pay taxes; it’s dangerous to
allow their motion because they were essentially taking the law into their own hands

•In the PRESENT, the appellants say that:

O Under Section 3 of RA632, Philsugin had no authority to acquire the refinery.

Philsugin is empowered to purchase a “central experiment station or… at most a
sugar central,” not a sugar refinery.

Cited

Collector v Ledesma: definition; sugar central=sugar mill that manufacture sugar for
a number of plantations

O Refusal to pay an assessment is different from refusal to pay a tax, since a tax is
different from an assessment
O The imposition of a special assessment on property owners who won’t benefit from
it is a denial of due process

Issue: Did the CFI make the right call in ruling that the defendants are liable for the
special assessments under RA 632?Ruling:

• Supreme Court finds for the appellee; CFI decision is AFFIRMED, with costs

• Cited

Lutz v Araneta : Section 6 of CA 567 (sugar adjustment act) levies a tax to accrue to
the “Sugar Adjustment and Stabilization Fund”

O SC said that the assailed tax was levied to help rehabilitate and stabilize the
threatened sugar industry (history lesson: before, the Philippines was a sugar cartel
with the US as its top customer, but the Act that enabled it to supply the US with
sugar was expiring)

O The sugar industry was a leading exporter and employer and a prime source of
foreign exchange and state wealth such that its welfare redounds to general
welfare

O The assailed act is therefore an exercise of POLICE POWER because of its

importance to general welfare

•Like in the Lutz v Araneta case, Section 5 of RA632 is an exercise of police power

• Under Section 2 of RA632, Philsugin is authorized to do research for the sugar

industry “in all its phases,” which justifies its acquisition of the Insular Sugar Refinery

• The experience is technically NOT a loss to the industry: through Philsugin’s

purchase, there is now a better appreciation for the management problems faced
by sugar central

LUTZ v. ARANETA 98 PHIL. 145 December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate of the deceased Antonio
Jayme Ledesma, plaintiff-appellant v. J. ANTONIO ARANETA, as collector of Internal
Revenue, defendant-appellee

G.R No. L-7856. December 22, 1955

REYES, J.B L., J.:

FACTS:

Appelant in this case Walter Lutz in his capacity as the Judicial Administrator of the
intestate of the deceased Antonio Jayme Ledesma, seeks to recover from the
Collector of the Internal Revenue the total sum of fourteen thousand six hundred
sixty six and forty cents (P 14, 666.40) paid by the estate as taxes, under section 3 of
Commonwealth Act No. 567, also known as the Sugar Adjustment Act, for the crop
years 1948-1949 and 1949-1950. Commonwealth Act. 567 Section 2 provides for an
increase of the existing tax on the manufacture of sugar on a graduated basis, on
each picul of sugar manufacturer; while section 3 levies on the owners or persons in
control of the land devoted tot he cultivation of sugarcane and ceded to others for
consideration, on lease or otherwise - "a tax equivalent to the difference between
the money value of the rental or consideration collected and the amount
representing 12 per centum of the assessed value of such land. It was alleged that
such tax is unconstitutional and void, being levied for the aid and support of the
sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which
a tax may be constitutionally levied. The action was dismissed by the CFI thus the
plaintiff appealed directly to the Supreme Court.

ISSUE:

Whether or not the tax imposition in the Commonwealth Act No. 567 are
unconstitutional.

RULING:

Yes, the Supreme Court held that the fact that sugar production is one of the
greatest industry of our nation, sugar occupying a leading position among its export
products; that it gives employment to thousands of laborers in the fields and
factories; that it is a great source of the state's wealth, is one of the important source
of foreign exchange needed by our government and is thus pivotal in the plans of a
regime committed to a policy of currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general welfare. Hence it was
competent for the legislature to find that the general welfare demanded that the
sugar industry be stabilized in turn; and in the wide field of its police power, the law-
making body could provide that the distribution of benefits therefrom be readjusted
among its components to enable it to resist the added strain of the increase in taxes
that it had to sustain.

The subject tax is levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry. In other words, the
act is primarily a valid exercise of police power.

Commissioner of Internal Revenue v Gotamco (1987)

CIR v Gotamco

GR No L-31092, February 27, 1987

FACTS:

The World Health Organization (WHO) decided to construct a building to house its
offices, as well as the other United

Nations Offices in Manila. Inviting bids for the construction of the building, the WHO
informed the bidders of its tax exemptions. The contract was awarded to John
Gotamco and sons. The Commissioner opined that a 3% contractor’s tax should be
due from the contractor. The WHO issued a certification that Gotamco should be
exempted, but the Commissioner insisted on the tax. Raised in the Court of Tax
Appeals, the Court ruled in favor of Gotamco.

ISSUE:

Is Gotamco liable for the tax?

RULING:

No. Direct taxes are those that are demanded from the very person who, it is
intended or desired, should pay them; while indirect taxes are those that are
demanded in the first instance from one person in the expectation and intention
that he can shift the burden to someone else.

Herein, the contractor’s tax is payable by the contractor but it is the owner of the
building that shoulders the burden of the tax because the same is shifted by the
contractor to the owner as a matter of self-preservation. Such tax is an “indirect tax”
on the organization, as the payment thereof or its inclusion in the bid price would
have meant an increase in the construction cost of the building.

Hence, WHO’s exemption from “indirect taxes” implies that Gotamco is exempt from
contractor’s tax.

Villanueva v City of Iloilo (1968)

Villanueva v City v Iloilo

GR No L-26521, December 28, 1968

FACTS:

On September 30, 1946, the Municipal Board of Iloilo City enacted Ordinance 86
imposing license tax fees upon

tenement houses. The validity of such ordinance was challenged by Eusebio and
Remedios Villanueva, owners of four tenement houses containing 34 apartments.
The Supreme Court held the ordinance to be ultra views. On January 15, 1960,
however, the municipal board, believing that it acquired authority to enact an
ordinance of the same nature pursuant to the Local Autonomy Act, enacted
Ordinance 11, Eusebio and Remedios Villanueva assailed the ordinance anew.

ISSUE:

Does Ordinance 11 violate the rule of uniformity of taxation?

RULING:

No. The Court has ruled the tenement houses constitute a distinct class of property
and that taxes are uniform and equal when imposed upon all property of the same
class or character within the taxing authority.

The fact that the owners of the other classes of buildings in Iloilo are not imposed
upon by the ordinance, or that tenement taxes are imposed in other cities do not
violate the rule of equality and uniformity. The rule does not require that taxes for the
same purpose should be imposed in different territorial subdivisions at the same time.
So long as the burden of tax falls equally and impartially on all owners or operators
of tenement houses similarly classified or situated, equality and uniformity is
accomplished. The presumption that tax statutes are intended to operate uniformly
and equally was not overthrown therein.

ASSOCIATION OF CUSTOM BROKERS, INC. vs. MUNICIPAL BOARD

G.R. No. L-4376 May 22, 1953

FACTS:

The Association of Customs Brokers, Inc., which is composed of all brokers and public
service operators of motor vehicles in the City of Manila challenge the validity
Ordinance No. 3379 on the ground that (1) while it levies a so-called property tax it is
in reality a license tax which is beyond the power of the Municipal Board of the City
of Manila; (2) said ordinance offends against the rule of uniformity of taxation; and
(3) it constitutes double taxation.

The respondents contend on their part that the challenged ordinance imposes a
property tax which is within the power of the City of Manila to impose under its
Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question
does not violate the rule of uniformity of taxation, nor does it constitute double
taxation.

ISSUE:

Whether or not the ordinance is null and void

RULING:

The ordinance infringes the rule of the uniformity of taxation ordained by our
Constitution. Note that the ordinance exacts the tax upon all motor vehicles
operating within the City of Manila. It does not distinguish between a motor vehicle
for hire and one which is purely for private use. Neither does it distinguish between a
motor vehicle registered in the City of Manila and one registered in another place
but occasionally comes to Manila and uses its streets and public highways. This is an
inequality which we find in the ordinance, and which renders it offensive to the
Constitution.

WE WA YU, Plaintiff-Appellee, vs. CITY OF LIPA, Defendant-Appellant.

DECISION

BAUTISTA ANGELO, J.:

Plaintiff is the owner and manager of a gasoline station located in the City of Lipa
where gasoline, kerosene, oil and the like are sold. He paid under protest to the city
treasurer during the period from October 24, 1952 to September 30, 1953 the
aggregate sum P733.84 as taxes levied under Ordinance No. 457-A, as amended by
Ordinance No. 462, imposing one-tenth (1/10) centavo per liter on the sale of
gasoline and one-half (1/2) centavo per liter on the sale of alcohol, gas, or
petroleum that may be made in any store or establishment within the city. To
recover the amount pain on the ground that the two ordinances are ultra vires, he
brought the present action in the Court of First Instance of Batangas. The City of Lipa
put up the defense that the ordinances are valid because they were enacted
pursuant to the power granted to it by its Charter, Republic Act No. 162.

The parties submitted a joint motion for judgment on the pleadings, and on May 27,
1954, the court rendered judgment declaring the ordinances ultra vires and ordering
Defendant to reimburse to Plaintiff the amount of P733.84 and such other fees as
Plaintiff may have paid after the filing of the complaint. Defendant took the case
directly to this Court.

Ordinance No. 457-A, as amended by Ordinance No. 462, of the City of Lipa,
provides in section 1 as follows:chanroblesvirtuallawlibrary

“SECTION 1. — There is hereby imposed a tax of one tenth (1/10) centavo per liter on
the sale of gasoline and one-half (1/2) centavo per liter on the sale of alcohol, gas,
petroleum, or all of any kindered type of combustible liquid made in any store or
establishment by any person or entity within the City of Lipa.”

