Caltex Philippines, Inc.

v COA (1992)

Caltex Philippines, Inc. v Commission on Audit GR No. 92585, May 8, 1992

FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund
(OPSF), excluding that unremitted for the years 1986 and 1988, of the additional tax on petroleum
products authorized under the PD 1956. Pending such remittance, all of its claims for reimbursement from
the OPSF shall be held in abeyance. The grant total of its unremitted collections of the above tax is
P1,287,668,820.
Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the
proposal but prohibited Caltex from further offsetting remittances and reimbursements for the current and
ensuing years. Caltex moved for reconsideration but was denied. Hence, the present petition.

ISSUE:
Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex’s outstanding claims
from said funds

RULING:
No. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of
government. Taxes may be levied with a regulatory purpose to provide means for the rehabilitation and
stabilization of a threatened industry which is affected with public interest as to be within the police
power of the State.
PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer may
not offset taxes due from the claims he may have against the government. Taxes cannot be subject of
compensation because the government and taxpayer are not mutually creditors and debtors of each other
and a claim for taxes is not such a debt, demand,, contract or judgment as is allowed to be set-off.
Hence, COA decision is affirmed except that Caltex’s claim for reimbursement of underrecovery arising
from sales to the National Power Corporation is allowed.

LUTZ v. ARANETA 98 PHIL. 145 December 22,

1955

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.

Osmeña v Orbos
GR No 99886, March 31, 1993

FACTS:
President Marcos created a special account in the General Fund designated as the Oil Price Stabilization
Fund (OPSF). The OPSF was designated to reimburse oil companies for cost increases in crude oil.
Subsequently, EO 137 expanded the grounds for reimbursement to oil companies for cost underrecovery.
Now, the petition avers that the creation of the trust fund violates the Constitution that if a special tax is
collected for a specific purpose, the revenue generated as a special fund to be used only for the purpose
 indicated.

ISSUE:
Is the OPSF constitutional?

RULING:
Yes. The tax collected is not in pure exercise of the taxing power. It is levied with a regulatory purpose, to
provide a means for the stabilization of the petroleum products industry. The levy is primarily in the
exercise of the police power of the State.

CIR v Algue
GR No. L-28896, February 17, 1988

FACTS:

The BIR assessed Algue a total amount of delinquency taxes of Php 83,183.85 for the years
1958 and 1959. It contends that the company's claimed deduction of Php 75,000 in the
form of promotional fees is disallowed because it was not ordinary reasonable or necessary
business expenses. Algue filed a protest.

BIR did not take any action. So, Algue filed a petition for review with the Court of Tax
Appeals which rule in favor of Algue. Thus, the current petition.

ISSUE:
Whether the BIR correctly disallowed the deduction

RULING:
No.

The burden is on the taxpayer to prove the validity of the claimed deduction. Here, the onus
has been discharged satisfactorily. Here, the onus has been discharged satisfactorily. The
promotional fees were necessary and reasonable in the light of the efforts exerted by the
payees in the inducement of investors to venture in an experimental enterprise. Thus, the
payees should be sufficiently recompensed.

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
PHIL. GUARANTY CO., INC. v. CIR
GR No. L-22074, April 30, 1965
13 SCRA 775

FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance
contracts with foreign insurance companies not doing business in the country, thereby ceding to foreign
reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The premiums
paid by such companies were excluded by the petitioner from its gross income when it file its income tax returns
for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against
the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested the
assessment on the ground that the premiums are not subject to tax for the premiums did not constitute income
from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines,
and CIR's previous rulings did not require insurance companies to withhold income tax due from foreign
companies.

ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign
insurance companies, which deprives the government from collecting the tax due from them?

HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a
necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and
protection which a government is supposed to provide. Considering that the reinsurance premiums in question
were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges
guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the
state.
The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding of tax due on
reinsurance premiums may free the taxpayer from the payment of surcharges or penalties imposed for failure to
pay the corresponding withholding tax, but it certainly would not exculpate it from liability to pay such
withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents.

Pascual v Secretary of Public Works (1960)

Facts:
Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with injunction, upon
the ground that RA No. 920, which appropriates 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 benefittedfrom 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.

Issue:
Whether or not the incidental gains by the public be considered "public purpose" for the purpose of
justifying an expenditure of the government
Ruling:
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.