The above ordinances were enacted pursuant to section 15, paragraph (p), of
Republic Act No. 162, otherwise known as Charter of the City of Lipa, which
reads:chanroblesvirtuallawlibrary

“SEC. 15. General powers and duties of the Board. — Except as otherwise provided
by law, and subject to the conditions and limitations thereof, the Municipal Board
shall have the following legislative powers:chanroblesvirtuallawlibrary

(p) To tax, fix the license fee for, regulate the business and fix the location of, match
factories, blacksmith shops, foundries, steam boilers, lumber yards, shipyards, the
storage and sale of gunpowder, tar, pitch, resin, coal, oil, gasoline, benzine,
turpentine, hemp, cotton, nitroglycerine, petroleum, or any of the products thereof,
and of all other highly combustible or explosive materials, and other establishments
likely to endanger the public safety or give rise to conflagrations or explosions, and,
subject to the rules and regulations issued by the Director of Health in accordance
with law, tanneries, renderies, tallow chandleries, embalmers, and scrap factories.”

It is clear from the above that the City of Lipa is given the power and authority (1) to
tax, (2) to fix the license fee for, (3) to regulate the business, and (4) to fix the
location of cralaw the storage and sale of oil, gasoline and the like. In other words, it
is given the power to tax, fix the license fee for, or regulate the business affecting
match factories, blacksmith shops, foundries, steam boilers, lumber yards, shipyards,
the storage and the sale of oil, gasoline, petroleum and the like. It does not possess
the power to impose a tax on specific articles which may take the form of specific
tax. In order that such power may be exercised, the grant must be clear. It cannot
be implied for the reason that a municipal corporation, unlike a sovereign state,
does not possess inherent power of taxation.

It is settled that a municipal corporation, unlike a sovereign state, is clothed with no

statute must plainly show an intent to confer that power or the municipality cannot
assume it. And the power when granted is to be construed strictissimi juris. Any doubt
or ambiguity arising out of the term used in granting that power must be resolved
against the municipality. Inferences, implications, deductions — all these — have no
place in the interpretation of the taxing power of a municipal cooperations. [Icard
vs. City Council of Baguio and the City of Baguio, 48 Off. Gaz., (Supp. 11) 320; chan
roblesvirtualawlibraryMedina, et al. vs. City of Baguio, 48 Off, Gaz., No. 11, 4769].

The question now to be determined is:chanroblesvirtuallawlibrary Do the ordinances

impose merely a tax on the business of selling and storing oil, gasoline, or petroleum,
or a specific tax on the article therein enumerated?

We are inclined to uphold the latter view for the reason that the tax which they seek
to collect is imposed by “some standard of weight or measurement” and not
regardless of it. Thus, the tax imposed is 1/10 centavo per liter on the sale of gasoline
and 1/2 centavo per liter on the sale of alcohol, gas, or petroleum. And it has been
held that “A tax which imposes ‘a specific sum by the head or number, or some
standard of weight or measurement, and which requires no assessment beyond a
listing and classification of the objects to be taxed”, is a specific tax (61 C.J., 74). It is
the sense that the tax on manufactured oils and other fuels is imposed by the
National Internal Revenue Code (section 142, Commonwealth Act No. 466, as
amended by section 11, Republic Act No. 56). The tax is considered a specific tax if
the amount is imposed per liter of volume capacity.” It is therefore plain that the
enactment of the ordinances in question is ultra vires.

There is a marked parallelism between the case of Medina, et al. vs. City of Baguio,
supra and the present case. In the Medina case we said:chanroblesvirtuallawlibrary

“An examination of section 2553 (c), of the Revised Administration Code, as

amended, will reveal that the power given to the City of Baguio to tax, to license
and to regulate only refers to the business of the taxpayer and not to the articles
used in said business. This is clearly inferred from a reading of said section and from
the concluding sentence appearing therein, to wit, ‘and such other businesses,
trades and occupations as may be established or practised in the City.’ One reason
for this undoubtedly is the fact that under section 142 of the Internal Revenue Code
(Commonwealth Act No. 466, as amended by the Republic Act No. 39), most of the
products mentioned in the charter, particularly gasoline and oil, are already
specifically taxed, and under section 361 of said code, the City of Baguio gets a
share of 20 per cent of the amount of specific tax collected. At any rate, the charter
of the City of Baguio does not show plainly an intent to confer that power upon the
City of Baguio and, following the rule already adverted to, this doubt or ambiguity
must be resolved against the city. An indication of the legislative intent on this matter
is Commonwealth Act No. 472 which confers general authority upon municipal
councils to levy taxes, subject to certain limitations, wherein it was specifically
provided that the general authority so conferred shall not include ‘percentage taxes
and taxes on specified articles.’ In other words, the power to levy a percentage tax
or a specified tax has been expressly withheld. It is, therefore, our considered opinion
that Ordinance No. 100 is ultra vires and has no force and effect.”

Wherefore, the decision appealed from is affirmed, without pronouncement as to

costs.

Paras, C.J. Padilla, Montemayor, Labrador, Concepcion, Reyes, J.B.L., Endencia,

and Felix, JJ., concur.

RESOLUTION

February 25, 1957

In G.R. No. L-9167, We Wa Yu vs. City of Lipa, acting in the motion for reconsideration
filed by Appellant, the Court adopted the following
resolution:chanroblesvirtuallawlibrary

Considering that on June 14, 1956 Congress enacted Republic Act No. 1435
providing in section 4 that Municipal boards of councils may, notwithstanding the
provisions of sections one hundred and forty-two and one hundred and forty-five of
the National Internal Revenue Code, as hereinabove amended, levy an additional
tax of not exceeding twenty-five per cent of the rates fixed in said sections, on
manufactured oils sold or distributed within the limits of the city of municipality”;

Considering that the tax imposed by the ordinances in question does not go beyond
the limit of twenty-five per cent of the rates prescribed in section 142 and 145 of the
National Internal Revenue Code;

Considering that revenue acts, retroactively applied, are not open to the objection
that they infringe upon the due process of law clause of the Constitution (Republic
of the Philippines vs. Angelina Oasan, et al., supra, p. 934);

The decision of this Court dated September 27, 1956 is hereby modified by reversing
the decision appealed from and dismissing the case, without costs.
Kapatiran ng mga Naglilingkod sa Pamahalaan v Tan (1988)
Kapatiran ng mga Naglilingkod sa Pamahalaan v Tan GR No 81311 June 30, 1988

FACTS:

EO 372 was issued by the President of the Philippines which amended the Revenue
Code, adopting the value-added tax (VAT) effective January 1, 1988. Four petitions
assailed the validity of the VAT Law from being beyond the President to enact; for
being oppressive, discriminatory, regressive and violative of the due process and
equal protection clauses, among others, of the Constitution. The Integrated Customs
Brokers Association particularly contend that it unduly discriminate against customs
brokers (Section 103r) as the amended provision of the Tax Code provides that
“service performed in the exercise of profession or calling (except custom brokers)
subject to occupational tax under the Local Tax Code and professional services
performed by registered general professional partnerships are exempt from VAT.

ISSUE:

Whether the E-VAT law is void for being discriminatory against customs brokers

RULING:

No. The phrase “except custom brokers” is not meant to discriminate against custom
brokers but to avert a potential conflict between Sections 102 and 103 of the Tax
Code, as amended. The distinction of the customs brokers from the other
professionals who are subject to occupation tax under the Local Tax Code is based
on material differences, in that the activities of customs partake more of a business,
rather than a profession and were thus subjected to the percentage tax under
Section 174 of the Tax Code prior to its amendment by EO 273. EO 273 abolished the
percentage tax and replaced it with the VAT. If the Association did not protest the
classification of customs brokers then, there is no reason why it should protest now.
Roxas vs. CTA
GR No. L-25043 | April 26, 1968
Facts:

· Don Pedro Roxas and Dona Carmen Ayala, both Spanish, transmitted to their
grandchildren by hereditary succession the following properties:

a. Agricultural lands with a total area of 19,000 hectares in Nasugbu, Batangas

- Tenants who have been tilling the lands expressed their desire to purchase
from Roxas y Cia, the parcels which they actually occupied

- The govt, in line with the constitutional mandate to acquire big landed estates
and apportion them among landless tenants-farmers, persuaded the Roxas brothers
to part with their landholdings

- The brothers agreed to sell 13,500 hec to the govt for P2.079Mn, plus 300K
survey and subdivision expenses

- Unfortunately, the gov’t did not have funds

- A special arrangement was made with the Rehabilitation Finance

Corporation to advance to Roxas y Cia the amount of P1.5Mn as loan

- Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for
the same price but by installment, and contracted with the RFC to pay its loan from
the proceeds of the yearly amortizations paid by the farmers

- In 1953 and 1955, Roxas y Cia. derived from said installment payments a net
gain of P42,480.83 and P29,500.71. 50% of said net gain was reported for income tax
purposes as gain on the sale of capital asset held for more than one year pursuant
to Sec. 34 of the Tax Code

b. Residential house and lot at Wright St., Malate, Manila

- After the marriage of Antonio and Eduardo, Jose lived in the house where he
paid rentals of 8K/year to Roxas y Cia

c. Shares of stocks in different corporations

· To manage the properties, Antonio Roxas, Eduardo Roxas and Jose Roxas, the
children, formed a partnership called Roxas y Compania

· On 1958, CIR demanded from Roxas y Cia the payment of real estate dealer's
tax for 1952 amtg to P150.00 plus P10.00 compromise penalty for late payment, and
P150.00 tax for dealers of securities plus P10.00 compromise penalty for late
payment.
- Basis: house rentals received from Jose, pursuant to Art. 194 of the Tax Code
stating that an owner of a real estate who derives a yearly rental income therefrom
in the amount of P3,000.00 or more is considered a real estate dealer and is liable to
pay the corresponding fixed tax

· The Commissioner further assessed deficiency income taxes against the

brothers for 1953 and 1955, resulting from the inclusion as income of Roxas y Cia of
the unreported 50% of the net profits derived from the sale of the Nasugbu farm
lands to the tenants, and the disallowance of deductions from gross income of
various business expenses and contributions claimed by Roxas y Cia and the Roxas
brothers

· The brothers protested the assessment but was denied, thus appealing to the
CTA

· CTA decision: sustained the assessment except the demand for the payment
of the fixed tax on dealer of securities and the disallowance of the deductions for
contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de
Manresa

Issue: Should Roxas y Cia be considered a real estate dealer because it engaged in
the business of selling real estate

Ruling: NO, being an isolated transaction

· Real estate dealer: any person engaged in the business of buying, selling,
exchanging, leasing or renting property on his own account as principal and holding
himself out as a full or part-time dealer in real estate or as an owner of rental
property or properties rented or offered to rent for an aggregate amount of three
thousand pesos or more a year:

· Section 194 of the Tax Code, in considering as real estate dealers owners of
real estate receiving rentals of at least P3,000.00 a year, does not provide any
qualification as to the persons paying the rentals

· The fact that there were hundreds of vendees and them being paid for their
respective holdings in installment for a period of ten years, it would nevertheless not
make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization
period

· the sale of the Nasugbu farm lands to the very farmers who tilled them for
generations was not only in consonance with, but more in obedience to the request
and pursuant to the policy of our Government to allocate lands to the landless

· It was the duty of the Government to pay the agreed compensation after it
had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide
them among the farmers at very reasonable terms and prices. But due to the lack of
funds, Roxas y Cia. shouldered the Government's burden, went out of its way and
sold lands directly to the farmers in the same way and under the same terms as
would have been the case had the Government done it itself

· The power of taxation is sometimes called also the power to destroy. Therefore
it should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly

· Therefore, Roxas y Cia. cannot be considered a real estate dealer for the sale
in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the
farmers are capital assets, and the gain derived from the sale thereof is capital gain,
taxable only to the extent of 50%

As to the deductions

a. P40 tickets to a banquet given in honor of Sergio Osmena and P28 San Miguel
beer given as gifts to various persons – representation expenses

· Representation expenses: deductible from gross income as expenditures

incurred in carrying on a trade or business

· In this case, the evidence does not show such link between the expenses and
the business of Roxas y Cia

b. Contributions to the Pasay police and fire department and other police
departments as Christmas funds

· Contributions to the Christmas funds are not deductible for the reason that the
Christmas funds were not spent for public purposes but as Christmas gifts to the
families of the members of said entities

· Under Section 39(h), a contribution to a government entity is deductible when

used exclusively for public purposes

· As to the contribution to the Manila Police trust fund, such is an allowable

deduction for said trust fund belongs to the Manila Police, a government entity,
intended to be used exclusively for its public functions.

c. Contributions to the Philippines Herald's fund for Manila's neediest families

· The contributions were not made to the Philippines Herald but to a group of
civic spirited citizens organized by the Philippines Herald solely for charitable
purposes

· There is no question that the members of this group of citizens do not receive
profits, for all the funds they raised were for Manila's neediest families. Such a group
of citizens may be classified as an association organized exclusively for charitable
purposes mentioned in Section 30(h) of the Tax Code

d. Contribution to Our Lady of Fatima chapel at the FEU

· University gives dividends to its stockholders

· Located within the premises of the university, the chapel in question has not
been shown to belong to the Catholic Church or any religious organization
· The contributions belongs to the Far Eastern University, contributions to which
are not deductible under Section 30(h) of the Tax Code for the reason that the net
income of said university injures to the benefit of its stockholders

No deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and
Jose Roxas. For 1955 they are liable to pay deficiency income tax in the sum of
P109.00, P91.00 and P49.00, respectively

Antero Sison Jr. vs Acting BIR Commissioner Ruben Ancheta et al

G.R. No. L-59431 July 25, 1984

FACTS: Sison assails the validity of BP 135 w/c further amended Sec 21 of the National
Internal Revenue Code of 1977. The law provides that there’d be a higher tax impost
against income derived from professional income as opposed to regular income
earners. Sison, as a professional businessman, and 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.” He characterizes
the above section as arbitrary amounting to class legislation, oppressive and
capricious in character. There is a transgression of both the equal protection and due
process clauses of the Constitution as well as of the rule requiring uniformity in
taxation.

ISSUE: Whether the imposition of a higher tax rate on taxable net income derived from
business or profession than on compensation is constitutionally infirm.

HELD: The SC ruled against Sison. 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. Taxes, being the lifeblood of the government, their prompt and
certain availability is of the essence. According to the Constitution: “The rule of
taxation shall be uniform and equitable.” However, the rule of uniformity does not call
for perfect uniformity or perfect equality, because this is hardly attainable. 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. 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.” 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.

What misled Sison 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. In the case
of the gross income taxation embodied in BP 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 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.

PASCUAL vs. SECRETARY OF PUBLIC WORKS

110 PHIL 331

GR No. L-10405, December 29, 1960

"A law appropriating the public revenue is invalid if the public advantage or benefit,
derived from such expenditure, is merely incidental in the promotion of a particular
enterprise."

FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory
relief, with injunction, upon the ground that RA No. 920, which apropriates funds for
public works particularly for the construction and improvement of Pasig feeder road
terminals. Some of the feeder roads, however, as alleged and as contained in the
tracings attached to the petition, were nothing but projected and planned
subdivision roads, not yet constructed within the Antonio Subdivision, belonging to
private respondent Zulueta, situated at Pasig, Rizal; and which projected feeder
roads do not connect any government property or any important premises to the
main highway. The respondents' contention is that there is public purpose because
people living in the subdivision will directly be benefitted from the construction of the
roads, and the government also gains from the donation of the land supposed to be
occupied by the streets, made by its owner to the government.

1. Petitioner was the governor of Rizal, filed a petition assailing the validity of R.A. 920
which contains an item providing for an appropriation of P85,000.00 for the
construction and repair of a feeder road in Pasig. The said law was passed in
Congress and approved by the President.

2. The property over which the feeder road will be constructed is however owned by
Sen. Zulueta. The property was to be donated to the local government, though the
donation was made a few months after the appropriation was included in RA 920.
The petition alleged that the said planned feeder road would relieve Zulueta the
responsibility of improving the road which is inside a private subdivision.

3. The lower court (RTC) ruled that the petitioner has standing to assail the validity of
RA 920, due to the public interest involved in the appropriation. However, he does
not have a standing with respect to the donation since he does not have an interest
that will be injured by said donation, hence it dismissed the petition.

ISSUE: Should incidental gains by the public be considered "public purpose" for the
purpose of justifying an expenditure of the government?

HELD: No. It is a general rule that the legislature is without power to appropriate
public revenue for anything but a public purpose. It is the essential character of the
direct object of the expenditure which must determine its validity as justifying a tax,
and not the magnitude of the interest to be affected nor the degree to which the
general advantage of the community, and thus the public welfare, may be
ultimately benefited by their promotion. Incidental to the public or to the state,
which results from the promotion of private interest and the prosperity of private
enterprises or business, does not justify their aid by the use public money.

The test of the constitutionality of a statute requiring the use of public funds is
whether the statute is designed to promote the public interest, as opposed to the
furtherance of the advantage of individuals, although each advantage to
individuals might incidentally serve the public.

This is an old taxation case which had been covered by the 1935 Constitution.

Question: Is tax exemption which is embraced in the words "Exclusively Used for
Educational Purposes" liberally construed?

Answer: YES.

Therefore: A reasonable emphasis can be made that the tax exemption may extend
to facilities which are INCIDENTAL TO and REASONABLY NECESSARY for the
accomplishment of the main purpose (which is to educate).

Further Question: Can a ground floor of an educational institution (which is tax

exempted), being used for commercial purpose and its second floor being used for
residential purpose fall under said extension?

Further Answer: The residential issue may be qualified depending on who is residing.
The commercial issue? NO.

ABRA VALLEY COLLEGE INC. vs. AQUINO

G.R. No. L-39086 June 15, 1988

FACTS:

Abra Valley College (a private school), located at Benguet, Abra, an educational

corporation and institution of higher learning incorporated with the SEC filed a
complaint with the Benguet provincial fiscal to annul and declare void the NOTICE
OF SEIZURE and a NOTICE OF SALE of its lot and building by the municipal and
provincial treasurers for non-payment of real estate taxes and its penalties.

So a certain Paterno Mellare who probably was with Public Respondent AQUINO
(sorry I didn’t read any further) who most probably (patay to, I’m inferring once
again) are the municipal and provincial treasurers filed through counsel a motion to
dismiss the complaint.

So what the Provincial Fiscal did was they filed a memorandum for the government
where they opined that based on the evidence, the laws applicable, and previous
court decisions and jurisprudence, the school building and the school lot used for
educational purpose of Abra Valley College are exempted from payment of taxes.

The trial court disagreed. Let’s try to look at the evidence and what they found out.

You see what actually happened here was that Abra Valley College (AVC) was
renting out the ground floor of its college building to Northern Marketing Corporation
(NMC) while the second floor thereof is used by the Director of the College for
residential purposes. So this is precisely the reason why the municipal and provincial
treasurers served upon the College a “notice of seizure” and later a “notice of sale”
due to the alleged failure of the College to pay real estate taxes and penalties
thereon.

So this falls under a case of a claim for tax exemption.

ISSUE:

Was the tax imposition on the College is violative of the Constitutional prohibition
against taxation of religious, charitable, and educational entities?

Maybe we should rephrase the question. The question is, whether or not the lot and
building in question are used exclusively for educational purpose? E pinaparenta
yung ground floor eh, ginawa namang residential yung second floor. Kaya siguro
sinabe ng municipal and provincial treasurers “Pinaglololoko nyo kame, ok tataxan
namen kayo, and pag di na kayo makabayad, we will seize that property, then we
will sell it”.