DEUTSCHE BANK AG MANILA BRANCH v. CIR, GR No. 188550, 2013-08-19

Facts:
Issues:
This Court is now confronted with the issue of whether the failure to strictly comply with
RMO No. 1-2000 will deprive persons or corporations of the benefit of a tax treaty.
Ruling:
RP-Germany Tax Treaty, which provides that where a resident of the Federal Republic of
Germany has a branch in the Republic of the Philippines, this branch may be subjected to
the branch profits remittance tax withheld at source in accordance with Philippine law but
shall not... exceed 10% of the gross amount of the profits remitted by that branch to the
head office.
By virtue of the RP-Germany Tax Treaty, we are bound to extend to a branch in the
Philippines, remitting to its head office in Germany, the benefit of a preferential rate
equivalent to 10% BPRT.
The CTA ruled that prior application for a tax treaty relief is mandatory, and noncompliance
with this prerequisite is fatal to the taxpayer's availment of the preferential tax rate.
We disagree.
Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of
international juridical double taxation, which is why they are also known as double tax treaty
or double tax agreements.
Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would indicate
a deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period.
CTA's... outright denial of a tax treaty relief for failure to strictly comply with the prescribed
period is not in harmony with the objectives of the contracting state to ensure that the
benefits granted under tax treaties are enjoyed by duly entitled persons or corporations.
Bearing in mind the rationale of tax treaties, the period of application for the availment of tax
treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the
relief as it would constitute a violation of the duty required by good faith in complying... with
a tax treaty.
denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed
period under the administrative issuance would impair the value of the tax treaty.

Province of Abra vs Hernando

GR 49336 31 August 1981
Facts: Judge Harold Hernando decided in favour of Roman Catholic Bishop of Bangued who
filed declaratory relief from real estate tax after being assessed by the Provincial Assessor of
Abra. Judge Hernando granted the exemption without hearing the side of the petitioner.
Issue: Whether or not real properties owned by RA Bangued was exempt from tax?
Decision: Under the 1935 Constitution: “Cemeteries, churches, and parsonages or
convents appurtenant thereto, and all lands, buildings, and improvements used exclusively
for religious, charitable, or educational purposes shall be exempt from taxation.” The
present Constitution added “charitable institutions, mosques, and non-profit cemeteries”
and required that for the exemption of “:lands, buildings, and improvements,” they should
not only be “exclusively” but also “actually and “directly” used for religious or charitable
purposes. The Constitution is worded differently. The change should not be ignored. It must
be duly taken into consideration. Reliance on past decisions would have sufficed were the
words “actually” as well as “directly” not added. There must be proof therefore of the actual
and direct use of the lands, buildings, and improvements for religious or charitable purposes
to be exempt from taxation.

20. VICTORIAS MILLING CO. V PPA

153 SCRA 317; August 27, 1987
FACTS: This is a petition for review on certiorari of the July 27, 1984 Decision of the Office
of the Presidential Assistant For Legal Affairs dismissing the appeal from the adverse ruling of the
Philippine Ports Authority on the sole ground that the same was filed beyond the reglementary
period.
On April 28, 1981, the Iloilo Port Manager of respondent Philippine Ports Authority (PPA for
short) wrote petitioner Victorias Milling Co., requiring it to have its tugboats and barges undergo
harbor formalities and pay entrance/clearance fees as well as berthing fees effective May 1, 1981.
PPA, likewise, requiring petitioner to secure a permit for cargo handling operations at its Da-an
Banua wharf and remit 10% of its gross income for said operations as the government's share.
Victorias Milling Co. maintained that it is except from paying PPA any fee or charge because: 1.
The wharf and its facilities are built and installed on it’s own land; 2. Repairs and maintenance
are solely paid by it; 3. Maintenance and dredging of the channel are done by the Company
personnel; 4. At not time has the government paid any centavo for such activities.
ISSUE: WON the Victorias Milling Co. claim of exception for PPA fees is meritorious.
HELD: No, the petitioners claim that there is no basis for the PPA to assess and impose the dues
and charge is devoid of merit.
As correctly stated by the Solicitor General, the fees and charges PPA collects are not for the use
of the wharf that petitioner owns but for the privilege of navigating in public waters, of entering
and leaving public harbours and berthing on public streams or waters.
As to the requirement to remit 10% of the handling charges, Section 6B-(ix) of the Presidential
Decree No. 857 authorized the PPA "To levy dues, rates, or charges for the use of the premises,
works, appliances, facilities, or for services provided by or belonging to the Authority, or any
organization concerned with port operations." This 10% government share of earnings of arrastre
and stevedoring operators is in the nature of contractual compensation to which a person desiring
to operate arrastre service must agree as a condition to the grant of the permit to operate.

Cagayan Electric Power & Light Co. Inc. v CIR GR No. L-60126, September 25, 1985

FACTS:
Cagayan Electric is a holder of a legislative franchise under RA 3247 where payment of 3% tax on gross
earning is in lieu of all taxes and assessments upon privileges. In 1968, RA 5431 amended the franchise
by making all corporate taxpayers liable for income tax. In 1969, through RA 6020, its franchise was
extended to two other towns and the tax exemption was reenacted. The commissioner required the
company to pay deficiency income taxes for the intervening period (1968-1969).

ISSUE:
Is CEPALCO liable for the tax?

RULING:
Yes. Congress could impair the company’s legislative franchise by making it liable for income tax. The
Constitution
provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public
interest so requires. However, it cannot be denied that the said 1969 assessment appears to be highly
controversial. It had reason not to pay income tax because of the tax exemption its franchise. For this
reason, it should be liable only for tax proper and should not be held liable for surcharge and interest.