RULING:

While the Court allows a more liberal and non-restrictive interpretation of the phrase
“exclusively used for educational purposes,” 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.

While the second floor’s use, as residence of the director, is incidental to education;
the lease of the first floor cannot by any stretch of imagination be considered
incidental to the purposes of education.

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

So there we go. Let's reiterate: While the use of the second floor of the main building
in the case at bar for residential purposes of the Director of the school and his family
may find justification under the concept of INCIDENTAL USE, which is complimentary
to the main or primary purpose which is educational, the lease of the first floor
thereof to the Northern Marketing Corporation cannot by any stretch of imagination
be considered incidental to the purpose of education.

So the Supreme Court affirmed the lower court ruling stating it correctly arrived at
the conclusion that the school building as well as the lot where it is built, should be
taxed. Not because of the second floor issue but of the first floor.

However since it is only a portion of its premises is used for purpose of commerce, the
high court directed that it is only fair that half of the assessed tax be returned to the
school.

American Bible Society vs. City of Manila

GR No. L-9637 | April 30, 1957

Facts:

· American Bible Society is a foreign, non-stock, non-profit, religious, missionary

corporation duly registered and doing business in the Philippines through its
Philippine agency established in Manila in November, 1898

· City of Manila is a municipal corporation with powers that are to be exercised

in conformity with the provisions of Republic Act No. 409, known as the Revised
Charter of the City of Manila

· American Bible Society has been distributing and selling bibles and/or gospel
portions throughout the Philippines and translating the same into several Philippine
dialect

· City Treasurer of Manila informed American Bible Society that it was violating
several Ordinances for operating without the necessary permit and license, thereby
requiring the corporation to secure the permit and license fees covering the period
from 4Q 1945-2Q 1953

· To avoid closing of its business, American Bible Society paid the City of Manila
its permit and license fees under protest
· American Bible filed a complaint, questioning the constitutionality and legality
of the Ordinances 2529 and 3000, and prayed for a refund of the payment made to
the City of Manila. They contended:

a. They had been in the Philippines since 1899 and were not required to pay any
license fee or sales tax

b. it never made any profit from the sale of its bibles

· City of Manila prayed that the complaint be dismissed, reiterating the

constitutionality of the Ordinances in question

· Trial Court dismissed the complaint

· American Bible Society appealed to the Court of Appeals

Issue: WON American Bible Society liable to pay sales tax for the distribution and sale
of bibles

Ruling: NO

· Under Sec. 1 of Ordinance 3000, one of the ordinance in question, person or

entity engaged in any of the business, trades or occupation enumerated under Sec.
3 must obtain a Mayor’s permit and license from the City Treasurer. American Bible
Society’s business is not among those enumerated

· However, item 79 of Sec. 3 of the Ordinance provides that all other businesses,
trade or occupation not mentioned, except those upon which the City is not
empowered to license or to tax P5.00

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

· 2 provisions of law that may have bearing on this case:

a. Chapter 60 of the Revised Administrative Code, the Municipal Board of the

City of Manila is empowered to tax and fix the license fees on retail dealers
engaged in the sale of books

b. Sec. 18(o) of RA 409: to tax and fix the license fee on dealers in general
merchandise, including importers and indentors, except those dealers who may be
expressly subject to the payment of some other municipal tax. Further, Dealers in
general merchandise shall be classified as (a) wholesale dealers and (b) retail
dealers. For purposes of the tax on retail dealers, general merchandise shall be
classified into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3)
essential commodities, and (4) miscellaneous articles. A separate license shall be
prescribed for each class but where commodities of different classes are sold in the
same establishment, it shall not be compulsory for the owner to secure more than
one license if he pays the higher or highest rate of tax prescribed by ordinance.
Wholesale dealers shall pay the license tax as such, as may be provided by
ordinance

· The only difference between the 2 provisions is the limitation as to the amount
of tax or license fee that a retail dealer has to pay per annum

· As held in Murdock vs. Pennsylvania, The power to impose a license tax on the
exercise of these freedoms provided for in the Bill of Rights, is indeed as potent as the
power of censorship which this Court has repeatedly struck down. It is not a nominal
fee imposed as a regulatory measure to defray the expenses of policing the
activities in question. It is in no way apportioned. It is flat license tax levied and
collected as a condition to the pursuit of activities whose enjoyment is guaranteed
by the constitutional liberties of press and religion and inevitably tends to suppress
their exercise. That is almost uniformly recognized as the inherent vice and evil of this
flat license tax.

· Further, the case also mentioned that the power to tax the exercise of a
privilege is the power to control or suppress its enjoyment. Those who can tax the
exercise of this religious practice can make its exercise so costly as to deprive it of
the resources necessary for its maintenance. Those who can tax the privilege of
engaging in this form of missionary evangelism can close all its doors to all those who
do not have a full purse

· Under Sec. 27(e) of Commonwealth Act No. 466 or the National Internal
Revenue Code, Corporations or associations organized and operated exclusively for
religious, charitable, . . . or educational purposes, . . .: Provided, however, That the
income of whatever kind and character from any of its properties, real or personal,
or from any activity conducted for profit, regardless of the disposition made of such
income, shall be liable to the tax imposed under this Code shall not be taxed

· The price asked for the bibles and other religious pamphlets was in some
instances a little bit higher than the actual cost of the same but this cannot mean
that American Bible Society was engaged in the business or occupation of selling
said "merchandise" for profit

· Therefore, the Ordinance cannot be applied for in doing so it would impair

American Bible Society’s free exercise and enjoyment of its religious profession and
worship as well as its rights of dissemination of religious beliefs.

Wherefore, and on the strength of the foregoing considerations, We hereby reverse

the decision appealed from, sentencing defendant return to plaintiff the sum of
P5,891.45 unduly collected from it

PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN

24 SCRA 789
GR No. L-22814, August 28, 1968
"The classification made in the exercise of power to tax, to be valid, must be
reasonable ."

FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it under

protest, to the City of Butuan, and collected by the latter, pursuant to its Municipal
Ordinance No. 110 which plaintiff assails as null and void because it partakes of the
nature of an import tax, amounts to double taxation, highly unjust and
discriminatory, excessive, oppressive and confiscatory, and constitutes an invlaid
delegation of the power to tax. The ordinance imposes taxes for every case of
softdrinks, liquors and other carbonated beverages, regardless of the volume of
sales, shipped to the agents and/or consignees by outside dealers or any person or
company having its actual business outside the City.

ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?

HELD: Yes. The tax levied is discriminatory. Even if the burden in question were
regarded as a tax on the sale of said beverages, it would still be invalid, as
discriminatory, and hence, violative of the uniformity required by the Constitution
and the law therefor, since only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not acting for or on behalf of
other merchants, regardless of the volume of their sales, and even if the same
exceeded those made by said agents or consignees of producers or merchants
established outside the City of Butuan, would be exempt from the disputed tax.

It is true that the uniformity essential to the valid exercise of the power of taxation
does not require identity or equality under all circumstances, or negate the authority
to classify the objects of taxation. The classification made in the exercise of this
authority, to be valid, must, however, be reasonable and this requirement is not
deemed satisfied unless: (1) it is based upon substantial distinctions which make real
differences; (2) these are germane to the purpose of the legislation or ordinance; (3)
the classification applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4) the classification
applies equally to all those who belong to the same class.

THE COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
LINGAYEN GULF ELECTRIC POWER CO., INC. and THE COURT OF TAX
APPEALS, respondents.
Angel Sanchez for Lingayen Electric Power Co., Inc.
Ponente: SARMIENTO
FACTS:

The respondent taxpayer operates an electric power plant serving the adjoining
municipalities of Lingayen and Binmaley, both in the province of Pangasinan,
pursuant to the municipal franchise granted it by their respective municipal councils,
under Resolution Nos. 14 and 25 of June 29 and July 2, 1946, respectively. Bureau of
Internal Revenue (BIR) assessed against and demanded from the private respondent
deficiency franchise taxes and surcharges for the years 1946 to 1954 applying the
franchise tax rate of 5% on gross receipts from March 1, 1948 to December 31, 1954
as prescribed in Section 259 of the National Internal Revenue Code, instead of the
lower rates as provided in the municipal franchises. Respondent submits that R.A.
No. 3843 is unconstitutional insofar as it provides for the payment by the private
respondent of a franchise tax of 2% of its gross receipts, while other taxpayers
similarly situated were subject to the 5% franchise tax imposed in Section 259 of the
Tax Code, thereby discriminatory and violative of the rule on uniformity and equality
of taxation. Court of tax Appeals ruled in favor of respondent.

ISSUE:

Whether or not Section 4 of R.A. No. 3843, assuming it is valid, could be given
retroactive effect so as to render uncollected taxes in question which were assessed
before its enactment.

HELD:

YES. Appealed decision was affirmed.

RATIO:

A tax is uniform when it operates with the same force and effect in every place
where the subject of it is found. Uniformity means that all property belonging to the
same class shall be taxed alike The Legislature has the inherent power not only to
select the subjects of taxation but to grant exemptions. Tax exemptions have never
been deemed violative of the equal protection clause. It is true that the private
respondents municipal franchises were obtained under Act No. 667 of the Philippine
Commission, but these original franchises have been replaced by a new legislative
franchise, i.e. R.A. No. 3843.

Given the validity of said law, it should be applied retroactively so as to render

uncollectible the taxes in question which were assessed before its enactment. The
question of whether a statute operates retrospectively or only prospectively
depends on the legislative intent. In the instant case, Act No. 3843 provides that
“effective … upon the date the original franchise was granted, no other tax and/or
licenses other than the franchise tax of two per centum on the gross receipts … shall
be collected, any provision to the contrary notwithstanding.” Republic Act No. 3843
therefore specifically provided for the retroactive effect of the law.

G.R. No. L-4887 May 30, 1953

UY MATIAO & CO., INC., plaintiff-appellee, vs.
THE CITY OF CEBU, MIGUEL RAFFIÑAN, as MAYOR; ANATOLIO
YNCLINO, as City Treasurer and JESUS E. ZABATE, as Assistant City
Treasurer of Cebu City, defendants-appellants.
City Fiscal Jose L. Abad and First Assistant City Fiscal Honorato
Garciano for appellants.
Pedro B. Uy Calderon for appellee.

PADILLA, J.:

Under the pursuant to the provisions of Ordinance No. 38, series of 1948, as
amended by Ordinance No. 46, series of 1947, of the City of Cebu, the plaintiff
appellee, a domestic corporation, paid under protest the fees for the storage in its
warehouse in the City of Cebu of copra and/or hemp and/or for engaging in buying
and/or selling copra and/or hemp in the said City provided for in said ordinance
from 20 December 1948 to 18 November 1949 amounting to P4,019.07, which,
together with the fees paid prior to December 1948 and those that may be paid
under by virtue of said ordinances, the plaintiff seeks to recover in this action after a
demands for refund had been refused by the corresponding City authorities, on the
ground that the fee imposed by said ordinance is un- authorized; constitutes a
specific tax prohibited by commonwealth Act No. 472; contravenes the national
policy and Commonwealth Act No. 733, which accept and approved the Executive
Agreement entered into by the President of the United States and the President of
the Philippines, where it is provided that no export tax shall be imposed or collected
by the Philippines on article exported to the United States; denies equal protection
of the laws; deprives the plaintiff of its property without due process of law; is unjust,
unfair, discrimatory, oppressive, arbitrary and confiscatory.

Upon the stipulation of facts and evidence presented the Court of First Instance of
Cebu rendered judgment holding Ordinance No. 38, series of 1946, and No. 46.
series of 1947, null and void; directing the City of Cebu to refund to the plaintiff the
sum of P4,019.07 paid under protest and such other sum paid after 20 December
1948 (1949), without costs. the City has appealed.

The first and main question to determine is whether the City of Cebu is authorized
under its charter (Com. Act No. 58) to impose the collect the tax or license free
provided in the ordinances in question.

Section 17, Commonwealth Act No. 58, provides:

Except as otherwise provided by law, and subject to the condition and limitation
thereof, the Municipal Board shall have the following legislative powers:

xxx xxx xxx

(m) To tax, fix the license free for, regulate the business, and fix the location of match
factories, blacksmith shops, foundries, steam boilers lumberyars, the storage and sale
of gunpowder, tar, pitch, resin, coal, oil, gasoline, benzine, turpentine, hemp, cotton,
nitroglycerine, petrolium, or any of the products thereof and of all other highly
combustible or explosive materials, and other establishment likely to endanger the
public safety or give rise to conflagrations or explotions, and subject to the provisions
of ordinances issued by the Philippine Health Service in accordance with law,
tenneries, renderies, tallow chandelries, bone factories, and soap factories.

The trial court is of the opinion that the charter of the City of Cebu does not
authorize it to impose the tax on or fix the license free for anyone engaged in the
business of buying and selling and storing copra, because (1) copra is not
mentioned in the section above-quoted; (2) it is not a highly combustible or
explosive material; and (3) the warehouse where copra is stored is not an
establishment likely to endanger the public safety or give rise to configlations or
explosions. and having arrived at the conclusion the trial court deemed it
unnecessary to pass upon the other points raised by the plaintiff, to wit: that the
ordinances are unjust confiscatory; violate the rule or uniformity of taxes; and
deprive persons subject to the tax or license free therein of their property without
due process of law.

The fact that copra is not mentioned in section 17 (m), Com. Act No. 58, does not
mean the copra is excluded, because oil is in the enumeration and the main
component ingredient or constituent part of copra, which is the dried meat of the
coconut, is oil. The substances mentioned in the section hereinbefore quoted are
haphazardly classified in the enumeration, for coal, oil, hemp and cotton cannot be
considered or classified as "all other highly combustible or explosive materials" like
gunpowder, gasoline and nitroglycerine. under the pursuant to the prevision of the
charter hereinbefore quoted, the City of City is Authorized "to tax, fix the license fee
for, regulate the business and fix the location of match factories . . ., the storage of
sale of gunpowder . . ., oil, . . ., and other establishments likely to endanger the
public safety or give rise to conflagration or explotions . . . ." There is then an express
authority of the city of Cebu Tax, fix the license fee for regulate the business and fix
the location of match factories, etc., the storage and sale of gun powder, oil, etc.,
and other establishments likely to endanger the public safety or give rise to the
conflagrations or explosions. Not only has the city of Cebu the power to tax, fix the
license fee for, regulate the business and fix the location for fix the license fee for,
regulate the business and fix the location of other establishments likely to endanger
the public safety or give rise to conflagrations or explosions. There is no question that
under its charter the City of Cebu May Tax or impose a license fee on any person,
firm or corporation engaged in the business of buying and selling the storing copra in
a warehouse located in the city, oil being the main component ingredient of copra,
house used for keeping or storing copra is an establishment likely to endanger the
public safety or likely to give rise to conflagrations or explosions or explosions. True,
copra is not highly combustible or explosive material, but once ignited, the fire
resulting therefrom, because of oil it contains, is difficult to put under control by
water and to extinguish it the use of chemicals would be necessary. For that reason
such a warehouse is likely to endanger the public safety or likely to give rise to
configlations.

The tax or license fee in question is not specific because it does not subject directly
the produce or goods to tax but indirectly as an incident to, or in connection with,
the business to be taxed. It is a tax on the business of buying and selling or storing
copra. Section 4 of Ordinance No. 38 provides that a person, firm or corporation
engaged in the business of buying or selling copra and at the same time of keeping,
holding or storing it at his place of business, bodega or elsewhere before disposing of
it, shall pay only the license for enganging in the business of buying and selling it. It is
unnecessary to determine whether it is a tax for revenue purposes or a license free
reinburst the city for expenses incurred by it for service of supervision and issuance of
the permit and license because the City of Cebu is authorized not only to impose a
license fee but also to tax for revenue purposes.

It is contended that the ordinance Nos. 38 and 46 in question are unfair, unjust,
arbitrary and violate the principle on uniformity of taxation, the amount of tax or
license free to be collected not being based on the value but on the weight of the
product. Such tax or license fee becomes uniform by making the weight the basis
thereof as provided for in the ordinances in question. A P0.05 tax or license fee for
100 kilos of fraction thereof per month is not arbitrary but reasonable. The tax or
license fee provided for in the ordinance in question is imposed on every person,
firm, or corporation engage in the City of Cebu in business of buying and selling and
storing copra in his or its warehouse located within the city. It, as well as the
exemption,1 applies equally to all persons, firm and corporations place in similar
situation. Market fluctuation in the value of price of the merchandise, article, or
good subject to tax or license fee does not make ununiform the rate of such tax or
license fee. The fact that the price of copra has been steadily going down, whereas
that of going up, does not render the tax arbitrary. Precisely, the tax or license fee
provided for in the ordinances in question based on the weight regardless of value is
what makes the tax or fee uniform. The tax or license fee does not deprive the
owner of the copra and of the warehouse of this property without due process of
law, because it is reasonable tax or fee and it does not deprive the dealer of his
copra and the owner of the warehouse where it is kept of his property. If the copra
dealer does not want to pay the city tax or fee, he may buy and sell the store the
copra elsewhere. It is not a tax on export because it is imposed not only upon copra
to exorted but also upon copra sold and to used for domestic purposes, if stored in
any warehouse in the City of Cebu and the weight thereof is 100 kilos or more. The
tax or license fee in question is not among those prohibited or beyond the power of
the municipal councils and municipal districts council to impose, as provided for in
section 3, Commonwealth Act No. 472. Besides Commonwealth Act No. 472 applies
only to municipal council and municipal district council and not to cities Like the City
of Cebu which has it own charter.

For the foregoing reasons, the judgment appealed from is reversed, the complaint
of the plaintiff is dismissed without costs.

Eastern Theatrical Co. v Alfonso

Perfecto, J.
1949

Facts

• The Municipal Board of the City of Manila enacted Ordinance No. 2958 which
imposes a fee on the price of every admission ticket sold by theaters and other
similar amusement establishments. The fees imposed are graduated according to
the price of the ticket sold.

• Twelve corporations (Petitioners) engaged in the motion picture business

instituted a complaint in the CFI to impugn the validity of the ordinance.

• CFI upheld the validity of the ordinance and held that:

o Under Sec 2444(m) of the Revised Administrative Code (RAC), the City of
Manila had the power to enact the ordinance.

o Sec 2444(m) of the RAC was not repealed by the NIRC nor the power granted
by it withdrawn.

o Ordinance did not violate the principle of equality and uniformity of taxation.
Issues and Arguments:

1. WON ordinance was enacted beyond the charter powers of the City of
Manila?

• Petitioners: Sec 2444(m) of the Revised Administrative Code, which grants to

the City the power to regulate theaters, confers only the power to tax on business
but not on amusement.

2. WON Sec 2444(m) of the RAC has been impliedly repealed by the NIRC?

• Petitioners: Since the NIRC was passed later the RAC and since both taxing
powers cover the same field of legislation, Sec 2444(m) of the RAC must have been
repealed by the NIRC and consequently, the power to regulate theaters granted to
the City was withdrawn.

3. WON the ordinance violates the principle of equality and uniformity of

taxation enjoined by the Constitution?