Tolentino vs. Secretary of Finance G.R. No. 115455, August 25,

1994
Facts: The value-added tax (VAT) is levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services. RA 7716
seeks to widen the tax base of the existing VAT system and enhance
its administration by amending the National InternalRevenue Code. There are
various suits challenging the constitutionality of RA 7716 on various grounds.

One contention is that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution, because it is
in fact the result of the consolidation of 2 distinct bills, H. No. 11197 and S. No.
1630. There is also a contention that S. No. 1630 did not pass 3 readings as
required by the Constitution.

Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the
Constitution

Held: The argument that RA 7716 did not originate exclusively in the House
of Representatives as required by Art. VI, Sec. 24 of the Constitution will not
bear analysis. To begin with, it is not the law but the revenue bill which is
required by the Constitution to originate exclusively in the House of
Representatives. To insist that a revenue statute and not only the bill which
initiated the legislative process culminating in the enactment of the law must
substantially be the same as the House billwould be to deny the Senate’s power
not only to concur with amendments but also to propose amendments. Indeed,
what the Constitution simply means is that the initiative for filing revenue, tariff
or tax bills, bills authorizing an increase of the public debt, private bills and bills
of local application must come from the House of Representatives on the theory
that, elected as they are from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems. Nor does the
Constitution prohibit the filing in the Senate of a substitute bill in anticipation of
its receipt of the bill from the House, so long as action by the Senate as a body
is withheld pending receipt of the House bill.

The next argument of the petitioners was that S. No. 1630 did not pass 3
readings on separate days as required by the Constitution because the second
and third readings were done on the same day. But this was because the
President had certified S. No. 1630 as urgent. The presidential
certification dispensed with the requirement not only of printing but also that of
reading the bill on separate days. That upon the certification of a bill by the
President the requirement of 3 readings on separate days and of printing and
distribution can be dispensed with is supported by the weight of legislative
practice.

ABAKADA GURO PARTYLIST vs. PURISIMA-

Attrition Act of 2005, R.A. No. 9335

FACTS:

Petitioners question the Attrition Act of 2005 and contend that by establishing a system
of rewards and incentives when they exceed their revenue targets, the law
(1) transforms the officials and employees of the BIR and BOC into mercenaries and
bounty hunters; (2) violates the constitutional guarantee of equal protection as it limits
the scope of the law to the BIR and BOC; (3) unduly delegates to the President the
power to fix revenue targets without sufficient standards; and (4) violates the doctrine of
separation of powers by creating a Congressional Oversight Committee to approve the
law’s implementing rules.

ISSUE:

Is R.A. No. 9335 constitutional?

HELD:

YES. R.A. No. 9335 is constitutional, except for Section 12 of the law which creates a
Joint Congressional Oversight Committee to review the law’s IRR.

That RA No. 9335 will turn BIR and BOC employees and officials into “bounty hunters
and mercenaries” is purely speculative as the law establishes safeguards by imposing
liabilities on officers and employees who are guilty of negligence, abuses, malfeasance,
etc. Neither is the equal protection clause violated since the law recognizes a valid
classification as only the BIR and BOC have the common distinct primary function of
revenue generation. There are sufficient policy and standards to guide the President in
fixing revenue targets as the revenue targets are based on the original estimated
revenue collection expected of the BIR and the BOC.
However, the creation of a Joint Congressional Oversight Committee for the purpose of
reviewing the IRR formulated by agencies of the executive branch (DOF, DBM, NEDA,
etc.) is unconstitutional since it violates the doctrine of separation of powers since
Congress arrogated judicial power upon itself.

LLADOC VS. COMMISSIONER OF INTERNAL REVENUE [14

SCRA 292; NO.L-19201; 16 JUN 1965]

Facts: Sometime in 1957, M.B. Estate Inc., of Bacolod

City, donated10,000.00 pesos in cash to Fr. Crispin Ruiz, the parish priest of
Victorias, Negros Occidental, and predecessor of Fr. Lladoc, for the construction
of a new Catholic church in the locality. The donated amount was spent for such
purpose.

On March 3, 1958, the donor M.B. Estate filed the donor's gift tax return. Under
date of April 29, 1960. Commissioner of Internal Revenue issued an assessment
for the donee's gift tax against the Catholic Parish of Victorias of which petitioner
was the parish priest.

Issue: Whether or not the imposition of gift tax despite the fact the Fr. Lladoc
was not the Parish priest at the time of donation, Catholic Parish priest of Victorias
did not have juridical personality as the constitutional exemption for religious
purpose is valid.

Held: Yes, imposition of the gift tax was valid, under Section 22(3) Article VI
of the Constitution contemplates exemption only from payment of taxes assessed
on such properties as Property taxes contradistinguished from Excise taxes The
imposition of the gift tax on the property used for religious purpose is not a
violation of the Constitution. A gift tax is not a property by way of gift inter vivos.
The head of the Diocese and not the parish priest is the real party in interest in
the imposition of the donee's tax on the property donated to the church for
religious purpose.