• Petitioners: Ordinance does not tax other kinds of amusements (e.g. race
tracks, cockpits, cabarets, concert halls)

Held and Ratio:

1. NO. The tax imposed by Sec 2444(m) cannot be defined as and be restricted
to tax on business. The fact that said section includes theaters and similar
amusement establishments shows that the power to tax amusement is expressly
included within the power granted by Sec 2444(m).

2. NO. Both provisions of law may stand together and enforced at the same
time.

3. NO. Equality and uniformity of 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.
Petitioners cannot point out what places of amusement do not constitute a class by
themselves and which can be confused with those not included in the ordinance.

Pepsi-Cola Bottling Company of the Phils, Inc v Tanauan GR No. L-

31156, February 27, 1976

FACTS:

Pepsi Cola Bottling Company commenced a complaint with preliminary injunction

before the Court of First Instance of
Leyte for the court to declare Section 2 of RA 2264 (Local Autonomy Act)
unconstitutional as an undue delegation of taxing authority as well as to declare
Ordinances Nos 23 and 27 of municipality of Tanauan, Leyte. Municipal Ordinance
No. 23 (9/25/1962) levies and collects from softdrinks producers and manufacturers a
tax of 1/16 of a centavo for every bottle of softdrink corked. Municipal ordinance
no. 27 (10/28/1962) levies and collects on softdrinks produced or manufactured
within the territorial jurisdiction of this municipality a tax of 1 centavo on each gallon
of volume capacity. The taxes imposed are denominated as “municipal production
tax”. CFI-Leyte dismissed the complaint. Hence, this petition.

ISSUES:

Is Section 2 of RA 2264 an undue delegation of power, confiscatory and oppressive?

Do ordinances nos. 23 and 27 constitute double taxation and impose percentage or

specific taxes?

Are ordinance nos. 23 and 27 unjust and unfair?

RULING:

No. Under the New Constitution, local governments are granted the autonomous
authority to create their own sources of revenue and to levy taxes. Section 5, Article
XI provides: “Each local government unit shall have the power to create its sources
of revenue and to levy taxes, subject to such limitations as may be provided by
law.” Thus, legislative powers may be delegated to local governments in respect of
matters of local concern.

No. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27
is thus clear: it was intended as a plain substitute for the prior ordinance no. 23 and
operates as a repeal of the latter, even without words to that effect. The tax is not a
percentage tax as the volume capacity of the taxpayer’s production of softdrinks is
considered solely for purposes of determining the tax rate on the products but there
is no set ratio between volume of sales and amount of the tax. Nor can the tax
levied be treated as a specific tax. Softdrink is not one of those specified articles.

No. Municipal corporations are allowed much discretion in determining the rates of
imposable taxes. This is in line with the constitutional policy of according the widest
possible autonomy to local governments in matters of local taxation, an aspect that
is given expression in the Local Tax Code.

G.R. No. L-2947 January 11, 1951

MANILA RACE HORSE TRAINERS ASSOCIATION, INC., and JUAN T.
SORDAN, plaintiffs-appellants,
vs.
MANUEL DE LA FUENTE, defendant-appellee.
Soriano, Garde and Cervania for appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio Nañawa
for appellee.
TUASON, J.:

This action was instituted for a declaratory relief by the Manila Race Horses Trainers
Association, Inc., a non-stock corporation duly organized and existing under and by
virtue of the laws of the Philippines, who allege that they are owners of boarding
stables for race horses and that their rights as such are affected by Ordinance No.
3065 of the City of Manila approved on July 1, 1947.1 They made the Mayor of
Manila defendant and prayed that said ordinance be declared invalid as violative
of the Philippine Constitution.

The case was submitted on the pleadings, and the decision was that the ordinance
in question "is constitutional and valid and has been enacted in accordance with
the powers of the Municipal Board granted by the Charter of the City of Manila."

On appeal, the plaintiffs as appellants make three assignments of error, the first two
of which are discussed jointly in their brief under two separate topics.

First, it is maintained that the ordinance under consideration is a tax on race horses
as distinct from boarding stables. It is argued that by section 2 the basis of the
license fees "is the number of race horses kept or maintained in the boarding stables
to be paid by the maintainers at the rate of P10.00 a year for each race horse;" that
"the fee is increased correspondingly P10 for each additional race horse maintained
or fed in the stable;" and that "by the same token, an empty stable for race horse
pays no license fee at all."

The spirit, rather than the letter, of an ordinance determines the construction thereof,
and the court looks less to its words and more to the context, subject matter,
consequence and effect. Accordingly, what is within the spirit is within the ordinance
although it is not within the letter thereof, while that which is in the letter, although
not within the spirit, is not within the ordinance. (62 C. J. S., 845.) From the context of
Ordinance No. 3065, the intent to tax or license stables and not horses is clearly
manifest. The tax is assessed not on the owners of the horses but on the owners of
the stables, as counsel admit in their brief, although there is nothing, of course, to
stop stable owners from shifting the tax to the horse owners in the form of increased
rents or fees, which is generally the case.

It is also plain from the text of the whole ordinance that the number of horses is used
in the assessment purely as a method of fixing an equitable and practical
distribution of the burden imposed by the measure. Far from being obnoxious, the
method is fair and just. It is but fair and just that for a boarding stable where only one
horse is maintained proportionately less amount should be exacted than for a stable
where more horses are kept and from which greater income is derived.

We do not share plaintiff's opinion, apropos the second proposition, that the
ordinance in question is discriminatory and savors of class legislation. In taxing only
boarding stables for race horses, we do not believe that the ordinance, makes
arbitrary classification. In the case of Eastern Theatrical Co. Inc., vs. Alfonso, 46 Off.
Gaz. Supp. to No. 11, p. 303,* it was said there is equality and uniformity in taxation if
all articles or kinds of property of the same class are taxed at the same rate. Thus, it
was held in that case, that "the fact that some places of amusement are not taxed
while others, such as cinematographs, theaters, vaudeville companies, theatrical
shows, and boxing exhibitions and other kinds of amusements or places of
amusement are taxed, is not argument at all against the equality and uniformity of
tax imposition." Applying this criterion to the present case, there would be
discrimination if some boarding stables of the same class used for the same number
of horses were not taxed or were made to pay less or more than others.

From the viewpoint of economics and public policy the taxing of boarding stables
for race horses to the exclusion of boarding stables for horses dedicated to other
purposes is not indefensible. The owners of boarding stables for race horses and, for
that matter, the race horse owners themselves, who in the scheme of shifting may
carry the taxation burden, are a class by themselves and appropriately taxed where
owners of other kinds of horses are taxed less or not at all, considering that equity in
taxation is generally conceived in terms of ability to pay in relation to the benefits
received by the taxpayer and by the public from the business or property taxed.
Race horses are devoted to gambling if legalized, their owners derive fat income
and the public hardly any profit from horse racing, and this business demands
relatively heavy police supervision. Taking everything into account, the
differentiation against which the plaintiffs complain conforms to the practical
dictates of justice and equity and is not discrimatory within the meaning of the
Constitution.

One ground of attack in the court below on the constitutionality of the ordinance —
variance between the title and the subject matter — apparently has been
abandoned. In its place a new question is brought up on the appeal in the third and
last assignment of error. It is now contended, for the first time, that "the Municipal
Board of Manila (is) without power to enact ordinance taxing private stables for race
horses," and that the lower court erred in not so declaring. This assignment of error
has reference to Class B or the second sub-paragraph of section 1 of the ordinance.

Not having been raised in the pleading, this question was properly ignored, not to
say that even it had been raised it would not have been available as basis for a
declaration of nullity of the ordinance. The clause of the ordinance taxing or
licensing boarding stables for race horses does not prejudice the plaintiffs in any
material way, and it is well settled that a person who is not adversely affected by a
licensing ordinance may not attack its validity. Stated differently, he may not
complain that a licensing ordinance is invalid as against a class other than that to
which he belongs. (62 C. J. S.830, 831.) By analogy, where a municipal ordinance is
valid in some of its parts and invalid as to others and the valid parts are separable
from the invalid ones — in which latter case the valid provisions stand as operative —
the plaintiff may contest the validity of the provisions that injure his interest but not
those that do not.

We are of the opinion that the trial court committed no error and the judgment is
affirmed with costs against the plaintiff-appellants.

MORCOIN VS. CITY OF MANILA (1961, GUTIERREZ DAVID)

Facts:

• Morcoin Co. Ltd and Suter, Inc. are owners and operators of juke boxes in the
City of Manila. They pay an annual permit fee of P5 for each machine and a similar
amount when the juke box is transferred to a different location. An additional P50
per annum is added for the license fee for installation and use of each juke box,
pursuant to Ordinance 3347 Secs 773 and 774.

• The Mayor of the City of Manila then recommended the Municipal Board to
amend the said ordinance by restricting the operation of said machines within a
specified radius and making the license rates more prohibitive.

• This recommendation was embodied in Ordinance 3628 which imposes an

annual license fee of P300 , which validity was challenged by petitioners in the case
filed by the Recreation and Amusement Association of the Philippines. CFI of Manila
dismissed the action.

• Another action was instituted by the petitioners against the City of Manila,
Mayor, Treasurer and Chief of Police assailing the validity of the same Ordinance on
the ground that the license fee imposed is exorbitant, excessive, confiscatory and
disproportionate to the reasonable expenses for regulating the said machines.

• Defendants filed an answer with counterclaim for plaintiff’s failure to pay their
outstanding obligation arising from the ordinance, and by way of special defenses,
that the complaint states no cause of action since the validity of the ordinance has
already been upheld in a recent case, and that juke box operation is a non-useful
business upon which a large license fee may be imposed.

• TC declared the assailed ordinance void.

Issue: WON the license fee imposed by the Ordinance is excessive. YES

Reasoning: The power to regulate and impose license fees, though granted to the
City of Manila through its Charter, should not be construed as including the power to
impose license taxes for revenue purposes. The power to tax, when construed from
the Charter, is purely for police purposes. As such, the amount of license fees that
may be imposed on juke boxes and coin-operated machines cannot be prohibitive,
extortionate, confiscatory or in an unlawful restraint of trade, but should be
commensurate with and sufficient to cover licensing expenses.
 Furthermore, in a public hearing conducted by the Municipal Board it was
shown that the juke box operators would not make any profit by paying the P300
license fee, since the annual income would only be P211. Although the presumption
is always in favor of the validity or reasonableness of the ordinance, such
presumption must be set aside when the invalidity or unreasonableness appears on
the face of the ordinance itself or is established by proper evidence.

Obiter: Operation of juke boxes is not a non-useful occupation. It is legitimate,

harmless, and of some cultural value…

The main issue in the former case is the legal capacity of the plaintiff which
was not registered in accordance with law. Besides, the case involved the restriction
of the use of pinball machines which has deleterious effects on the city’s inhabitants.

PROGRESSIVE DEVELOPMENT CORPORATION, petitioner , vs.

QUEZON CITY, respondent
Facts:

City Council of respondent Quezon City passed an ordinance known as Market

Code of QC, which imposed a 5% supervision fee on gross receipts on rentals or
lease of privately-owned market space in QC.

In case of failure of the owners of the market spaces to pay the taxfor three
consecutive months, the City shall revoke the permit of the privately-owned market
to operate.

Petitioner Progressive Development Corporation, owner and operator of a public

market known as the "Farmers Market & Shopping Center" filed a Petition for
Prohibition with Preliminary Injunction against respondent before the CFI of Rizal on
the ground that the supervision fee or license tax imposed by the above-mentioned
ordinances is in reality a tax on income which respondent may not impose, the
same being expressly prohibited by Republic Act No. 2264, as amended.

Respondent contended that it had authority to enact the questioned ordinance.

Petitioner alleged having paid under protest the five percent (5%) tax under
Ordinance No. 9236.

TC dismissed the petition. Hence this petition.

Issue: WON the supervision fee is income tax.

Held: NEGATIVE

Although license fee is a legal concept distinguishable from tax: the former is
imposed in the exercise of police power primarily for purposes of regulation, while
the latter is imposed under the taxing power primarily for purposes of raising
revenues.

The SC held that the five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax (as distinguished from the
national income tax imposed by the National Internal Revenue Code) within the
meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee
for the regulation of the business in which the petitioner is engaged.

To be considered a license fee, the imposition must relate to an occupation or

activity that so engages the public interest in health, morals, safety, and
development as to require regulation for the protection and promotion of such
public interest; the imposition must also bear a reasonable relation to the probable
expenses of regulation, taking into account not only the costs of direct regulation
but also its incidental consequences.

In this case, the Farmers’ Market is a privately-owned market established for the
rendition of service to the general public. It warrants close supervision and control by
the City for the protection of the health of the public by insuring the maintenance of
sanitary conditions, prevention of fraud upon the buying public, etc.

Since the purpose of the ordinance is primarily regulation and not revenue
generation, the tax is a license fee. The use of the gross amount of stall rentals as
basis for determining the collectible amount of license tax does not, by itself, convert
the license tax into a prohibited tax on income.

Such basis actually has a reasonable relationship to the probable costs of regulation
and supervision of Progressive’s kind of business, since ordinarily, the higher the
amount of rentals, the higher the volume of items sold.

The gross receipts from stall rentals have been used only as a basis for computing the
fees or taxes due respondent to cover the latter's administrative expenses, i.e., for
regulation and supervision of the sale of foodstuffs to the public.

The use of the gross amount of stall rentals as basis for determining the collectible
amount of license tax, does not by itself, upon the one hand, convert or render the
license tax into a prohibited city tax on income.

The higher the volume of goods sold, the greater the extent and frequency of
supervision and inspection may be required in the interest of the buying public.

ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City,
Branch 18, is hereby AFFIRMED and the Court Resolved to DENY the Petition for lack
of merit.

COMPAÑIA GENERAL DE TABACOS DE FILIPINAS vs.

CITY OF MANILA, ET AL
G.R. No. L-16619 June 29, 1963
FACTS:

Petitioner filed an action in the CFI Manila to recover from City of Manila(City ) the
sum of P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of
liquor for the period from the third quarter of 1954 to the second quarter of 1957,
inclusive, under Ordinances Nos. 3634, 3301, and 3816.

Tabacalera's action for refund is based on the theory that, in connection with its
liquor sales, it should pay the license fees but not the municipal sales taxes; and
since it already paid the license fees aforesaid, the sales taxes paid by it —
amounting to the sum of P15,208.00 — under the three ordinances is an
overpayment made by mistake, and therefore refundable.

The City contends that for the permit issued to it Tabacalera is subject to pay the
license fees prescribed by Ordinance No. 3358, aside from the sales taxes imposed
by Ordinances Nos. 3634, 3301, and 3816.

ISSUE:

Whether or not the taxes imposed are valid

RULING:

Ordinance No. 3358 is clearly one that prescribes municipal license fees for the
privilege to engage in the business of selling liquor or alcoholic beverages. On the
other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the
sales of general merchandise, wholesale or retail, and are revenue measures
enacted by the Municipal Board of Manila by virtue of its power to tax dealers for
the sale of such merchandise.

That Tabacalera is being subjected to double taxation is more apparent than real.
As already stated what is collected under Ordinance No. 3358 is a license fee for the
privilege of engaging in the sale of liquor. On the other hand, what the three
ordinances mentioned heretofore impose is a tax for revenue purposes based on
the sales made of the same article or merchandise. It is already settled in this
connection that both a license fee and a tax may be imposed on the same business
or occupation, or for selling the same article, this not being in violation of the rule
against double taxation.
COMMISSIONER vs. BOAC

149 SCRA 395

GR No. L-65773-74 April 30, 1987

"The source of an income is the property, activity or service that produced the
income. For such source to be considered as coming from the Philippines, it is
sufficient that the income is derived from activity within the Philippines."

FACTS: Petitioner CIR seeks a review of the CTA's decision setting aside petitioner's
assessment of deficiency income taxes against respondent British Overseas Airways
Corporation (BOAC) for the fiscal years 1959 to 1971. BOAC is a 100% British
Government-owned corporation organized and existing under the laws of the
United Kingdom, and is engaged in the international airline business. During the
periods covered by the disputed assessments, it is admitted that BOAC had no
landing rights for traffic purposes in the Philippines. Consequently, it did not carry
passengers and/or cargo to or from the Philippines, although during the period
covered by the assessments, it maintained a general sales agent in the Philippines —
Wamer Barnes and Company, Ltd., and later Qantas Airways — which was
responsible for selling BOAC tickets covering passengers and cargoes. The CTA sided
with BOAC citing that the proceeds of sales of BOAC tickets do not constitute BOAC
income from Philippine sources since no service of carriage of passengers or freight
was performed by BOAC within the Philippines and, therefore, said income is not
subject to Philippine income tax. The CTA position was that income from
transportation is income from services so that the place where services are rendered
determines the source.

ISSUE: Are the revenues derived by BOAC from sales of ticket for air transportation,
while having no landing rights here, constitute income of BOAC from Philippine
sources, and accordingly, taxable?

HELD: Yes. The source of an income is the property, activity or service that produced
the income. For the source of income to be considered as coming from the
Philippines, it is sufficient that the income is derived from activity within the
Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that
produces the income. The tickets exchanged hands here and payments for fares
were also made here in Philippine currency. The site of the source of payments is the
Philippines. The flow of wealth proceeded from, and occurred within, Philippine
territory, enjoying the protection accorded by the Philippine government. In
consideration of such protection, the flow of wealth should share the burden of
supporting the government.

Iloilo Bottlers v City of Iloilo 164 SCRA 607

Topic: Situs of Taxation and Double Taxation

FACTS: Iloilo Bottlers Inc., a company in the business of bottling and selling soft drinks,
was demanded by the City of Iloilo to pay an amount of 59,505 in the form of an
license tax the city claims were due to it under an ordinance which was enacted on
January 11, 1960 known as Ordinance No. 5, Series of 1960; which provides that
manufacturers, bottlers, and distributers of soft drinks in Iloilo are subject to a
municipal license tax of 10 centavos per case of 24 bottles. Iloilo Bottling Inc asserted
however that since their plant base has moved to municipality of Pavia shortly after
the aforementioned ordinance was enacted, they are not liable for any taxes. The
city however, still demanded taxes and also demanded back taxes under the claim
that Iloilo Bottlers is still distributing in the city of Iloilo since its transfer. Iloilo Bottlers
paid the demanded license tax and back taxes under protest. After bringing the
case to court, the courts ruled in favor of Iloilo Bottlers and declared that Iloilo
Bottlers is free from liability. The city of Iloilo then appealed this ruling, hence this
case.

ISSUE: Whether or not the courts were correct in their initial ruling that Iloilo Bottlers
Inc. is free from liability and directing the city of Iloilo to refund the tax money.

HELD: No, the courts were not correct. The ruling was reversed in favor of the City of
Iloilo and Iloilo Bottlers is deemed liable for the aforementioned taxes.

RATIO: Situs of taxation (place of taxation) depends on various factors including the
nature of the tax and subject matter thereof both of which must be scrutinized to
reach a fair decision. The tax ordinance enacted by the City of Iloilo imposes a tax
on persons, firms, and corporations engaged in the business of distribution of soft-
drinks, manufacture of soft-drinks, and bottling of soft drinks within the territorial
jurisdiction of the City of Iloilo. There is no question that Iloilo Bottlers has moved out
of Iloilo City’s jurisdiction and into the municipality of Pavia where its plant now
stands therefore, the latter two conditions for taxation are no longer applicable. The
ruling now depends upon whether or not Iloilo Bottlers can be considered as
distributing its products within Iloilo city. Iloilo Bottlers disclaims liability, saying that it
does not independently distribute but rather actively sells directly to its consumers.
Distribution is therefore only incidental to its business. However, the courts find that
Iloilo Bottlers is indeed considered as distributing since while the manufacturing and
bottling occurs outside of Iloilo city, the drinks are sold in Iloilo city to consumers in a
“moving store” fashion. The transactions are considered to occur within the city. The
tax imposed under Ordinance No. 5 is an excise tax. By its nature, the power to levy
an excise tax depends upon the place where the business is done, or the
occupation is engaged in, or where the transaction took place. In this case, it is a
tax on the privilege of distributing, manufacturing or bottling soft drinks. Even though
the base of operations is at Pavia, the areas of transactions where it conducts its
business are within Iloilo city limits. The Situs for excise tax is the area of transaction,
not necessarily base of operation.

William Reagan vs Commissioner of Internal Revenue

30 SCRA 968
FACTS: William Reagan is a US citizen assigned at Clark Air Base to help provide
technical assistance to the US Air Force (USAF). In April 1960 Reagan imported a 1960
Cadillac car valued at $6,443.83. Two months later, he got permission to sell the
same car provided that he would sell the car to a US citizen or a member of the
USAF. He sold it to Willie Johnson, Jr. for $6,600.00 as shown by a Bill of Sale. The sale
took place within Clark Air Base. As a result of this transaction, the Commissioner of
Internal Revenue calculated the net taxable income of Reagan to be at P17,912.34
and that his income tax would be P2,797.00. Reagan paid the assessed tax but at
the same time he sought for a refund because he claims that he is exempt. Reagan
claims that the sale took place in “foreign soil” since Clark Air Base, in legal
contemplation is a base outside the Philippines. Reagan also cited that under the
Military Bases Agreement, he, by nature of his employment, is exempt from Philippine
taxation.

ISSUE: Is the sale considered done in a foreign soil not subject to Philippine income
tax?

HELD: No. The Philippines is independent and sovereign, its authority may be
exercised over its entire domain. There is no portion thereof that is beyond its power.
Within its limits, its decrees are supreme, its commands paramount. Its laws govern
therein, and everyone to whom it applies must submit to its terms. That is the extent
of its jurisdiction, both territorial and personal. On the other hand, there is nothing in
the Military Bases Agreement that lends support to Reagan’s assertion. The Base has
not become foreign soil or territory. This country’s jurisdictional rights therein, certainly
not excluding the power to tax, have been preserved, the Philippines merely
consents that the US exercise jurisdiction in certain cases – this is just a matter of
comity, courtesy and expediency. It is likewise noted that he indeed is employed by
the USAF and his income is derived from US source but the income derived from the
sale is not of US source hence taxable.

Villegas vs Hiu Chiong Tsai Pao Ho (1978)

Facts: The Municipal Board of Manila enacted Ordinance 6537 requiring aliens
(except those employed in the diplomatic and consular missions of foreign countries,
in technical assistance programs of the government and another country, and
members of religious orders or congregations) to procure the requisite mayor’s
permit so as to be employed or engage in trade in the City of Manila. The permit fee
is P50, and the penalty for the violation of the ordinance is 3 to 6 months
imprisonment or a fine of P100 to P200, or both.

Issue: Whether the ordinance imposes a regulatory fee or a tax.

Held: The ordinance’s purpose is clearly to raise money under the guise of regulation
by exacting P50 from aliens who have been cleared for employment. The amount is
unreasonable and excessive because it fails to consider difference in situation
among aliens required to pay it, i.e. being casual, permanent, part-time, rank-and-
file or executive.

[ The Ordinance was declared invalid as 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. Further, the ordinance does not lay down any criterion or standard to
guide the Mayor in the exercise of his discretion, thus conferring upon the mayor
arbitrary and unrestricted powers. ]

Neptali Gonzales vs Macaraig

Gonzales, together w/ 22 other senators, assailed the constitutionality of Cory’s veto

of Section 55 of the 1989 Appropriations Bill (Sec 55 FY ’89, and subsequently of its
counterpart Section 16 of the 1990 Appropriations Bill (Sec 16 FY ’90). Gonzalez
averred the following: (1) the President’s line-veto power as regards appropriation
bills is limited to item/s and does not cover provision/s; therefore, she exceeded her
authority when she vetoed Section 55 (FY ’89) and Section 16 (FY ’90) which are
provision; (2) when the President objects to a provision of an appropriation bill, she
cannot exercise the item-veto power but should veto the entire bill; (3) the item-veto
power does not carry with it the power to strike out conditions or restrictions for that
would be legislation, in violation of the doctrine of separation of powers; and (4) the
power of augmentation in Article VI, Section 25 [5] of the 1987 Constitution, has to
be provided for by law and, therefore, Congress is also vested with the prerogative
to impose restrictions on the exercise of that power.

ISSUE: Whether or not the President exceeded the item-veto power accorded by the
Constitution. Or differently put, has the President the power to veto `provisions’ of an
Appropriations Bill.

HELD: SC ruled that Congress cannot include in a general appropriations bill matters
that should be more properly enacted in separate legislation, and if it does that, the
inappropriate provisions inserted by it must be treated as “item,” which can be
vetoed by the President in the exercise of his item-veto power. The SC went one step
further and rules that even assuming arguendo that “provisions” are beyond the
executive power to veto, and Section 55 (FY ’89) and Section 16 (FY ’90) were not
“provisions” in the budgetary sense of the term, they are “inappropriate provisions”
that should be treated as “items” for the purpose of the President’s veto power.
MIAA vs. CA

Manila International Airport Authority vs. Court of Appeals

G.R. No 155650, July 20, 2006.

Carpio, J.:

Doctrine: The term “ports” includes seaports and airports. The MIAA Airport Lands
and Buildings constitute a “port” constructed by the State. Under Article 420 of the
Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion
and thus owned by the State or the Republic of the Philippines.

Facts: Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport Complex in Parañaque City. As operator of the international
airport, MIAA administers the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of
land,including the runways and buildings (“Airport Lands and Buildings”) then under
the Bureau of Air Transportation. The MIAA Charter further provides that no portion of
the land transferred to MIAA shall be disposed of through sale or any other mode
unless specifically approved by the President of the Philippines.The Office of the
Government Corporate Counsel issued Opinion No. 061, in which it said that the
Local Government Code of 1991 withdrew the exemption for real estate tax granted
to MIAA under Section 21 of the MIAA charter. Therefore, MIAA was held to be
delinquent in paying its taxes. The City of Parañaque Levied upon the properties of
MIAA, and posted invitations for public biddings of MIAA’s properties. The City of
Parañaque averred that Section 193 of the Local Government code expressly
withdrew tax exemptions from government owned and controlled corporations
(GOCCs).

Issue: Whether properties of the MIAA are subject to real estate taxes.

Held: No. In the first place, MIAA is not a GOCC, it is an instrumentality of the
government. MIAA is a government instrumentality vested with corporate powers to
perform efficiently its governmental functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested with corporate powers. As
operator of the international airport, MIAA administers the land, improvements and
equipment within the NAIA Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land, including the runways and buildings (“Airport
Lands and Buildings”) then under the Bureau of Air Transportation. The MIAA Charter
further provides that no portion of the land transferred to MIAA shall be disposed of
through sale or any other mode unless specifically approved by the President of the
Philippines.

Furthermore, Airport Lands and Buildings of MIAA are property of public dominion
and therefore owned by the State or the Republic of the Philippines. Article 419 of
the Civil Code provides, The Airport Lands and Buildings of MIAA are property of
public dominion and therefore owned by the State or the Republic of the
Philippines.

The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;

(2) Those which belong to the State, without being for public use, and are intended
for some public service or for the development of the national wealth. (Emphasis
supplied)

ARTICLE 421. All other property of the State, which is not of the character stated in
the preceding article, is patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or
for public service, shall form part of the patrimonial property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of
the Civil Code, like “roads, canals, rivers, torrents, ports and bridges constructed by
the State,” are owned by the State. The term “ports” includes seaports and airports.
The MIAA Airport Lands and Buildings constitute a “port” constructed by the State.
Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the State or the Republic of the
Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by
the public for international and domestic travel and transportation. The fact that the
MIAA collects terminal fees and other charges from the public does not remove the
character of the Airport Lands and Buildings as properties for public use. The
operation by the government of a tollway does not change the character of the
road as one for public use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the government, or only those
among the public who actually use the road through the toll fees they pay upon
using the road. The tollway system is even a more efficient and equitable manner of
taxing the public for the maintenance of public roads.

The charging of fees to the public does not determine the character of the property
whether it is of public dominion or not. Article 420 of the Civil Code defines property
of public dominion as one “intended for public use.” Even if the government collects
toll fees, the road is still “intended for public use” if anyone can use the road under
the same terms and conditions as the rest of the public. The charging of fees, the
limitation on the kind of vehicles that can use the road, the speed restrictions and
other conditions for the use of the road do not affect the public character of the
road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA
charges to airlines, constitute the bulk of the income that maintains the operations
of MIAA. The collection of such fees does not change the character of MIAA as an
airport for public use. Such fees are often termed user’s tax. This means taxing those
among the public who actually use a public facility instead of taxing all the public
including those who never use the particular public facility. A user’s tax is more
equitable — a principle of taxation mandated in the 1987 Constitution.

The Airport Lands and Buildings of MIAA, which its Charter calls the “principal airport
of the Philippines for both international and domestic air traffic,” are properties of
public dominion because they are intended for public use. As properties of public
dominion, they indisputably belong to the State or the Republic of the Philippines.

Being a property of public dominion, the properties of MIAA are beyond the
commerce of man.